• July 24, 2014

Colleges Will See a Decline in Megagifts, Experts Predict

The golden age for philanthropy—and the United States—may be over.

That was the sobering message delivered late last week at the annual conference for the Council for Advancement and Support of Education. Speakers at the fund-raising conference, including Robert B. Reich, a former U.S. secretary of labor, predicted that the economic recovery, when it happens, is likely to be weak, and that the number of megagifts to higher education will probably fall and the pace of such giving slow.

Major changes are necessary in how campaigns are conducted to meet the challenges of the future, the more than 400 fund raisers and alumni-affairs officers in attendance were told. Yet the message was still optimistic: Philanthropy is not going away, and fund-raising programs that can adapt to the changing environment and redeploy their resources accordingly will continue to raise significant amounts of money.

Megagifts are not going to disappear entirely. In fact, New York University announced a $100-million gift to its Langone Medical Center the day before the conference started. And fund raisers at the meeting said donors are feeling less skittish than they were in the fall and early part of this year.

Bruce R. McClintock, chair of the consulting group Marts & Lundy, and Darrow Zeidenstein, vice president for resource development at Rice University, told an audience that they expected the number of gifts at the $5-million-and-above mark to decrease from the high seen in recent years, when home prices and the stock market peaked. Many of the biggest fund-raising programs concentrated their resources at the top because pursuing the donors who could make megagifts had the biggest return on investment.

The bursting of the Wall Street and housing bubbles means there isn’t as much money as there was three years ago. And that means the gift pyramid—the structure that shows where most of a campaign’s donations come from—is likely to change.

According to Mr. McClintock, recent campaigns have depended on the top 1 percent of donors (those giving gifts of $1-million or more) for 70 percent of dollars raised. That top section now could shrink to represent 50 percent of money raised. At the same time, the middle of the pyramid (donors who give between $100,000 and $999,999) could expand. Instead of representing 4 percent of donors giving 25 percent of the money raised, that group could grow to 9 percent of donors who contribute 40 percent of a campaign total.

The bottom part of the pyramid, which represents 5 percent of dollars, contributed by 95 percent of donors, could shift to 10 percent of dollars given by 90 percent of donors.

“We know it’s going to get flatter, not steeper,” Mr. McClintock said of the gift pyramid.

 

Going For the Middle

 

Now, as the pyramid flattens, colleges will need to put more of their energies into the middle, Mr. McClintock said. They will need more gift officers in that area, and that will mean more time spent getting to know the prospects in that midrange.

That change will require a fundamental re-engineering of campaign strategy, Mr. Zeidenstein said. The broader approach will require more time and resources than a plan that just focuses on a smaller number of individuals who could make megagifts.

Bruce Matthews, a vice president of the consulting group Campbell & Company, said the gift-pyramid discussion was an “aha moment” at the conference, which kicked off with a speech by Mr. Reich outlining deep structural problems in the American economy.

“The golden age of philanthropy is definitely over,” Mr. Matthews said.

Mr. Matthews doesn’t believe many colleges are aware of this shift, and he expects to be talking to his clients about the need to refocus on more modest gifts.

Pushing re-engineered campaigns that require additional resources is tough at a time when advancement offices are trimming budgets to keep as many fund raisers as they can. Attendance at this year’s conference was reflective of the widespread cutbacks: It was down at least 15 percent (425 compared with some 500 last year).

 

Painful Choices

 

The setting of the conference here in California reinforced how higher education, especially the public sector, is being squeezed by shrinking state budgets. Lawmakers here have yet to pass a budget, and California colleges are bracing for steep cuts that may force them to cap enrollments or cut programs or people.

“It’s devastating,” said Dianne F. Harrison, president of California State University-Monterey Bay.

Turning away students when the university has the ability to serve more of them is a painful prospect for Ms. Harrison, who came to the CASE conference to get re-energized about seeking new revenue for her institution. “I know what it means to give a kid an opportunity,” she said.

But the tough times for higher education and the rest of the American economy won’t end anytime soon, said Mr. Reich, who teaches at University of California at Berkeley. He predicted the economic recovery will be weak because years of stagnant wages have left the middle class without the discretionary income to fuel a strong demand for goods and services. Also, more of the country’s wealth is concentrated among fewer people, he said.

The only long-term solution, Mr. Reich said, is to give more people access to education and training. Although education is the answer, government is making cuts in that area.

“I cannot imagine a more difficult but more important job right now,” Mr. Reich said of the task of raising private funds for colleges and needy students. “Your mission is more important than ever.”

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