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April 21, 2020

What Now? Philanthropy in the Post-COVID-19 Era and Economic Meltdown

By Caitlin Scarano

Caitlin@aluminateus.com

15 minutes

&

By Robert (Bob) Fealy

bob@aluminateus.com

If we aren’t already in a recession, we’re headed for one.

Will institutions of higher education and nonprofits see dramatic decreases in philanthropic giving? Even after social distancing measures lift, philanthropy can’t go back to “how things were.” Trying to do things the way they were done before in fundraising is unlikely to work because the transformation of every aspect of our society has already been so drastic. We’re entering a new America in a new global economy. 

Looking back at the last recession in 2008 may give us an idea of what is to come. Here, CCS Fundraising describes the impacts of the Great Recession: “8.8 million people lost their jobs, GDP fell more than 4%, and home prices deteriorated by 30%. At the same time, Americans collectively gave less to charities than they had since the 1990s.”

In addition, according to a 2012 report put out by The Russell Sage Foundation and The Stanford Center on Poverty and Inequality, “the Great Recession reduced total giving by 7.0% in 2008 and by another 6.2% in 2009.”

A post-COVID-19 recession will undoubtedly be a different beast than the Great Recession, since the cause is a pandemic and not fundamental issues in the financial markets. We acknowledge that not everything can be predicted. And still, we wonder, what lessons and insights can we glean from the past to help us navigate our uncertain economic future? 

Recession Impacts Will Be Far-Reaching and Interconnected  

In a recent article in The New York Times, Anemona Hartocollis explains that, according to a higher education trade group, institutions could face a “15 percent drop in enrollment nationwide, amounting to a $23 billion revenue loss.” What does the impact of a significant drop in enrollment look like? EAB’s Kaitlyn Maloney offered the following predictions in March:

Many institutions will struggle to meet international enrollment targetsa survey by the Institute of International Education observed that 76% of surveyed higher education institutions had already cancelled recruitment events, admissions tests, and other engagements in China

International enrollment shortfalls will strain operating budgets and exacerbate competition for domestic students across the next academic year

Some institutions will struggle to meet annual giving goals, as donors fearing market volatility tighten their purse strings and gift officers are forced to cancel in-person visits

Faculty may find their research efforts stymied by travel bans

All institutions—public or private, K-12, or higher ed—will feel the strain of a recession, should financial markets fail to quickly bounce back from the virus

So, what are institutions doing? College and university leaders are hard at work trying to understand and respond to the changes their institutions will face this year and beyond. We think leaders should ask themselves: How are we preparing our students (who will remain involved with our institution not only as alumni, but potentially in administrative leadership positions) for “black swan” events like COVID-19? (The CDC’s Colleges and Universities Pandemic Influenza Planning Checklist may be helpful for current and future contingency planning.)

What new research and pedagogical areas can our faculty focus on to better prepare future leaders for “black swan” events like COVID-19? How can we teach our students not just to react to these kinds of risks but to act to prepare for them across industries and disciplines?

Regarding fundraising specifically, there are so many thought questions that could be asked about when advancements should have contingency plans and what they should entail. For example, how do we fundraise during a pandemic? Should we fundraise if, heaven forbid, there was an act of violence or a shooting on our campus? If not, what is our role in that situation? How do we fundraiser after a major natural disaster in our area? 

Marc Andreessen, an entrepreneur, investor and software engineer, thinks it’s time to build. In his recent article, he explains that “every Western institution was unprepared for the coronavirus pandemic, despite many prior warnings. This monumental failure of institutional effectiveness will reverberate for the rest of the decade, but it’s not too early to ask why, and what we need to do about it. […] Part of the problem is clearly foresight, a failure of imagination. But the other part of the problem is what we didn’t *do* in advance, and what we’re failing to do now. And that is a failure of action…”

As one university president we spoke with recently stated: “Everyone [is calling for] expenses to be cut deeply, but I believe this shock is actually the catalyst we all needed to rethink how we deliver education of the greatest value to students and society in general.” The field of higher education must embrace the major changes that are on the way. One method is to employ the many “big brains” among faculty, alumni, and other stakeholders to scope out areas that are highly susceptible to disruption and then develop options for how to adapt. This may mean turning the status quo on its head. If enrollment and funding declines as predicted, leaders in higher education may find themselves in the impossible but inescapable position of having to cannibalize their existing programs. Now may be the right time to borrow a page from how the business world addresses challenges. 

College and university leaders must accept ways of doing things that displace and disrupt the current “products” of higher education: programs, activities, and initiatives which generate a significant portion of their revenue and income, into which large investments have been made. We’re talking about the gleaming student centers, state-of-the-art classroom auditoriums, elaborate study abroad programs, and yes, even those expensive football or basketball arenas. (Who knows when crowds of thousands will even be able to gather again?) The “college experience” in the United States is changing. What will be taken away? What will be added? How will the college experience evolve? How will institutions demonstrate to students that the new college experience is worth their time and money? 

Our recommended reading on this topic: Clayton Christensen’s The Innovator’s Dilemma and Scott Anthony’s “Combating Cannibalization Concerns” (Harvard Business Review, February 2011).

Major Donors Will Be Leery 

During a recession, giving from major donors may decline. According to a 2012 article by Holly Hall, “Giving by people with incomes of $200,000 or more fell by $31-billion from 2007 to 2009.” Targeted giving may swell, but mainly to organizations that support healthcare and social services. One approach institutions can take is to audit any areas or programs in your institution that could be relevant for targeted giving.

Boards members and university and advancement leaders should start by asking: how and where does our institution aid those areas hardest hit by the pandemic?

Look at areas such as nursing, medtech, chemistry, and biomed engineering programs, university affiliated healthcare centers or hospitals, data analytics programs doing predictive modeling of crises and responses, and career centers that serve alumni and community members who lose their jobs. Beyond the hard sciences, consider how programs in the humanities, political science, and law might help address the current crisis (and those crises to come). Next, brainstorm the best ways to direct philanthropy and support toward the programs most likely to help solve the current crisis. 

Kevin Sneader and Shubham Singhal of Kinsey & Company wrote in a recent article, “as the coronavirus reveals or heightens awareness of social fractures, business will be expected to be part of finding long-term solutions. […] The coronavirus could be the biggest global challenge since World War II. In the wake of that conflict came the question: ‘What did you do during the war?’ That question will be asked, forcefully, of both government and business, once the COVID-19 battle has been won. Business leaders need to ask it of themselves now.” We believe this expectation (of helping find systemic solutions) will also apply to colleges and universities and that advancement leadership should ask themselves the “What did you do during the war?” question now, as they build their strategic plans. 

Institutions should consider: how do you position your college or university to be a leader in your state? How do you communicate differently to your constituents now? What is the tone? How do you tell the story of “what you did during the war?” (We’re thinking of how Winston Churchill’s specific oratory style helped inspire hope during overwhelming Nazi advances and aggression in WWII.) How are you collecting data and stories now? What opportunities is your university not taking advantage of and how do you find those opportunities when you can’t even meet in the same room with your colleagues?

Are Some Major Gift Prospects Just Waiting for the Ask?

When it comes to major gifts, we recommend a combination of two approaches: strengthening the relationships you already have while working to identify new connections. For current donors, one place to start is to survey all the individuals who have given, say, at least $1,000 to your institution over the past three years. Don’t ask for gifts; instead, ask questions that help you understand how they’re thinking about philanthropy in the years to come and what conversations they’re having within their peer networks. Here are some example questions: 

>Consider yourself, your family, friends, and associates…how are you and they thinking about philanthropic giving? 
>Are you still able to support the organizations you donate to at current, lower, or higher levels?
>What do you see as the most pressing philanthropic need at this moment?
>What areas are you most interested in supporting—current programs or COVID-19 related efforts?

As for identifying and building new connections, advancement departments will benefit from a newfound laser-focus in identifying new prospective donors with both the capacity and the inclination to give (even or especially during a post-COVID-19 economic downturn). This means focusing resources and staff time on major gift pipeline growth and sustainability. Activities, programs, and events your organization has done in the past will likely fall away if they don’t contribute directly to this pipeline growth.

Even though giving among the wealthy may decline during a recession, the opposite might be true for the American middle class (prospects who could comprise your fundraising pipeline and grow to become major donors). Citing another interesting trend from the Great Recession, Alex Daniels points out that those “earning less than $100,000 gave 4.5 percent more of their income to charity” from 2006 to 2012. 

Don’t be afraid to outsource help. Institutions can benefit from working with vendors and utilizing technologies that can help improve efficiency and reduce costs. ALUMinate’s data analytics solutions can update your institution or organization’s CRM contact, demographic, professional, wealth, and social interest information and score the profiles to allow your fundraisers to identify top prospects. In light of the pandemic and the pressure higher education advancement is under, we’re currently offering special incentives, including complimentary data analytics services to smaller colleges and universities. Contact us to learn more. 

Annual Funds without an Annual Ask

Regarding annual giving, we especially like this advice from “Fundraising in a Time of economic downturn: Theory, practice and implications – An editorial call to action” by Noah Drezner: “From a team of practitioners at the University of Rochester, we learn about a new approach to the annual fund – ‘An annual fund without an annual ask’. An approach that was started before the economic downturn to identify and cultivate donors for future campaigns, they asked for multi-year commitments to the annual fund and often secured 5-year commitments ranging from US$1500 to $50 000 per year to join a newly creating giving society. An outcome of this approach was that renewals during the recession did not drop as much as expected—showing that donors maintained existing commitments through the downturn—where in past recessions researchers and practitioners, alike, reported new commitments difficult to secure” (my emphasis). 

What about Capital Campaigns?

These days, most institutions are in some phase of a capital campaign. So, how did capital campaigns fare during the last recession? According to a recent Chronicle of Philanthropy article, paraphrasing Phil Hills, President of Marts & Lundy, “During the Great Recession, institutions that were running capital campaigns or were in the process of starting them ended up raising as much money or more than they expected. […] Typically, it took an additional year or so than originally planned for groups to meet their goals. Those organizations tend to rely heavily on very large contributions.” Of course, it is too soon to tell if that trend will repeat during a post-COVID-19 recession.

If campaigns are elongated, advancement departments may benefit from emphasizing their planned giving programs. An excellent discussion of planned giving in the time of COVID-19 can be found in Eden Stiffman’s article, “Ask An Expert: Should Fundraisers Talk About Planned Giving During the Crisis?” In addition, we have a free webinar on the art of securing bequests, including cultivating relationships with planned giving prospects, as well as documenting, monitoring, and stewarding planned gifts and bequests.  

Two additional fundraising approaches to consider are “bundling” and “hybrid gifts.”  You may have heard the term bundling in political campaigns, where one individual gathers contributions from multiple donors. Is it possible that your institution’s current committed donors can find three other college friends or supporters to each commit to a $5,000 contribution over five years? If so, then your organization has managed to raise a $100,000 major gift! In a hybrid gift, part of the contribution goes to the endowment and the other part of the contribution is meant to be “spent down” over a period of time, which can supercharge the more immediate impact. For example, a $100,000 hybrid gift is allocated a) half to the permanent endowment and b) the other half to scholarships funded in equal installments over five years. The following chart shows the enhanced impact of this approach:

*Both cases assume an endowment drawdown of 5% per year and investment returns of 5% per year on the endowment principal.

Donors may be excited to provide greater funding to scholarships or other programs immediately. Don’t forget that at the end of the five-year period, the donor may be willing to “re-up” to keep the funding flowing.

There Will Be Lots of Talk About “Returning to Your Mission”—But What Does that Really Mean?

Now, more than ever, it has become apparent how much everything depends on everything else. Our systems and our lives are interconnected and, at times, fragile. Think about your institution’s mission: what does it actually mean? Does it really speak to your audience? Does your mission sound like every other institutional mission? Higher education deserves a new prism beyond overused clichés. In a post-COVID-19 recession, what does it mean to help students become global leaders, prepared workers, critical thinkers, or productive citizens? What will individuals and society really need during this time and how can those needs help drive the missions of higher education? 

As Paul Friga explains, raising tuition is no longer a viable solution “for higher education in dealing with the current economic meltdown—primarily because families cannot afford to handle the burden. Tuition at all institutions jumped nearly 30 percent from 2007-8 to 2014-15, while real median income fell roughly 6.5 percent over the same period. By 2020, student-loan debt had risen to more than $1.6 trillion, and increases in college costs and tuition have far outgrown corresponding growth in family incomes.”

Michael Poliakoff, president of the American Council of Trustees and Alumni, recently called for a massive re-envisioning and restructuring of higher education to help it survive, saying institutions need to…“Adopt a laser focus on core instructional activities and the student services necessary to enable students to learn. Work on improving graduation rates and learning outcomes so that employers and families can be confident a college degree prepares graduates for the workforce.”

There Are Reasons to Hope 

There are so many unanswered questions right now: how do people go back to work? How do we learn to collaborate and stay connected from a distance or on a smaller scale? The answers will just take time. But there will always be a demand for education and career preparation. People will always be curious and want to better themselves. As Noah Drezner points out in his 2010 research, “Typically, the impact of a recession on giving to education is not as strong, nor as consistent, as overall giving.”

The economy will have a resurgence.  According to the Center for High Impact Philanthropy at the University of Pennsylvania, “[a]s our economy has bounced back from the recession, so has philanthropy, and at a much faster rate than experts predicted: giving in 2014 rose to $358.4 billion, surpassing pre-recession rates.”

Until that time, we’ll continue to bring you relevant research and tools to help you continue to fundraise effectively. If you have questions or research requests, please reach out

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