Published in Nonprofits
Nonprofits confront economic challenges to  fundraising in 2023 as community needs grow Source: National Philanthropic Trust

Nonprofits confront economic challenges to fundraising in 2023 as community needs grow

BY JOSH SPANNINGA Sunday, December 18, 2022 06:00pm

As 2023 approaches with rising interest rates and widespread predictions of at least a mild recession, some nonprofit leaders are already seeing the effects of rising consumer prices and other economic headwinds on fundraising.

Meanwhile, these leaders also say the needs of the communities they serve continue to grow in areas such as affordable housing, child care and social justice. 

Sandy Barry-Loken, vice president of community impact and investment at the Kalamazoo Community Foundation, believes economic conditions already are affecting charitable giving, especially at the individual and small donor level. 

Still, she is hopeful for 2023. 

“We have an incredibly generous community and Kalamazoo has a long history of philanthropy,” Barry-Loken said. “Our greater concern is for the individuals and families that rely on the services and programming that our partner organizations provide. These are the folks most impacted by inflation.” 

Michael Montgomery, owner of Montgomery Consulting Inc., which analyzes the nonprofit sector, expects fundraising next year to be “good, but not great.” 

He also said that inflation remaining at relatively high levels would unquestionably put a dent in broad-based giving. 

“Inflation will do that even if the economy remains otherwise strong,” Montgomery said. “If the market tanks, then that will put a dent in major giving, because that’s asset giving.” 


 Large donors, DAFs remain crucial

Montgomery believes a mild recession in 2023 — as economists predict — would affect fundraising across the board and place greater importance on large donors, which can be unpredictable sources of fundraising. 

He points to Mackenzie Scott, the former spouse of Amazon founder Jeff Bezos, as a prime example. 

“Mackenzie Scott got divorced, had a pile of money, and emerged overnight as a major donor. I think that the long term (trend) of major donors growing and becoming more important will continue,” Montgomery said. “What major giving will look like next year is even harder to project as a whole because it is so idiosyncratic.”

Increased charitable giving through donor-advised funds (DAFs) also is expected to continue in 2023. 

Joanna Donnelly Dales, vice president of donor relations for the Kalamazoo Community Foundation, says the 2017 federal Tax Cuts and Jobs Act — which caused a spike in the creation of DAFs via favorable tax treatment — will contribute to their ongoing popularity. 

“Donors can contribute a broad range of assets, including cash, publicly traded stocks, real estate, to a DAF to maximize their tax deduction,” Dales said. “Some nonprofits cannot accept complex assets but can certainly accept grants from a donor-advised fund. We partner with our donors to invest in the community and DAFs are a great way for donors to streamline their giving and maximize their impact in the community.” 

Montgomery thinks of DAFs as a family or individual’s “charitable checkbook.” The funds are held by sponsoring 501(c)(3) organizations, but individual donors recommend the grant spending. 

“Those who insist that DAFs are somehow foundations are doomed to be endlessly frustrated with them,” Montgomery said. 

Montgomery also cited the 5 percent rule, which requires private foundations to distribute 5 percent of the fair market value of their endowment to charitable purposes. While this rule applies to foundations, it does not currently apply to DAFs. 

“If our goal as a society is to get more money moving out into the world with DAFs as a tool, what we would do is we would make the DAFs individually subject to the 5 percent requirement,” Montgomery said. “I don’t think that’s going to happen in 2023, but it might happen at some point. And it wouldn’t be a terrible thing.” 


Social justice, racial equity in focus 

Montgomery also said 2023 could be a deciding year for funding social justice and equity issues, which gained prominence in 2020 following the police killing of George Floyd in Minneapolis.

“There’s all kinds of anecdotes about how hard it is for organizations led by or serving people of color to raise major individual gifts, and it’s very clear that corporate America isn’t anywhere near meeting the $30 billion they pledged for social justice causes after the George Floyd murder,” Montgomery said. “2023 (could either) be the year that people get cranked up and want to do something about these things after the delay imposed … by the pandemic, or it could be the year the whole thing fades.” 

Ciarra Adkins, founder and president of the AQUME Foundation, is cautiously hopeful that social justice giving will ramp up. The AQUME Foundation is West Michigan’s first Black-founded and Black-led foundation and is in the process of a major initial fundraising drive. 

“While I was very excited to see more national attention and genuine engagement, it’s very heartbreaking to potentially think that this will be another fad or trend in the past in a year or two,” Adkins said of the public response in 2020. “So I hope that it picks up steam in 2023, I hope that it’s genuine, and I hope that we’re working on a systemic level to embed those racial equity and inclusion policies, so even when people are putting those at the top of their agenda, we’ve done what we need to do to make sure that those movements are still going forward in a positive manner.” 

Social justice and equity issues remain an area of focus for the Kalamazoo Community Foundation. Barry-Loken also discussed the importance of supporting Black leaders, particularly Black women, as she feels they often carry the greatest load in advancing racial equity and social justice work. 

“Providing opportunities for rest, professional development and wellness are so important to help sustain leaders in this difficult work,” Barry-Loken said. 

Barry-Loken also discussed the importance of trust-based philanthropy as a framework for fundraising in 2023. Trust-based philanthropy refers to donors building a relationship with the nonprofit, often providing unrestricted or flexible funds, working over a period of time to address the needs of the funded nonprofit, and to cultivate results. 

“We continue to believe that if we are going to address longtime, systemic inequities, we have to address the inherent power dynamic between funders and nonprofits and to center authentic, open and transparent relationships in our work,” Barry-Lokens said. 

Adkins shares this sentiment, and wants to see trust-based philanthropy continue to grow, particularly involving BIPOC-run organizations. 

“More trust-based philanthropy will reduce criteria and barriers and put the money in the hands of the people who are doing that work,” Adkins said. 

Future projects

Despite potential economic challenges, nonprofit leaders are focused on growing their organizations in 2023. 

Adkins founded the AQUME Foundation in 2021 and seeks to cultivate relationships around giving among younger people of color. She specifically points to the organization’s “Philanthropy Looks Like Me” program, which is designed to provide teens and youth of color an introduction to the concept of philanthropy. 

“We’ve been very intentional about culturally relevant philanthropy for people of color in West Michigan,” Adkins said. “So for us, some of the things that we’re anticipating is to see more of a shift in how foundations are engaging with nonprofits and donors of color.”

Barry-Loken said affordable child care will be among several of the Kalamazoo Community Foundation’s key priorities in 2023. 

“We continue to be aware of the impact of the pandemic on the child care industry and know that having access to quality, affordable child care is critical to keeping parents and especially women in the workforce,” Barry-Loken said. “We are in the process of exploring opportunities to increase support for early child care centers — particularly those that are home-based in our core neighborhoods that are most accessible to kids and families of color.” 

The Kalamazoo Community Foundation is also working with 80 area partners to develop local prevention strategies in response to an uptick in gun violence, and is committed to address the need for affordable housing. 

“All of these are critical issues that require collaborative strategies throughout the community,” Barry-Loken said. 

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