Gifts to Charity Dropped 1.7 Percent Last Year, Says ‘Giving USA’

Chronicle photo by Ron Coddington

Last year was a tough one for many charities even though the overall economy was strong: Donations declined 1.7 percent, to $427.7 billion, according to the annual “Giving USA” report released Tuesday.

The drop in contributions — due largely to average Americans donating less — follows four years of sustained growth that reached a high of $435.1 billion in 2017.

A drop in total giving is relatively uncommon. “Giving USA,” which examines contributions from individuals, foundations, and corporations, noted that the decline was just the 13th drop in overall giving it had charted in the past four decades.

The decline could be a sign of trouble ahead, particularly if a recession is on the horizon and changes to the tax code cause a long-term challenge for fundraisers. Or it could be a sign that the erratic stock market in the last half of 2018, combined with uncertainty about the tax law, made last year especially difficult. Emphasizing that their results were based off of projections, researchers were careful to say that it was impossible to know yet just how concerned charities should be that giving was off last year.

Here are some key takeaways.

People are getting more tight-fisted.

Americans decreased their giving 3.4 percent from 2017 levels, dropping from $302.5 billion to $292.1 billion.

Historically, individuals have provided at least 70 percent of overall giving, but in 2018 they gave just 68 percent. Another 18 percent of contributions came from foundations and 5 percent from corporations.

One reason for the decline may have been that donors were spooked by the stock market’s nosedive in December. “Stock markets really went down at exactly the wrong moment last year,” said Thomas Kurmann, director of development at Doctors Without Borders USA.

“Even though the economy’s good, the markets have been on a rollercoaster, and that rollercoaster leads to uncertainty,” said Steve MacLaughlin, vice president for data and analytics at Blackbaud. When people don’t have a clear picture of their future, they usually forestall major financial decisions, like a large end-of-year gift, he said.

This donor hesitancy is significant because in recent years, many charities saw big donors making up for large losses in the share of middle-class donors’ giving. But that wasn’t the case last year.

“For many years, the biggest gifts — the megagifts — have been able to sustain growth and made up for the loss of household giving,” said Laura MacDonald, vice chair at the Giving USA Foundation and principal at the Benefactor Group. In 2018, however, those big contributions weren’t enough to stave off an overall drop in giving.

Outside of the “Giving USA” report, other philanthropy trackers are finding similar trends extending into 2019. The Fundraising Effectiveness Project, which measures annual fundraising rates, has seen donations from individuals continue to fall this year. In the first quarter of 2019, the number of donors shrank by nearly 6 percent, while overall donations decreased just over 2 percent.

The effects of the tax changes are unknown.

The new tax law, which doubled the standard deduction, meant that very few Americans itemized their 2018 taxes and therefore didn’t get to take advantage of the donations.

It’s estimated that in 2017, roughly a third of all U.S. households filed itemized tax returns — and therefore had access to the charitable deduction. Congressional estimates projected the tax-law would reduce that to just 12 percent of households.

The largest share of taxpayers affected are those earning $10,000 to $50,000 a year — 73 percent fewer now itemize.

But by sheer numbers, households earning $100,000 to $200,000 make up the largest group of taxpayers affected; that group saw a 63 percent drop.

Some fundraising consultants say they think donations from individuals were so much higher in 2017 than in 2018 because donors wanted to lock in their tax write-offs before the law changed.

“A lot of people, they borrowed from ’18 to pay ’17,” said Robert Sharpe, a longtime fundraising consultant.

A similar flurry of giving activity also occurred in 1986, before the last major tax-code overhaul took effect. “In ’86, the pre-giving was because of substantially higher marginal tax rates in ’86 that were reduced then in ’87,” said Patrick Rooney, an economist at Indiana University who has long studied charitable giving.

“Giving USA” notes that 1987, the year the tax revisions took effect, was one of only 13 years since 1978 when total giving did not increase. But in 1988, giving bounced back to a prolonged upward trend.

Unlike that one-year dip in giving from 1986 to 1987, Rooney said he doesn’t think the 2018 decline is a blip. Every year from now on, most Americans won’t get a tax break for giving to good causes. “The itemization effects are long-lasting,” he said.

Not everyone is convinced the tax changes have had a big impact, at least not yet.

“How much of what you’re seeing as attributable to decisions about itemizing deductions is questionable,” said Leslie Lenkowsky, professor emeritus in public affairs and philanthropy at Indiana University. He argued the decline in individual giving wasn’t as bad as some nonprofit advocates had feared. “We don’t know for sure that the sky won’t fall, but that’s true of the real sky. Chicken Little may eventually be proved right.”

“It’s still kind of the tip of the iceberg” said Suzanne Friday, vice president for legal affairs and managing director of national standards at the Council on Foundations, who estimated it may not be until next year or beyond for the full impact of the new tax code to be understood. “I’m not sure all the donors out there really understand or understood at the time how the tax reform might affect their charitable giving. It wasn’t until March or April when they sat down to do their 2018 taxes that the effects became obvious.”

Kim Klein, a fundraising consultant, said that concerns about the new law’s negative impact on charitable giving were “very overblown” because two-thirds of donors didn’t itemize and therefore couldn’t take the deduction.

But what does prompt concern is that the superrich, who benefited the most from the tax law, didn’t give enough for overall giving rates to rise.

It remains to be seen just how widespread this behavior change was. “The year to watch is 2019 because that will be the first year coming off the ’18 base,” said Sharpe.

Some charities reported anecdotal evidence of donors combining big gifts that they’d ordinarily pay out over multiple years into a single major gift in one year. This would allow a donor to exceed the standard deduction and file an itemized return.

Amy Ragan, chief development officer at the Houston Food Bank, said she heard from one donor who planned to give more in 2018 to do just that. This particular donor warned Ragan not to expect gifts in the ensuing years. “I haven’t heard that from many [donors]. That doesn’t mean there aren’t some doing it. It’s hard to know,” she said.

International-affairs groups did well.

While overall giving was down in 2018, there were some bright spots. Giving to international-affairs groups rose an estimated 7 percent, to $22.9 billion. Giving to environmental and animal organizations increased 1.2 percent, to $12.7 billion. However, these groups hold a relatively small share of overall giving, which magnifies the impact of total dollar changes.

Other findings:

• Giving to religious groups, which accounts for 30 percent of charitable giving, declined nearly 4 percent, to $124.5 billion. Religion used to account for nearly half of donations but has been persistently shrinking as a share of overall giving since the 1980s.
• Education groups raised 3.7 percent less, bringing in $58.7 billion.
• Human-service organizations received 2.7 percent less — $51.5 billion.
• Giving to health groups declined by 2.3 percent, to $40.8 billion.
• Public-society benefit organizations got 6 percent less, raising $13.2 billion. That category includes advocacy groups, United Ways, donor-advised funds, and more.
• Giving to arts, culture, and humanities nonprofits decreased by 2.1 percent, to $31.2 billion.

Foundations gave more but received less.

Foundations increased their grants to charities by 4.7 percent, to $75.86 billion. But wealthy people put $50.3 billion into foundations, a 9.1 percent decline. That may seem like a big drop, but giving to foundations jumped sharply in 2017, increasing by 33 percent, from $41.5 billion in 2016 to $55 billion.

It’s hard to know, however, if money that donors would typically put aside for grant making is truly on the decline or if it’s going into donor-advised funds for distribution later.

Unlike foundations, which are required to distribute 5 percent of their assets, donor-advised funds are not required to pay out a share of their holdings each year.

“At the end of ’17 and ’18, a lot of that money has gone into donor-advised funds, and it hasn’t been distributed to charities, so charities didn’t really see the money,” said Sharpe.

Correction: A subhead in this article has been corrected to say that foundations last year received less money from donors but gave more to charities.