Foundations face a changing landscape both in how they raise money and award grants to nonprofit organizations.
MiBiz recently brought together leaders from four West Michigan foundations to talk about the trends they see today. Participating in the roundtable discussion were:
- Mike Goorhouse, president and CEO of the Community Foundation for the Holland/Zeeland Area
- Holly Johnson, president of the Grand Rapids-based Frey Foundation
- Diana Sieger, president of the Grand Rapids Community Foundation
- Jennifer Wilson, director of the Metro Health Hospital Foundation
Here are the highlights of what they had to say.
What’s the fundraising climate like in West Michigan right now and how do you see it changing?
Sieger: Five to 10 years ago, we were still struggling with the recession and clawing our way out of that, so the fundraising climate today is very different. Fundraising slowed down considerably and the advantage to that meant we could work with donors without having our hand out, that we could love our donors without the obligatory ‘therefore we would like to have you consider the following requests.’
Twenty-five to 30 years ago, it was more about capital fundraising than anything else. Now, we’re seeing the fact that fundraising is more about the impact and programmatically what’s happening.
Goorhouse: Ten years ago, it was just a bad time to be fundraising. That’s just the reality of it. When you think about the type of capital that’s being raised, it’s also true that what you’re getting is changing a little bit, which I would say is not a positive thing. You’re getting more and more dollars from fewer and fewer people, which is a reflection of the concentration of wealth that’s happening in our country, and I think the tax law just exacerbates that.
If you look at fundraising over time and capital campaigns, it used to be you’d get 70 percent with your silent phase. Now you’re getting 95 percent over your silent phase because you’re getting 95 percent of your capital from 10 or 15 donors. That’s another trend that is out there that you can’t ignore, and we can debate whether it’s a healthy thing or not.
Johnson: How the next generation of donor is showing up is also how the next generation of grantmaker is showing up. They’re similar and things are going to look different. I think the major concern we have as a sector in fund development is the age of those who are giving to our campaigns.
Wilson: Funders are getting much more focused now than they ever were. Maybe 10 years ago, a funder would say, ‘They have a need, they have a need, they have a need, and we have this money and we can fund all of them.’ What’s happening now, more so than I’ve ever seen it before, is funders are going, ‘This is the niche we want to work in, and we want to really move the needle in this very focused area, and we’re going to get asks from all of these different areas but we’re going to focus and invest our dollars into this need.’ That wasn’t the case back then.
Has the switch to supporting specific causes increased the demands for transparency and reporting?
Sieger: Let’s be real: We’d all like to have the money given to us in an unrestricted fashion. I would say it goes to building trust and relationships. Transparency is definitely a key factor in all of that, but one of the things that I have found is when we increased and changed slightly, our direction is really being in partnership with our donors, in partnership with the nonprofits. I would love to eliminate that words ‘grantee’ and ‘grantor.’ That sets up a power dynamic that I think is artificial and somewhat arrogant, and I think what donors see is the authenticity of ‘we are really trying to address X, Y, Z issue and here are some of the ways we are doing it because we’ve been in conversation with people in the community.’ It’s communication, it’s trust, it’s relationship.
Goorhouse: I just had a conversation with a fund development staff member at a nonprofit in Holland the other day, and we were kind of debating and discussing this. They just didn’t feel that it was going to be a good idea to share that something they had tried didn’t go well. I was convinced it was the opposite. I think you can actually build more trust with your donors by being open and honest about it because they know that everything you do is not perfect. If you have a donor that thinks everything you do is exactly perfect, then they have something coming to them.
That’s a good sign, again, that we can build customer relationships. If you’re open about ‘not every grant we make is going to be 100 percent, amazing, awesome,’ that’s OK.
Sieger: One of the things that we’ve been doing so much at the Grand Rapids Community Foundation is adaptive leadership, and that is sometimes, when something does not work well or how we would like it to work, just (provide) information. It is about pivoting and realizing you just have to keep moving forward.
To Mike’s point, vulnerability shows strength, versus weakness.
Wilson: A failure is only a failure if you don’t learn from it, and these new donors are entrepreneurial. They fail. They fell down seven times, got up eight. If they’re looking at an organization and we’re just all rainbows and lollipops, that isn’t going to compel them. They want to hear how we work, and to be nimble enough to realize when we made a mistake and when we need to go back to the drawing board and pivot.
How did federal tax reform at the end of 2017 — which doubled the standard deduction for individuals and married couples — affect giving patterns?
Sieger: I don’t think we’re going to know for a while and I would say, in fact, the smart folks within our organization would basically say we may not understand the impact of that until the next tax year, until December of 2019. I’d like to be able to say that people are still going to give to organizations and follow causes that they deeply care about, and I do think that will happen. I think right now, the best thing to tell people is certainly follow the advice of their tax adviser and their financial adviser and that there are still options for qualified charitable deductions. However, I don’t think we’re really going to know until we sift this through for another few months.
Goorhouse: Over the longer time, it’s not a tailwind, it’s a headwind. You have to acknowledge that. Over time, directionally, it’s not helpful to have a fewer number of people being able to itemize their charitable gifts. Are we going to notice that monumentally this year, the next year or the next year? Not sure, but 25 years from now, you look out and say, ‘Wow, giving over a 25-year trend slowly decreased,’ can you look back and point to a moment where a lot less people are allowed to take the tax deduction for their giving? Maybe. It’s not helping the cause, put it that way.
Wilson: Without people being able to itemize — I did some research on this — it’s mostly (affecting) people who make gifts cumulatively throughout the year at the $3,000 level. And looking at the donor base, that’s a lot of people. That is the bottom two pieces of your donor pyramid.
I can go either way on this. I don’t think we’re going to know the true meaning of this for the next few years, but the people who make those gifts — the $25, then $10 — are they thinking ‘I’m going to make this gift because I get a tax deduction,’ or are they saying, ‘I’m going to make this gift because this organization is doing a great thing.’ I’m an optimist, I’m going to say they’re making it because they want to do good work in the world, not because they’re getting a tax deduction from the federal government. We’ll see. I’m an optimist and I think it’s going to be OK, but…
Goorhouse: If you look at 2015, ’16 and ’17, they were the three biggest years of charitable giving in our country’s history in total dollars. So, if ’18 is, let’s just say, a drop of 2 percent or 3 percent, or pick a number, you’re probably at 2015, 2016 levels, which again directionality is not good. In the grand scheme of nonprofit, philanthropic history, if we come in at 2015 or 2016, is that going to fundamentally change the way the nonprofits act in society? I would say no. We functioned fine for 80 years before that, but it’s the directionality that I question.
Sieger: We’re in contact — as everyone else here is — with professional advisers and have held a couple of forums with our professional advisory committee, lawyers and accountants and folks of that nature, and in terms of their clientele, they’re not seeing a mad dash that is going to have a major impact.
Goorhouse: The flip side of that is that tax cuts were trying to put money back into people’s hands that used to be in the public coffers. So if you’re someone in the $3,000 to $5,000 kind of donor range and used to itemize and aren’t anymore, there’s this question of ‘OK, I may not be able to deduct anymore,’ but in theory, they also have more money in their pockets than they used to. So what does that do to giving? Generally speaking, more money in people’s pockets means more giving, historically.
I do think one of the biggest impacts of the tax law for fundraisers is where they focus their time and energy. Kyle Caldwell, who was head of the Johnson Center at the time and now is going to be head of the Council of Michigan Foundations, makes this point very loud and clear: If you’re a fundraiser, you’re going to focus even more on the higher net worth donors where they’re totally tax deductible, they have all the same reasons as before. We’re already spending more time with high net worth families and now have one more reason to go there for dollars.
Wilson: It’s not doing anything to build the base. It’s not doing anything to build your pipeline, and planned gifts are the same conversation.
How much was the ability to get a tax deduction a driver of giving?
Wilson: The amount is determined by the tax deduction. I think the urge to give, the altruistic need to support your community or the cause you care about, it comes from your heart. But determining how much you’re going to give is oftentimes very tax driven.
Goorhouse: What we did when the tax law happened was we hosted a luncheon with financial advisers and looked them in the eye and said: Your clients are going to listen to you. If you send the message there’s no more reason to give, that’s going to impact people. If you look them in the eye and say, ‘You had 14 reasons you gave in the past because you felt it was the right thing to do, you wanted to help people, you care about an organization, you want to make the world a better place, and taxes were one of (the reasons) and we can work out a strategy that makes the most sense,’ your clients are going to keep giving. But we know that financial advisers tend to be number-focused people, so we had to keep looking them in the eye throughout the whole year and saying: Don’t sound the alarm because if you sound the alarm, your clients are going to say, well, my CPA said I’m not supposed to give anymore. That would not help the case.
When you’re reviewing a grant request, what are you looking for that would carry it forward?
Sieger: An old answer would have been a track record, meaning that they’ve been in business a long time and have proven results. It’s not that that’s not important, but what we’re looking for are some new approaches or different approaches to some social issue in particular, and working hand in hand with us on how they want to structure their response to that. What impact do they wish to see? What outcome do they wish to see?
It behooves those of us who have resources to really listen and understand, and that means seeing a good proposal that’s structured well and all that. But it’s really a sense of how are you approaching this issue in a way that you think, because of your knowledge and your experience, that it’s really going to have an impact and then giving them the opportunity to see if it does.
Wilson: What we’ve done in the past when we have someone who does not have a strong track record is we’ve asked them to work with someone who does have a strong track record. That’s why, not only as a funder but an organization that receives funds, collaboration is going to be key because we also, as a funder, look at who else is already doing this. If it is already being tackled in a really good fashion by somewhere else, why do we need to do it again over here?
Innovative approaches are always going to be attractive to funders.
Johnson: The other thing that funders should always look at is the ability of an organization to share their data with other organizations. Everybody learns something on every single thing that you do, and that’s based on relationships. Bringing the money in isn’t unlike giving it away. It’s relationships, it’s transparency and all of that, but we also have to be able to find ways to share our successes or failures with the field.
Wilson: It has to be sustainable, scalable, and it has to have positive outcomes in the niche that the funder wants to fund.
Let’s flip that question: What kills a grant request?
Goorhouse: It’s when people want to promise the world. ‘For $25,000, we’re going to solve poverty.’ To us, it’s when people just don’t feel like they’re being real or they’re full of themselves.
Sieger: What kills a grant request or any kind of relationship is being heavy handed, and really (pushing) their board members, who will connect with a community foundation to not threaten, but alert that foundation that ‘if this isn’t followed, it may have an impact on future gifts to you.’ That will kill a grant request. I have, in a very positive and constructive fashion, instructed a number of nonprofits that that is not an approach that is appreciated.
Johnson: Assuming that you’re going to get the grant based on relationship alone. There’s always all kinds of things that dovetail into that. I also will say a ridiculously high ask for a meaningful grant. You have to know they put pen to paper and did their research: What’s an average-sized grant for this organization? What’s their house limit, if this is such a thing? When you just get a ridiculous number, clearly they didn’t Google anything.
Goorhouse: I do think that it’s important to understand that foundations do try very hard to be consistent in our decision making, and we acknowledge that even though we have a lot of money, we don’t have enough money to do all the things we want to do.
We take this role very seriously and we wish as well we had more resources to do even more things because there’s more out there that we could be doing. That’s why we fundraise, so we can have more resources to do more good. I think sometimes nonprofits just don’t feel that way. I don’t know if they think we don’t take it seriously and they can’t fathom why we don’t just turn the whole bucket over to them.
Wilson: We all have spending policies and we have to abide by those spending policies. It’s not something we just make up out of the blue. These are very thought-out spending policies so that we can give out as much money as we possibly can without hurting the assets of the organization.
Sieger: (Another issue is) if an organization applies to a foundation, and I’ll use the Grand Rapids Community Foundation as the example, and they are not addressing all populations but only a sliver. Equity is our hallmark. We are looking at the world through an equity lens. That’s absolutely critical.
Johnson: The other reality is we all have limited resources and we have to say ‘no’ to some really good stuff sometimes. We are not able to fund every single proposal that comes our way. And sometimes it’s ‘no, not now.’ It’s not always a flat ‘no.’
Sieger: And guess what? We know what it feels like to have somebody say ‘no.’
We hear a lot today from businesses that their number one issue is talent. What do you do to maintain the talent pipeline of foundation leaders?
Sieger: One of the things that community foundations in Michigan are famous for, and have done for over 25 years, is we have what’s called in some parts of the state youth advisory committees. At the Grand Rapids Community Foundation, it’s the youth grant committee. We’re seeing a number of former youth committee members now finding the path into philanthropy.
Johnson: It helps here in West Michigan, going back to Grand Valley (State University), because of some of their curriculum and majors and minors you can get. When we were in school, there was no nonprofit (program) you could take. Now there really is, so we’re actually growing those people right here in our community, and that’s going to help tremendously.
Wilson: People ask all the time, ‘How did you get into fundraising? How did you get into nonprofits?’ I have the same story as everybody else my age: You fell into it. You didn’t go to school. I fell into a philanthropy job while I was in college and I just never left it. It paid my college bills. Now we have programs just for nonprofit management.
The majority of my staff, they haven’t gotten degrees in nonprofit management. They’re taking student jobs in the advancement offices and the alumni offices at the colleges they’re going to and they love it, and they stay in it.
Goorhouse: We also have an advantage over the private sector in that the younger generations want to do more with their lives than just make a paycheck. We actually are going to have an easier time attracting talent than the private sector over the next 10, 20, 30, maybe forever years because people want to feel like they’re making a difference in their daily lives. That’s what we do. In the case of us, both nonprofits and foundations, you can actually get paid to do good with your day-to-day work. That’s an amazing attraction tool that most private-sector businesses aren’t going to be able to offer the same way we can.
I think we’re going to be in the advantage side of talent attraction, particularly for younger professionals, at least for the next 10 to 20 years.
What changes do you anticipate coming to your sector in the next 10 to 20 years?
Sieger: I’ve gone through the Reagan administration where all of a sudden, federal funding, the spigot was turned off, and it actually helped improve the nonprofit sector. We realized that you do have to relate to the community, you have to market yourself. It really did ramp up the ability of the nonprofit sector to put its story out there.
Now, it is about how do we maintain relevance. Some of the largest givers in this community are passing away. How are we involving others? You may not receive the $20 million gift. It may be smaller gifts over a number of individuals and families. It just means really making sure you are in contact with a variety of people to be interested in your organization.
Goorhouse: I think there’s going to be a continued proliferation of people wanting to do things. Sometimes people lament how many nonprofits are being started. What that means is there are people out there wanting to do something and make the world a better place. That’s good. By and large, people are trying to make a difference. I just don’t see that going away.
I think we’re only going to see an uptick in the number of people who want to use some of their time, talent, treasures — all of it — to make the world a better place. What form is that going to take? I don’t care. As long as we’re doing more if it and we’re making a bigger difference, that’s progressive in my perspective.
What’s emerging in the causes that benefactors want to support, and what needs are emerging in the grant requests you get?
Sieger: We’re seeing a shift in the whole notion of impact investing, and in investing in nonprofits that are providing resources for entrepreneurs and others who may not have access to financial resources in starting businesses.
Wilson: We’re getting grants request from organizations other than nonprofits. We’re getting requests from those B Corps and from the municipalities that have really constrained budgets. It’s not just from nonprofits. It’s from those movements. It’s from all of these different organization types.
Goorhouse: Probably the issue we’ve funded the most in the last five years that we hadn’t funded much before that was mental health. If I was looking at a specific issue area that needs more infrastructure around it in terms of nonprofits, and there’s more talk and needs have risen, and we’re willing to name it and tackle it more than we used to, that’s an issue maybe 10 years ago that didn’t get a specific line item being talked about where it does now.
The baby boomers are now retiring. How’s that affecting giving and fundraising efforts?
Sieger: I’m not really seeing any dramatic shift at this point. I would say that as people grow older, where they invest in nonprofits and causes may change, and as people are retiring they’re probably looking at where can I invest my assets in the whole social cause area, versus their discretionary income.
Wilson: We have not seen any change in the boomers giving whatsoever. In fact, maybe (it) increased a little bit. I don’t suspect that will change for another good five to 10 years. They’re still the largest group of givers in this country and that’s going to take a while to change.
Goorhouse: What has the biggest potential to change, in my opinion, particularly focused on higher, major donors, and even middle-class donors, is boomers move when they retire. There’s a lot more of that happening where you worked in one community and then you retire to another community, and sometimes it’s correlated to where your kid and grandkids are.
The same thing happens the other way. There’s movement into our community of people in their 60s and early 70s who moved for no other reason than their kids and grandkids live here. How do we engage with them? It is different. When you have roots in a place, you know the landscape, you know the nonprofits, you know the community foundation. You care about that place differently. Can we create that with someone who’s in kind of a second location of their life?
That’s an interesting question for nonprofits to wrestle with: How are we engaging that demographic?