Being Flexible

August 2, 2011       Gary Morton      

This is an article from the latest issue of NPT’s Exempt Magazine

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For Meridan Health, the recession of 2008 and 2009 came at the worst of times. The company that operates six hospitals in New Jersey had capital campaigns under way or in the works at four of its hospitals.

Despite concerns regarding the economy, especially after the recession began in 2007, Meridian surpassed a $20-million goal for Jersey Shore University Medical Center in Neptune, N.J.; recently began the public portion of a $15-million campaign with $11 million already pledged; and soon will go into the public phase at two other hospitals.

“Overall, we’ve been fortunate,” said Robert Wahlers, senior director of development and gift planning. “In just about every case, everybody is living up to their pledge agreements. There might be one that we had to adjust to allow some additional time.”Not all nonprofits were as fortunate as Meridian. Wahlers said he “saw a trend that folks who might have had five or six or seven organizations they support, with the recession they supported only two or three of their favorites, or that they were most passionate about.”

In a survey of the recession’s impact on 363 nonprofits by the Johns Hopkins University Institute for Public Studies in Baltimore, Md., more than half reported losses in individual contributions as large financial institutions failed and others were saved by government bailouts, stock prices plunged, and housing values plummeted during what some call the Great Recession. Four out of five of the organizations reported some level of fiscal stress between September 2008 and March 2009, the period covered by the survey, and 40 percent considered the stress to be severe or very severe.

The Federal Reserve reported that average household wealth fell by nearly 20 percent in two years, from $598,000 in 2007 to $481,000 in 2009. As a result, some donors with the best of intentions made pledges they were unable to meet. That should have sent ripples through nonprofits since Lawrence Henze, managing director of Blackbaud Target Analytics, noted “most successful organizations get most of their money from individuals, not corporations and foundations.”

But not everyone suffered from the Recession of 2009. While the wealth of two-thirds of households in the Federal Reserve study fell, well-off families reported an increase of 27 percent.

So how can nonprofits better determine who will be able to live up to a pledged gift? Those involved in nonprofit development and in prospect research and wealth identification said there are few new answers. Rather, they suggest nonprofits rely on what WealthEngine President Tony Glowacki called “a best-practices approach … that really worked in good times and in bad times,” communicate with donors and prospects, and remain flexible.

“It starts with getting to know who your donors are,” Glowacki said. “When it comes to the major gift level, you really need to understand who they are.” That includes the specific industry in which the donor is involved and the region where the donor lives since economic twists and turns can impact to different degrees various industries and areas of the country. With that knowledge, “then you have an ability to make an assessment about whether they are able to follow through.”

The San Diego Foundation’s Amy Walling, senior director of planned giving, estate administration and research, cautioned nonprofits to tread lightly in trying to devise more ways to investigate a donor’s ability to honor the pledge. “Sophisticated donors are aware that background research is done on them. They might feel it is counterproductive, if they are already leaving the charity in their estate and have shared this information with them.” Those who have suffered financial setbacks also might consider more research counterproductive “since they may not feel they are in a philanthropic position at that time.”

Communicating with donors and prospects also is important since Meridian Health’s Wahlers said nonprofits “can put a lot of effort into getting those gifts, but if they don’t keep donors informed they have a hard time getting future gifts.” Meridian Health made a conscious effort to beef up communications to keep donors informed of how their money was being put to use during the recession since many were cutting back on the number of organizations they supported.

Good communications also opens the door to discussions that could alert the nonprofit that a donor might not be able to fulfill the commitment. When that occurs, nonprofits need to remain flexible. “Occasionally, like in this recession, people will come to you and say, ‘I can’t pay on the pledge I made to you currently, but when things turn around I will pay,’” said Blackbaud’s Henze. “Obviously that’s a hit.”

The key is how to handle such a situation, which most of his clients have faced in the past three or four years, in a way that creates a positive relationship. “They thank the people for communicating with them,” he said. The conversation could lead to an extension of time for the gift and open the door to planned giving or other options. “Sometimes a short-term negative can be a long-term positive.”

San Diego Foundation’s Walling and Adrienne Vargas, vice president for charitable giving, said the nonprofit and donor might come up with an alternative gift plan for the donor, such as an estate gift. “From the donor’s perspective, an endearing response would be one that recognized the donor’s historical involvement to the organization and is encouraging about the future relationship,” Walling said. Such an approach should be a standard response, whether the economy is good or bad. “Most nonprofit organizations understand that not all pledges can and will be honored, and therefore they should plan for a certain drop-off in commitments paid.”

Nonprofits need to understand that for the extremely wealthy, income can vary greatly year to year, WealthEngine’s Glowacki said. “They may have these fluctuations in income but it’s not a long-term impact; it’s a short-term impact. It doesn’t mean they can’t make good on their pledge; it means it may take a little longer … five years instead of three.” Rather than panicking, Glowacki said, the nonprofit should use the relationship it has with the donor to say, “Hey, what can we do to make this work for everybody?”

“There are always bumps in the road,” he said. “Sometimes there are bigger ones.”

Nonprofits also should explore ways they could better endure a future economic downturn and resist the urge to have a series of solicitation drives when times are bad, according to Blackbaud’s Henze. “There’s strong evidence in many surveys that one of the reasons donors have stopped supporting certain charities is over-solicitation,” which raises concern over how a donation is spent: on administration and fund-raising or in fulfilling the nonprofit’s mission. Many organizations overlook the power of planned giving in withstanding a sour economy, he said.

“If you have a strong planned giving program, your ability to weather the next recession increases,” said Henze. E

Gary D. Morton is a freelance writer based in Delaware.