News & Perspectives

A New Era of Charitable Contributions

A recent article in Governing Daily indicates that the recent tax law “could result in a $1 billion blow to social services.”  This is a potentially huge loss of income for nonprofits organizations, many of whom serve abused and neglected children within the child protection system. The article indicates that one of the reasons that people donate to a nonprofit is for the tax benefit.

The new tax code doubles the standard deduction – likely causing many people to no longer itemize their deductions, such as charitable contributions. The article states that generally 33% of nonprofits’ income is from government grants and contracts and that charitable giving is the next largest at 12%. It also states that the number of households claiming a charitable deduction could shrink from 37 million to 16 million. The resulting charitable contribution therefore “could be” $13.1 billion.

The issue revolves around two things: the motivation of donors to make charitable contributions and the cause, justification, and the methods by which nonprofits organizations receive charitable contributions.  The first, motivation of donors, is actually the question of why Americans specifically want to help someone else in need. The second, receipt of contributions, is how nonprofits market their cause and services to potential donors.

Americans are historically and internally motivated to help those in need. Marvin Olasky’s The Tragedy of American Compassion[1] documents the historical nature of that motivation. It is also simply human nature to feel good about helping others. Examples as historic as the Salvation Army bell ringers or the Red Cross or United Way initiatives - or as current as a GoFundMe account - demonstrate this motivation.

How nonprofits market their product is as varied and potentially complex as the services offered by those nonprofits. Those organizations serve a vast array of individuals in need ranging from the aged to the newborn, from the homeless to the disabled, from the addicted to the mentally ill and from the rural to urban communities. Support often comes from faith-based individuals or organizations, but having a methodology to convey the service need and the program to meet individuals’ needs must ultimately demonstrates the value.

Change is not only inevitable but necessary to ensure that specific needs, which often change, are addressed and that new or improving services are successfully meeting those needs. Often when external changes occur, systems are hesitant to respond. Organizations, like people, get comfortable doing what they do, however successful they are at it, and resist the inevitable changes that occur.

Often because of the organizational structure, which includes board of directors, staff, and supporters, not a change of funding is often as difficult  as changing service delivery. Leadership of an organization is critical in adjusting to changes in both.  Leaders must not only in understand the landscape of service needs and the necessary measurements of success, but also the funding sources, their capacity, and demands. The change in tax codes, federal and state and local, are some of the critical elements that leadership must understand and adjust to.

Given the inevitable changes in funding priorities and capacity, nonprofit leaders must always evaluate the direction and capacity of their organization to respond to changing needs and funding capacity. This is all the more important in today’s economy not only because of federal budget issues, but also because of the reevaluation of federal contracting and reimbursement processes to states and local government.

Therefore, nonprofit organizations should continually evaluate and respond to the following considerations:

  1. Service Needs and Responses. Individuals, neighborhoods, communities, and jurisdictions are always changing, therefore their needs are always changing, particularly with individuals and families in need of assistance. Counseling, therapy, or other services functioning well at one time may be ineffective later. One prominent example is the recent opioid epidemic which is challenging and threatening many jurisdictions. In the past, it may have been marijuana, crack cocaine, or meth that was challenging. Maintaining contact with, and having an understanding of, those changing needs are critical. Funding should always address those demands made by the individuals and families they serve.

  2. Measurements/Outcomes. Critical to the success, and even the existence of a nonprofit agency, is understanding the changing demands of funding sources for outcomes and metrics. Decades ago that might not have been the case – “if the program helps one child, it is worth it.” Virtually every funding source is creating and demanding outcomes and metrics to measure success as the return of the investment. Not only is the federal government making these demands but the United Way, foundations, and virtually every traditional funding source is including assessments or evaluations for success. That is no less true for donors – they want and increasingly demand to know that their donations make a difference.

  3. Balanced Funding. Nonprofits receive their tax status in part because their service to the community and their organizational chart qualifies them for special consideration. One   consideration should be their outreach to the community to provide support services to those in need. Traditionally, governmental agencies contract with nonprofit organizations because of their appeal and outreach to the community.  This comes with the understanding that the nonprofit will seek donations to further their missions and provide additional services.  The organization should always evaluate its income from funding sources for balance and stability. In many jurisdictions, government provides 70% of the income of nonprofits.[2]

  4. Expenses. Nonprofits, like other organizations, must continually evaluate their expenses to ensure that funding from whatever source not only has value but is being effectively and efficiently utilized. Nonprofits should continually evaluate all expenses to include staffing, space, utilities, office equipment and supplies, travel, education, conferences, and all other items of expenses. Utilizing the services of a professional individual or organization to evaluate expenses and to make adjustments, particularly in changing and challenging times, is even more critical. Observing what is happening in the public and private sectors in employment, consolidations, and downsizing are an important part of the leader’s responsibilities.

  5. Membership in the nonprofit organization is perhaps more critical than in other business organizations. Membership on the boards of directors should include those who are passionate about the mission of the agency, are committed to the service of those in need, understand the funding needs of the organization, are willing to contribute time and money to the success of the organization, are willing to work with the leader of the agency to continually evaluate the mission and finances of the agency, and are willing to assist in marketing and funding outreach.

  6. Nonprofit agencies, much like for-profit organizations, are often created because of the vision and passion of one individual. Often that is the result of the energy, enthusiasm, and experience of that one individual sharing that passion with others. Particularly in these changing times, nonprofits must constantly evaluate how they market their response to the identified needs. Marketing is not only the discussion of the need, but also developing a strategy to convince others of that need and the description of the funding necessary to respond. Leaders must therefore continually evaluate how they can best market their service, including finding every way possible to convey the story of those who are in need, the service they provide to meet that need, the fact that funding is an essential element in providing that service, and finally providing a story or visual representation of the need.

These are indeed changing times and they demand that nonprofit agencies are prepared to meet those challenges. Despite any change of the tax code or funding sources, nonprofits can continue to serve their communities not only by helping children and families in need, but also by allowing individuals in the community to be a part of that transformation and healing process. Only one example is the Children’s Bureau of Los Angeles and Orange County, founded in 1904. They recently held a fundraiser on the retirement of their 30-year long leader by having a “Blue Tie Gala” where 300 guests raised $525,000 for the organization. Donations will continue to be available to nonprofit organizations but, like all things that have value, they take leadership, vision, planning, and execution.

[1] Olasky, Marvin, The Tragedy of American Compassion.  Washington D.C., Regnery Gateway, 1992

[2] Alliance for Strong Families and Communities, A National Imperative: Joining Forces to Strengthen Human Services in America]. Oliver Wyman, January 2018.