The giving climate: reading the signs can help.

Fundraisers constantly seek resources and information that can help them make their fundraising efforts more effective. One such aid is the semiannual Philanthropic Giving Index (PGI), developed by the Center on Philanthropy at Indiana University. Development officers, nonprofit executives and board members may find this tool helpful in judging the success of their programs and making decisions about fundraising strategy.

Since 1998, the PGI has surveyed a panel of knowledgeable senior development officials from around the country about the current fundraising climate and what it will be like in six months. In addition, the results provide fundraisers with measures of fundraising techniques that peers in organizations like their own have found successful, both currently and over time.

The findings also reveal what fundraisers in various subsectors (e.g. arts, education, human services) and different sizes of organizations are experiencing. Additionally, special data about the impact of timely societal and economic events gives a "heads up" for fundraisers and can help with planning when similar events occur. The index is much like the Consumer Confidence Index; however, the PGI is based on a scale of 0 to 100.

Recent results

The December 2004 PGI indicated that fundraising was going better than it had one year ago, but about the same as last summer. The overall PGI is at 89.7, up 7.7 percent from a year earlier and down less than 1 percent from Summer 2004.

The Present Situation Index, currently at 88.2, was up substantially from a year ago (16.8 percent) and up almost 1 percent from Summer 2004. The Expectations Index (reflecting what fundraisers predict the climate will be six months into the future) was flat from a year earlier, but down 2.6 percent from Summer 2004.

So organizations might expect fundraising to be better this year than in 2003, but about the same as it was during 2004.

Many nonprofits are wondering how giving to the tsunami relief efforts might impact giving to other, non-relief organizations. While the answer is as yet uncertain, the center's research on giving to September 11, 2001 relief indicated that even with an outpouring such as that, the impact on other nonprofits was short-lived.

A special question about this was added to the PGI in the wake of September 11. In December 2001, 58 percent of fundraisers surveyed believed that tragedy-related giving had come at the expense of giving to other causes, at least in the short term. Six months later, only 18 percent were concerned that it was still impacting other giving. By December 2002, a slight majority (52 percent) believed that tragedy-related giving had come at the expense of giving to other causes in the first few weeks after the attacks, but only 13 percent thought that this was still the case a little more than a year later.

During the first three months after the tsunami, giving to the relief efforts, although a much larger private U.S. philanthropic response than for any international disaster in recent memory, did not reach the level of giving following September 11.

So, giving to tsunami relief should not substantially change the present situation or outlook represented by fundraisers' responses to the December 2004 PGI. Fundraisers should realize that tragedies like this generally have a brief impact on other causes and not use them as an opportunity to disrupt their own fundraising programs.

Successful techniques

It will come as no surprise that major gifts have been consistently viewed as the most successful technique by the largest percentage of PGI respondents (82 percent in December 2004), followed by planned giving (76 percent). Many organizations have developed major gift and planned giving programs in response to the "transfer of wealth" awareness and in recognition of the potential from their own donor bases.

However, small organizations and human services organizations, which might not have developed these programs, do not report success with major and planned gifts at the same levels as others.

Foundation grants (71 percent), special events (68 percent), and direct mail (64 percent) all receive high scores consistently over time (see accompanying chart). Success with foundation grants declined dramatically in the post-September 11 era, probably because some foundations redirected their gifts to the victims and their families and because of the overall decline in the stock market, which reduced pay-outs by foundations.

Corporate giving has trended down since the PGI was started (viewed as successful by 51 percent in December 2004). That perhaps reflects the more "strategic" corporate giving and tighter linkages with branding/marketing that has been much discussed but little researched.

This supports anecdotal reports from both corporations and nonprofits. Although the Giving USA Foundation's Giving USA 2004 finds that corporate gifts comprise just 5 percent of total U.S. giving, organizations that are heavily dependent on corporate gifts should be aware of this trend and be prepared to approach corporations on a transactional basis. And they should diversify their funding to include individuals and foundations.

While much has been written about the increase of the Internet and email as fundraising techniques, they currently are viewed as successful by only a small percentage of fundraisers surveyed (23 percent and 21 percent, respectively). On the other hand, their perceived success rates have been trending up from very low levels in the post-September 11 era.

September 11 was a major breakthrough for contributions over the Internet. The response to the tsunami represents another landmark, with several international relief organizations reporting that at least half of all the tsunami relief gifts received in the first two weeks after the tragedy were made online. Fundraisers should prepare to utilize the Internet more as a result of this wide participation. PGI responses this summer might help fundraisers learn whether the tsunami breakthrough is reflected in other organizations.

Special issues

Fundraisers might also glean insights for planning or mid-course adjustments from the PGI's tracking of the impact of various societal events. In addition to the impact of the September 11 response, in recent years the PGI has asked fundraisers how they think the war in Iraq, the uncertain economy, and fundraising for the 2004 presidential election might be affecting nonprofit fundraising.

Impact of war in Iraq

In Summer 2003, 57 percent of respondents agreed or strongly agreed that the war was having a negative impact on current fundraising. That winter, the effects had abated substantially: only 38 percent thought the war was adversely affecting fundraising. Organizations seem to have moved past the war as a fundraising obstacle. Again, this seems largely to have had a brief impact on fundraising.

Impact of the economy

The Summer 2003 PGI survey asked about the effect of the economy compared to six months earlier. The vast majority of respondents (85 percent) replied that it was having a negative or very negative impact on fundraising. In December 2003, a smaller majority (57 percent) thought it was still negative.

By Summer 2004, the perceived effects of the economy had improved: 36 percent viewed it as negative or very negative and 45 percent saw it as positive or very positive. These ratios worsened slightly in the December 2004 survey, with fundraisers about evenly split on the U.S. economy's current impact on fundraising: 36 percent viewed the economy as having a very negative or negative effect and 41 percent perceived it as very positive or positive. However, the majority swung to a more favorable view when looking ahead six months (59 percent positive or very positive).

The PGI has verified what other research has found, and what many fundraisers have known anecdotally, that the economy has an impact on fundraising. The economy certainly provides a better climate for fundraising now than in 2003. But things did not continue to improve throughout 2004. Organizations should be very aware of local economic changes for better or worse as they plan their fundraising efforts.

Presidential elections

Although people frequently ask about their impact on philanthropic fundraising, organizations probably should not blame fundraising difficulties on the presidential elections. In December 2004, the PGI asked whether political fundraising was draining funds away from private philanthropy. Nearly one-half of respondents disagreed or strongly disagreed with this notion. Less than a third agreed or strongly agreed that this was a problem.

A number of economic factors might help explain what is likely to cause noticeable changes in the PGI. By understanding these, fundraisers can monitor them on a more frequent basis as a proxy for understanding the fundraising climate.

The Consumer Confidence Index moves the most closely with the overall PGI. This might be due, in part, to the fact that both are based on psychological perceptions, which tend to swing more widely than underlying economic factors such as Gross Domestic Product or Disposable (after-tax) Personal Income. While other research shows that changes in these macro variables can play an important role in explaining and predicting changes in giving, they tend to be much less volatile than the PGI, the Consumer Confidence Index, or the stock market. The PGI also moves in close parallel with the S&P 500. Prior research by the Center on Philanthropy has shown that the S&P 500 is the single best predictor of changes in both personal giving and foundation giving in any year, so it makes sense that it affects perceptions of the fundraising climate.

A forecasting tool?

If you use the Giving USA figures as a measure, it appears that the PGI is a rather accurate forecasting tool for actual dollars given. If you compare the estimates from Giving USA and the year-end PGIs, we see very similar trends.

The exception to these parallel paths is 2001. Following September 11, Americans continued to be quite philanthropically inclined. However, many fundraisers were much more skeptical about the fundraising climate for fear that September 11 giving would divert giving to their organizations (while this was the case for some nonprofits, clearly it was not the case overall).

In a complex fundraising environment, fundraisers need to draw on all available tools to help them understand the current and future conditions and the factors that may affect them. Monitoring information sources such as the PGI and economic indicators can help fundraisers adapt to and succeed in shifting circumstances.

Eugene R. Tempel is executive director and Patrick M. Rooney is director of research at the Center on Philanthropy at Indiana University.