April 23, 2018
Growing Reliance on Wealthy Donors Poses Risks for Nonprofits

November 27, 2016 — Massachusetts nonprofits naturally welcome and celebrate large gifts from individuals, but, according to a recently published report, growing reliance on larger and larger donations from smaller numbers of high-income, high-wealth donors could put them at risk.

A growing shift in philanthropy in the United States toward a small number of very wealthy donors increases unpredictability in funding, making it more difficult to budget and forecast income, and tilts investments toward projects favored by those donors, increasing the potential for mission distortion, according to Gilded Giving: Top-Heavy Philanthropy in an Age of Extreme Inequality.

The report, published by the Institute for Policy Studies in Washington, DC., noted that nonprofits that focus their efforts on major donors, at the expense of growing a broader base of smaller contributors, may face increasing competition with peer organizations for donations from a relatively finite pool of potential major donors.

In addition, "Large foundations are more likely than small foundations to give to specific purposes than for general operating support. So as donations shift increasingly toward larger foundations, and as foundations themselves grow larger, the proportion of donations going toward the support of specific restricted projects, as opposed to general operating support, is likely to shift as well."

Other key findings from the report include the following:
  • Charitable contributions from donors at the top of the income and wealth ladder have increased significantly over the past decade. From 2003 to 2013, itemized charitable contributions from people making $500,000 or more—roughly the top 1% of income earners in the U.S.—increased by 57%. And itemized contributions from people making $10 million or more increased by almost double that rate—104%—over the same period.

  • The number of private grant-making foundations has shown similar dramatic growth. The number of grant-making foundations in the U.S. doubled since 1993, from 43,956 to 67,736 in 2004, and to 86,726 in 2014. Between 2004 and 2014, the number of foundations increased 28% and the amount of assets held in those foundations increased 35%.

  • Over the past 10 years, charitable giving deductions from lower income donors have declined significantly, at almost the same rate that contributions from higher income donors have increased. While itemized charitable deductions from donors making $100,000 or more increased by 40%, itemized charitable deductions from donors making less than $100,000 declined by 34%.

  • The number of donors giving at typical donation levels has been steadily declining. According to one estimate, low-dollar and midrange donors to national public charities have declined by as much as 25% from 2005 to 2015. These are the people who have traditionally made up the vast majority of donor files and lists for most national nonprofits since their inception.

  • The rate of decline in small-dollar donors correlates strongly with indicators of overall economic security in the U.S., such as wages, employment, and homeownership rates. This correlation indicates that donor declines are likely due, in large part, to changing economic conditions.
“Since the last recession, the charitable sector has seen tremendous growth in giving,” said report co-author Helen Flannery. “That’s a good thing, in theory. But the growth is from donors at the top of the giving ladder, while giving from small and midlevel donors is steadily falling. And more and more giving is going into warehousing vehicles like foundations and donor-advised funds, instead of to charities on the ground.”

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