College fundraising gift pyramid narrows
Giving to American higher education has enjoyed a significant increase over the last decade, far exceeding inflation. Despite the recession in 2008-10, giving to higher ed grew steadily from $23 billion in 2006 to $34 billion in 2015, a healthy increase that’s highlighted by a significant and continuous stream of megagifts (more than $50 million).
In the last three years alone, 77 gifts of $50 million were directed to American higher education for new research, programs, facilities and financial aid. In 2016, seven gifts of more than $100 million, the most in a single year, were directed to American colleges and universities—a number that outperforms all other nonprofit entities combined.
There nonetheless exist some unsettling indicators of a less robust environment for giving. Alumni participation is falling at a precipitous rate, the number of mid-level major gifts are flat, and annual fund support has struggled to keep pace with inflation.
These trends may simply reflect the economic realities of the changing wealth distribution in the nation, coupled with the stagnation of middle-class incomes. Or, is the increased focus on mega-gifts generating a populist rebellion within alumni bodies, who may feel less valued and connected to their alma maters, and in turn less inclined to support them?
Should fundraising professionals be concerned?
When I entered the profession 25 years ago, the standard guiding principle was 80 percent of the funding came from 20 percent of the donors. The last decade has seen a dramatic shift in giving: The top 10 percent of donors provided 94 percent of the total dollars in 2013, compared to 87 percent in 2006.
Equally significant is the influence of the top 1 percent, who now provide nearly 80 percent of the total dollars, compared to 64 percent just 10 years ago.
Consider this: Giving rose by nearly 40 percent during this period; consequently, the narrowing is even more significant in individual donor dollar terms. Interestingly, the most precipitous fall in alumni-giving rates coincided with this same period of significant growth in megagifts.
Many theories exist as to why this is happening: the decline of the phone-a-thon, bigger student loan debt, increasing competition from a growing number of nonprofits, stagnate middle-class income and, of course, the rise of the megagift.
Clearly, colleges and universities are finding it increasingly difficult to persuade alumni to give a $25 gift when potential donors feel their support will have a greater impact and be appreciated more by a local nonprofit.
The problem with megagifts
How do the rise of megagifts and falling participation rates influence current advancement programs? University administrators and trustee boards might view the growth in megagifts as a sign that their advancement programs are becoming more efficient by focusing on the right prospects and raising the most amount of money from the alumni pool.
The headlines and the dramatic impact of these gifts also give universities a sense of successful momentum. The efficiency of these gifts—lots of return in a short period of time—offers a significant boost to near term return on investment. What it hides, however, is the real cost of cultivating and nurturing this relationship over 30 or 40 years.
Research shows the mega-gift donor originates as a long-term, consistent donor. According to a recent Brown University study, 94 percent of $1 million-level alumni donors made a gift to the university within the first 10 years of graduation and were consistent donors for a decade or more before making a seven-figure commitment.
Stanford University exemplifies how tending to the entire alumni base pays dividends. With the highest investment per alum of any top university in the country, they’ve had one of the best fundraising programs in the country in two of the last three years—averaging better than a $1 billion per year.
When university leadership loses sight of the process of producing future megagift donors—by not paying sufficient attention to the middle and lower end of the gift pyramid—the long-term sustainability of the fundraising program is put in jeopardy.
With the average presidential term hovering around seven years and the challenging fiscal environment across higher education, it’s not surprising to see an increased focus on megagifts and efficiency.
Fundraising programs, however, should mirror the institution’s endowment spending policies: Serve today’s student while preserving capital to support the university in perpetuity. The megagift approach decreases the potential pool of donors and increases the pressure to secure mega-gifts from fewer and fewer donors.
Inevitably, an institution’s fundraising program loses its ability to self-generate the next generation of significant supporters. The current narrowing of the pyramid is a warning sign that patterns of giving are moving in this direction. Clearly, the era of huge donations is also increasing the divide in American higher education.
Nearly all the $50 million-plus gifts over the last four years went to universities with the most wealth and brand identity. Unfortunately, the colleges and universities that serve the most diverse and socio-economically challenged student populations received none of these gifts.
This is not to disparage the philanthropists making these magnificent gifts, but to call attention to the strength of American higher education is in its diversity and depth.
America’s wealthy universities represent less than 5 percent of all students attending a four-year college or university. Finding large gifts to support a broader range of institutions is critical to the long-term success of sustaining excellence in American higher education.
Megagift headlines also give a false sense of fiscal strength in higher education. Government officials at the state and federal level incorrectly construe these big gifts as a sign that less funding is needed. Further, as the narrowing of the pyramid continues, an increasingly smaller pool of donors will drive the research and academic agenda.
The influence of a few over the many, especially in a system designed for shared governance, will place university leadership in some difficult ethical dilemmas. For example, how much is an admission slot worth? Will donors be allowed to sit on faculty search committees? Will buildings be named for families with questionable values?
Growing private support to higher education offers many benefits. However, if left unattended, the consequences illustrated above will have a long-term negative impact on American college campuses and their fundraising programs.
Colleges and universities would be wise to consider the following steps to mitigate certain negative aspects of the trend toward a megagift culture:
1. Encourage boards and presidents to focus on building sustainable programs that invest time and energy on the middle and lower end of the pyramid.
2. Support innovative advancement programs that take advantage of the many technology tools to stimulate broader and more personal alumni engagement across the top, middle and bottom of the pyramid.
3. Work with the institution’s board leadership to implement appropriate gift policies and procedures to protect ethical boundaries.
4. Direct higher education associations, lobbying firms and campus leaders to continue to educate government leaders that public money is critical to sustaining the world’s best higher education system.
5. Inspire megagift donors to consider supporting a regional university or community college.
Historically, America possesses a robust system of higher education for the masses, not just for the elite.
Donald Hasseltine, formerly vice president for development at Brown University, is now a senior consultant with the Aspen Leadership Group.