The Philanthropy Outlook uses longitudinal data and macroeconomic trends to forecast changes in total giving, giving by source, and giving to three types of recipient nonprofits (education, health, and public-society benefit organizations) for the next two years. This report is researched and written by the Lilly Family School of Philanthropy in partnership with Marts & Lundy, a leading philanthropic consulting firm. This year’s report, forecasting giving for 2020 and 2021, projects broad growth for giving in the next two years, thanks to a strong economic outlook.
Overall, economic indicators look healthy and projections in giving reflect those levels. There are essentially two types of economic indicators: 1) the stock market, and 2) what economists refer to as “the real economy.” Both the stock market and the “real economy” indicators such as employment, housing, and GDP are expected to grow in the next two years. If growth conditions remain steady, charitable giving is also expected to follow this trend of steady growth.
The steady increase arrives on the heels of a few transitional years in the wake of the passage of the Tax Cuts and Jobs Act (TCJA) in December 2017.
Giving patterns may have shifted in response to the TCJA. The TCJA increased the standard deduction, which reduced the number of households that would itemize their deductions. Taxpayers who take the standard deduction cannot benefit from the charitable deduction, meaning they do not receive a tax advantage for their charitable giving.
“At this point, we believe that behavioral changes in response to TCJA have already taken place—now, we expect new patterns of behavior to emerge,” said statistician Jon Bergdoll.
The Philanthropy Outlook model uses data from an extensive time series to address these shifting patterns of behavior over time.
“We study and analyze data sets with a longer time series in order to better understand the policies and economic trends that have an long-term impact,” Bergdoll said. “That way, we can see how giving changes with GDP or the market in a variety of settings over time. Then, that helps us identify which changes might have a more short-term impact, such as giving in response to a disaster.
“The longer time series data, which comprises more than 60 years of data, spans a number of different policy regimes and economic scenarios. Including that data allows for more robust modeling, which is how we know that economic trends and charitable giving patterns are closely linked.”
Stress test for 2020 and 2021
This year, the report features a “stress test” for 2020 and 2021 to see how the results of The Philanthropy Outlook would be different if a recession equivalent to the Great Recession of 2007-09 occurred.
“The idea for a stress test came from the financial world, where the Dodd-Frank Act Stress Test (DFAST) is used in part to help banks understand how they might perform under severely adverse conditions,” said Dr. Anna Pruitt, the project manager and writer of the report. “Given that the nonprofit sector has shown that it is responsive to economic shocks, it makes sense that nonprofits would also want a resource to better understand how they might be impacted by a recession and how they can strengthen their organizations in response.”
The school worked with the Wharton School of Business at the University of Pennsylvania to develop the stress test.
“We used a model from the Wharton School to generate ‘recession-level’ values, and then inputted those values into our own model. As a result, we have an alternative set of figures that shows what the giving landscape would look like if a large recession hit,” Bergdoll explained.
Lessons learned from the Great Recession
“Ten years out from the Great Recession, we have good research that tells us about some of the more resilient areas of charitable giving. We have also included that research in this year’s report,” Pruitt explained.
For instance, a recent study of donor-advised fund granting patterns found that payout rates (defined as the ratio of total grant dollars awarded to assets), as well as flow rate (defined as the ratio of total grant dollars awarded to total contributions received by donor-advised funds in a given year), actually increased during the Great Recession. These findings suggest that donors with donor-advised funds may be uniquely situated to continue giving during a potential recession.
Donors and grantmakers appear to have responded to increased need during the Great Recession: giving to human services from all sources of giving actually increased in inflation-adjusted terms in both 2008 and 2009, and giving to food banks in 40 cities increased 31.9 percent from 2008 to 2009.
“We want to include this information to empower nonprofits and fundraisers to find ways to strengthen organizational resilience. Whether the economy is good or bad, nonprofits can always benefit from increasing resiliency and mitigating future risk,” Pruitt explained.
Impact of report for practitioners
“There is a lot of good news in this report for fundraisers. Giving from all sources is projected to increase over the next two years, indicating a strong fundraising environment,” explained Dr. Sarah Nathan, associate director of The Fund Raising School. “During this time of expected growth, fundraisers may wish to focus their strategies on upgrading gifts from existing donors.”