However, experts forecast downward trends in 2018
Charitable giving reached record levels in 2017, surpassing $410 billion according to Giving USA. However, industry experts expect an overall decline in 2018 giving because of last year’s tax reform, which will likely reduce charitable contributions by $12.3 to $19.7 billion. In light of these trends, non-profits are advised to cultivate donor segments least affected by the new tax law, primarily major donors.
Giving USA’s comprehensive annual report released on June 12, 2018 stated that charitable giving in 2017 reached $410 billion, a 5.2% increase over 2016. A key contributor to this growth was the nearly 20% growth in the S&P 500, as well as a number of mega gifts, including Bill and Melinda Gates’s donation of $4.6 billion and Mark and Priscilla Zuckerberg’s $1.9 billion charitable contribution.
However, early measures of non-profit fundraising indicate 2018 may end very differently than 2017. Almost every charitable giving statistic tracked by the Fundraising Effectiveness Project sponsored by the Association of Fundraising Professionals revealed significant declines in the first quarter of 2018 as compared to the same period last year. Total contribution revenue dropped by 2.4%, with the number of overall donors falling by 6.3% and new donors declining by 12%. Donor retention rates also declined by 4.6% overall, with new donor retention down 18%.
“The reason we’re so concerned with these first quarter numbers for 2018 is because of what we saw in 2017,” said Jon Biedermann, vice president of DonorPerfect. “For the first three quarters of 2017, giving was way behind the pace of 2016. Only a record-breaking 4th quarter increase is why giving increased overall by the end of the year.”
Several experts believe that uncertainty about the tax reform legislation drove the final quarter surge and may be responsible for the softer than usual start to 2018. While the economy appears to benefit from the stimulus and small business optimism hit its highest reported level since the early 1980s charities may have little to celebrate.
A new report by American Enterprise Institute predicts that the new tax law, with its nearly doubled standard deduction, will trigger a decline in charitable giving by $16.3 to $17.2 billion (approximately 4%) as 27.3 million fewer taxpayers will likely itemize their deductions. This is in range with estimates from the Tax Policy Center which predicts a decline of $12.3 to $19.7 billion, and the Lilly Family School of Philanthropy which expects a $13.1 billion decrease.
“To cope with the decline in general giving, non-profit organizations must give greater attention to cultivating relationships with supporters who are least impacted by the new tax law: major donors,” advised Bob Westfall, CEO of Westfall Gold. “Wealthy individuals are not impacted by the change in standard deduction levels, and will continue to give generously as the economy grows.”
Tax reform has altered the fundraising landscape to diminish the impact of general fund donors and, with its economic stimulus, further increase the role of major donors in driving charitable work.
Insights for Westfall Gold Clients
While declining trends in donor acquisition and donor retention are not a surprise, it underscores the need for non-profit organizations to redouble their efforts to cultivate new major donor relationships and deepen existing ones. As you prepare for your major donor event, ensure that your guests represent a good mix of Potentials, Prospects, and Raving Fans. Also, ensure that healthy donor care practices remain a top priority for your leadership and development teams after the event.