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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 2002 relative to adjusted 2001 data. The American Association of Fund Raising Counsel (AAFRC) issues an annual “Giving USA” report on charitable giving and other nonprofit sector statistics.
- 2001 was actually a far better year than AAFRC reported in its initial 2001 study. AAFRC adjusted 2001 total giving from $212.5 billion in its initial report, released in 2002, to a whopping $238.5 billion in the report released last summer.
- 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.
- Recent robust economic news reinforces and amplifies the gradual recovery begun earlier in 2003. Many major forecasters predict 4-5% GDP growth through 2004, fueled by a business recovery. Corporate giving, typically tied to revenues, can be expected to increase in 2004.
vIndividual donors may be expected to play “catch-up” in 2004 after keeping 2003 commitments steady. Gifts will come more likely from income than from assets, as investments are still recovering from 2001-2002 lows.
- Foundations are playing catch-up with their endowments and will cautiously increase grants in 2004. However, trustees and donors are adjusting to an investment climate where lower investment expectations will influence more conservative investment strategies and more modest disbursements than in the late 1990's.
Governance and Accountability
- Just as in last year's forecast, if there's a top issue for 2004 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”
- implementation of the Sarbanes-Oxley bill on corporate accountability (including three provisions applicable to nonprofits)
- 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.
Executive Compensation and Management
- Compensation of nonprofit executives and CEOs continues to outpace inflation. Professional certifications, experience, and strategic focus are demanded by more and more boards seeking a competitive edge and mission fulfillment. Boards are willing to compensate qualified talent, and the increasing professionalism of the sector is leading executives to expect compensation comparable to for-profit as well as nonprofit sector colleagues.
- However, boards will be well-cautioned to assure that compensation is reasonable and that the determination of compensation levels be well-documented. Public availability of Form 990 data makes many nonprofit executive salaries public knowledge.
- More executives will seek customized executive coaching services as their jobs continue to evolve from "senior staff person" to that of CEO, with its attendant external responsibilities and expectations of “soft skills” such as interpersonal communication, leadership, and strategic/visionary thinking.
Foundation Grantmaking
- A few instances of generous compensation of private foundation executives and trustees have focused media and Congressional scrutiny on private foundation disbursements. Proposed legislation designed to increase private foundation disbursements has been trimmed, but look for many foundations to publicize their grantmaking as well as their fiscal responsibility and stewardship in response to this external pressure.
- As noted above, foundation endowments are beginning to recover from 2001-2002 investment lows, partially due to more conservative investment policies (60% equity/40% fixed income is increasingly common). This will result in careful growth, making disbursements greater than 4-5% unlikely.
Government Support
- The federal government continues to be a large source of support for nonprofit organizations. Rapidly increasingly Federal spending has proven to be a windfall for all segments of the Federal budget, with little political interest in exercising restraint. 2004 is a Presidential election year, so expect Federal grantmaking to continue to be robust, and for the next budget and spending bills to be passed relatively quickly, despite the near parity between the political parties.
- Welfare reform legislation of the mid-1990's and the current federal attention to “faith-based and community initiatives” 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 budgets will begin to recover as state & local sales and income taxes rebound with the general economy, but expect demand for state grant support to far outstrip supply of funds as states catch up on delayed projects and continue to restructure operations to save funds.
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