Drakes Bay Fundraising
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Archive for December, 2012

Disruptive Demography in Atlanta, Charlotte, Chicago…

Posted by Christopher Dann
Thursday December 13, 2012
Categories: Demographics, Fundraising, Trends
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…Cleveland, Denver, Houston, New York, Philadelphia, Phoenix.

Anyone involved in raising money nationally or in any of these cities – or cities like any of them – should read and add to one’s library Alan Ehrenhalt’s The Great Inversion and the Future of the American City¹.

In his prologue, Ehrenhalt writes, “The truth is we are living at a moment in which the massive outward migration of the affluent that characterized the second half of the twentieth century is coming to an end. And we need to adjust our perceptions of cities, suburbs, and urban mobility as a result.”

With Bowling Alone, Robert Putnam helped us understand the connection between a community’s social capital and its philanthropic capacity. Alan Ehrenhalt gives us an entirely different perspective on why metropolitan areas present themselves so differently as markets for fundraising, and how they are changing.

With so many challenges close at hand, you need not be concerned (although you might be) with the future of the American City to find immediate value in The Great Inversion.

For one thing, there’s great value in knowing the demographic phenomena affecting the trends Ehrenhalt writes about. He posits that the great inversion is being prompted, for example, by a 50% increase that will occur over the coming two decades in the proportion of the population over 65 (good news for nonprofits); that while homeownership exceeded 69% in 2004 it is heading southward (not so good news); and that we are headed rapidly toward having more single-member households than households with children (news of mixed value).

While giving tends to develop during years in which people have maximum discretionary income, it tends to mature in the years that follow retirement (generally, after 65).

Homeownership has tended to correlate with community social capital stake-holding. While giving up homeownership might not make a difference among donors already committed to a community’s nonprofit organizations, the decline seems most likely to be affected by people choosing never to buy homes nor to become vested in the quality of a community’s life.

Similarly, children tend to anchor families to communities and incline parents toward communities of better social capital, while households with adult couples have consistently proved better donor households than those with single adults.

Ehrenhalt describes the precedence set by trends well underway in Chicago and New York; what’s gone right in near-suburban Washington and wrong in near-suburban Cleveland; what’s being attempted and succeeding in Denver and Charlotte, the false starts that have occurred in Houston and Phoenix, and why Philadelphia presents an “uneasy coexistence.”

While The Great Inversion helps fundraisers — indeed, nonprofit managers — set their plans and aspirations in the cities explored in the book and cities like them, it also offers valuable caution to national organizations bent on scaling their fundraising investments by treating everyone in every place everywhere the same. As much as the template designs of nationwide retail emporia have made some parts of every metropolitan area look exactly alike, there still are distinctions that attract people to settle in, join, and contribute to one city over another.  There’s the interstate highway, commercial visage of metropolitan America, which gives us all the impression of going nowhere very fast, and then there is the human visage. And there’s no doubt which one we should have.

 


¹2012, Borzoi Books (Alfred A. Knopf), New York

Charitable Deductions

Posted by Christopher Dann
Monday December 10, 2012
Categories: Charitable Deductions, Fiscal Cliff, Fundraising
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In a blog last September (Tax Deductibility is Too Complex for Simple-Minded Position-Taking) we hypothesized about the relationship between the charitable deduction and the other three most commonly employed tax deductions, mortgage interest, property, and state and local income taxes.

As discussions continue in Washington — and they are likely to continue well into next year — another look at these deductibles is in order.

The reason is the nonprofit sector has far less influence on either the Administration or Congress than state and local governments or the banking and real estate industries do, and they will defend mightily their interests in keeping those deductions.

We just reviewed IRS deduction data for 2010, the latest year for which data are available. In 2010, 33% of returns itemized deductions. Of these 87% claimed real estate taxes, 82% charitable contributions. 78% mortgage interest, and 71% state and local income taxes.

Two kinds of deductions for which percentages of adjusted gross income (AGI) thresholds apply — casualty losses and medical expenses come in at far fewer percentages. We would expect that of casualty losses anyway (only 1.5%). But with either a threshold or cap being considered for charitable deductions, it’s worth noting that while 100% of tax filers presumably have medical expenses, only 22% got to claim deductions in 2010.

The total amount of itemized deductions came to $1.234 trillion. What the Administration and Congress will be focusing on will be revenue foregone by these deductions, or what in D.C. tax-speak is called “Tax Expenditures.”  State and local income taxes (20%) and real estate taxes (14%) combined for 34% of the value of itemized deductions. General sales taxes added another 1.5%. Mortgage interest accounted for 32%.

Charitable deductions accounted for 14% of the total value of itemized deductions in 2010.  Despite its lesser value than all other categories but real estate taxes, the charitable deduction presents a path of least resistance in Washington.  If a cap on total deductions prevails, the damage on charitable deductions will be more severe than if a limit representing a percentage of AGI is imposed specifically for charitable deductions.

We agree with those criticizing the White House for urging nonprofit organizations to focus attention on increasing taxes for the very rich. Whether or not that’s a good idea, it’s irrelevant to nonprofit organizations’ best interests. Nonprofits should be focusing their attention on keeping Washington from capping all deductions. Everyone has to pay those state and local taxes and everyone with a mortgage has to pay interest on their loans. No one has to make contributions.

More On and Moron Tax Expenditures

Posted by Christopher Dann
Monday December 3, 2012
Categories: Fundraising, Politics
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As the federal government continues pursuit of balance among acceptable targets of revenue, expense, and deficit, we should do more than hope that our representatives understand how their decisions have widely varying impact. The nonprofit sector presents a wide diversity of business models, and this is well documented by varying dependencies on diverse sources of income.

Another useful look at the sector offered by the Urban Institute’s The Nonprofit Almanac 2012 is summarized in the table below. It shows percentages of income from multiple sources that affect different profiles across nonprofit sub-sectors.

The first thing our federal representatives need to understand as they address both taxing and spending is the interdependence of government and the nonprofit sector. It was blindness to that interdependence that resulted in the Reagan Administration’s wreaking havoc on the nonprofit sector in the ’80s.

The second thing they need to understand is how changing the deductibility of charitable giving variously impacts nonprofit sub-sectors. Multiple factors affect variability of business and therefore revenue models:

  • domestic policy emphases — what are the federal government’s current priorities?
  • individual and institutional donor market disposition — the varied charitable and philanthropic preferences of these private sources of money
  • a nonprofit sub-sector’s program capacity for retailing (or collecting fees) for services — and the consequent variable balance between discretionary and non-discretionary funding

Clearly, the situation is far too complicated for resolution through legislation (although the enormity of the Tax Code suggests complexity has never been a challenge Congress couldn’t deal with!). So the watchword for changing the balance between taxing and spending so far as the nonprofit sector is concerned is transition. And as much as another term evokes partisan bickering, transition should include provision of a safety net for those sub-sectors — particularly health and human services — where transition to the new government/nonprofit sector paradigm may take much longer than the target timetable for deficit reduction provides.

There is, meanwhile, something much simpler our representatives can do to find net improvement in the tax and expenditure balance. Their policy mandate should be to reconsider the proper roles of government and the nonprofit sector with respect to what nonprofit enterprises deserve government support through the tax expenditures of federal tax exemption.

On November 14, David Evans of Bloomberg Businessweek¹ previewed a December Bloomberg Markets report on a class of highly profitable nonprofit organizations distinctive from those the term normally connotes. While the Urban Institute classifies those we normally envisage as “Nonprofit Institutions Serving Households” or NPISH, those about which Mr. Evans wrote we might classify as NPINO or Nonprofits In Name Only.

These NPINOs include the article’s featured American Bureau of Shipping who “paid no income tax from 2004 to 2011 on just less than $600 billion in profits.”  Also cited were United States Polo Association (which spent only 13% of the $9.9 million it earned from royalties and investments in 2010 on polo program services), the National Football League (earning $27.9 billion in television contracts over 9 years, paid its commissioner $11.6 million in fiscal 2011), and the National Hockey League. Mr. Evans didn’t cite, but well could have, the NCAA, which Joe Nocera of the New York Times has shown to be in the profitable service of both media and big-name universities albeit frequently at the expense of college athletes.

Write your Congressman!


¹http://www.businessweek.com/news/2102-11-14/tax-exempt-firm-gets-600-million-profit-flying-first-class

Next Generation Fundraising and Drakes Bay Fundraising merged in the fall of 2013, bringing the longstanding professional acquaintances of their four principals – Tim Oleary, Carol Leister, Cindy Germain, and Christopher Dann – into a single company and combining the special resources and experiences of each to provide clients greater breadth and depth of service.

For more information about Next Generation Fundraising, click here.