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2004 Forecast for the Nonprofit Sector
Philanthropic Giving
- After steady increases during most of the 1990's, giving to philanthropy leveled off in 2001. The American Association of Fund Raising Counsel (AAFRC) issues an annual "Giving USA" report on charitable giving and other nonprofit sector statistics.
- According to the report, while the total of $212.5 billion was up from 2000, it represented a slight decline when adjusted for inflation. The effects of 9/11-related giving on overall charity were mixed. While generous Americans donated over $2 billion to 9/11-related charities, this represented only about 1% of the total donated in 2001. Concerns about the the general economy, both pre- and post-9/11, were primarily responsible for tapering off in giving in some communities.
- According to the latest “Giving USA” report, while the total of $241 billion was up from 2001, it represented a slight decline when adjusted for inflation. However, as with the 2001 data, estimates will likely be revised upwards after comprehensive 2002 tax returns are available for analysis.
- While the economy shows some signs of rebound, there are ongoing concerns by business about future overall economic growth. Corporate giving represents only about 7% of all giving in the U.S, but business attitudes and concerns affect employment, wages, and share prices - factors that do affect overall giving. Look for continued caution by business and individuals alike as they watch their investments for signs of recovery.
- ors are proving to be loyal to their traditional causes, but are wary of expanding commitments at this time.
Governance and Accountability
- If there's a top issue for 2002 and for the next few years, this has to be it. There are several factors contributing to a laser-like focus on accountability:
- proliferation of nonprofit corporations
- broad availability of charity financial reports
- reduced cost and increased sophistication of direct-response and other fundraising by charities
- increased donor skepticism about beneficial outcomes from charitable giving
- increased scrutiny of charities by increasingly assertive state attorneys general
- publication of final regulations implementing IRS Section 4958, known generally as “Intermediate Sanctions”
- passage of the Sarbanes-Oxley bill on corporate accountability
- media reports of corporate governance scandals, sometimes with a charity “angle”
- more media reports on charity-related "scandals"
- publicizing of more third-party efforts to rank charities as a service to donors
- Each of these bulleted points merits its own essay, but the combination represents irresistible momentum. Sometimes the scrutiny and expectations are unfair, especially to smaller and start-up nonprofits. However, all nonprofits will be challenged to improve their policies and procedures relating to governance, fund raising, and public scrutiny.
- This places a heavy burden on board members and executives to recruit, nominate, train, and evaluate high-quality board members at a time when demand for good board members is easily outpacing supply in many communities. Potential board members are becoming more selective in their commitments, especially when they understand that their personal responsibility - and liability - is greater than in the past.
Foundation Grantmaking
- Most foundations distribute about 5% of net assets per year. Two years ago, rapidly growing foundation investment balances prompted some to advocate increasing distributions to grantees. By 2001-2002, rapid asset growth had turned to asset shrinkage as the stock markets (in which those assets were invested) lost significant value.
- Many foundations had to curtail grants and distributions. Some foundations, like the nonprofits they support, have been inspired by current conditions to assess their grantmaking strategies and re-focus their interest areas, preferred methods, or even their overall missions and goals. Some newer foundations, and especially those based on technology-related founders & investments, have had to postpone implementing their giving altogether.
Government Support
- The federal government continues to be a large source of support for nonprofit organizations. The near-gridlock in Washington, largely unaffected by the November 2002 elections, means that federal spending will continue to outpace inflation. As in 2001-2002, few legislators will attempt to restrain programs or spending for fear of alienating their colleagues and losing support for their own favored programs.
- Welfare reform legislation of the mid-1990's and the current federal attention to "faith-based and community initiatves" are two factors influencing some limited opening of doors by the federal government to more potential applicants and projects. However, much federal government support still flows to a few large, national charities, is earmarked for particular quasi-governmental nonprofits (for example, certain substance abuse treatment centers and community health centers), or is distributed on a "formula" basis to states.
- Federal dollars distributed on a formula basis to states is one bright spot for governors faced with some of the worst budget shortfalls since World War II. State governments rely heavily on sales taxes and state income taxes, two sources of revenue adversely affected by economic uncertainty. Each state is unique, of course, but the overall trend in this area will be reduction in discretionary and new program grants, and even reductions in funds available for existing grantees.
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