Fundraising for Human-Services Nonprofits
Abstract and Keywords
Of the 1.6 million tax-exempt organizations registered with the IRS as of March 2012, about one-fourth are human service nonprofits, including some 254,100 charities with about $134.5 billion in total revenues. In 2011 human-service charities received about $35.4 billion in charitable contributions. This represents 12% of all charitable contributions (Giving USA Foundation, 2012) and is about 15% of the combined revenues reported by the roughly quarter million registered human-service charities. While government funding is a major driving force for human-service nonprofits, philanthropic funding clearly is important as well. Securing such funding requires solid understanding of the fundraising process and dedicated time and effort, however. Moreover, competition for donations (and fundraising expertise) appear to be growing across the board, with donations from individuals, United Way, and corporate contributions most at risk for human-service nonprofits.
Sources of Funds
Most human services, such as counseling, youth development, senior citizens’ services, and residential care, are delivered by nonprofit organizations that must raise funds from public and private sources to sustain themselves or grow over time (Grønbjerg, 2001; Grønbjerg & Clerkin, 2004; Smith, 2012). They are primarily public charities eligible by tax law to receive grants from private or corporate foundations and tax-deductible contributions from individuals and businesses (contributions to IRS-recognized charities may reduce the taxable income of these types of donors within limits of the tax law).
Unfortunately, it is difficult to fully document the extent to which human-service nonprofits depend on philanthropic contributions. At the national level, more than a fifth (353,100) of the almost 1.6 million nonprofits registered with the Internal Revenue Service (IRS) in March 2012 fall under the human-service category of the National Taxonomy of Exempt Entities (NTEE) as coded by the National Center for Charitable Statistics (NCCS, 2012). (Unless otherwise noted, all data are derived from IRS databases available to researchers at http://nccsdataweb.urban.org.) This includes traditional human-service nonprofits such as child and family service agencies and residential care programs, but also those involved in youth development (for example, scouting), housing, food, employment, public safety, legal services, and recreation (classified under categories I through P of the NTEE classification system; see http://nccs.urban.org/classification/NTEE.cfm.)
More than 80% of these (about 254,100) are registered as charities. Most of the rest are classified either as recreation, sports, leisure, and athletic nonprofits (N category—36,100) or employment or job related nonprofits (J category—5,500, including unions). Many of these provide services that complement traditional human services, particularly youth development and related efforts. They are not eligible to receive tax-deductible contributions, however, and therefore do not engage in fundraising as defined here, and they are excluded from further discussion here.
For human-service charities (those eligible to receive tax-deductible contributions) we know little about the roughly 60% that do not file detailed financial information with the IRS because they are not required or fail to do so. We know even less about the many other nonprofits—perhaps more than a million—that are not registered with the IRS at all (Grønbjerg, 2002). The latter include most of the estimated 335,000 religious congregations in the United States (Hartford Institute for Religion Research, 2012). This is an important omission, since Chaves, Anderson and Byassee (2009, p. 33) estimate that 90% of congregations provide some type of human services, broadly defined. Most also depend primarily on charitable contributions for financial support (Chaves, 2004, p. 36). The median congregation spent no more than $5,000 in 2008 on social services (not counting the value of staff or volunteer time) and only 21% had more than a fourth of their full-time-equivalent (FTE) paid staff assigned to such services, suggesting that congregational human services are relatively modest in terms of financial scope.
For IRS-registered charities, even minimal details on contributions are not available for the most recent years, and then only for charities included in special samples (weighted by size) developed by the IRS Statistics of Income (SOI) division. For 2008, the SOI sample included only 58,900 human-service charities (although they appear to have accounted for 97% of all human-service charity revenues that year). They reported total grants and contributions of $70.6 billion, amounting to about 41% of total revenues ($173.1 billion). Most of those grants and contributions ($40.9 billion) were government grants (not including government contracts, vouchers, or fees [for example, Medicaid payments], which are likely to be substantial but not reported with sufficient accuracy to be reliable). The remaining grants and contributions ($29.7 billion) accounted for 17% of all revenues. Smaller human-service nonprofits—those not filing financial information with the IRS or not included in the SOI sample—most likely depend even more extensively on philanthropic support, but we do not know the amounts involved.
These figures are somewhat lower than estimates from Giving USA Foundation (2012, p. 266), which reported that human-service nonprofits received about $35.9 billion in philanthropic contributions in 2008, or about 12% of the $290.9 billion in giving from all sources that year. The difference of roughly $6 billion in estimated contributions to human-service nonprofits for 2008 may reflect the omission of some human-service nonprofits from the SOI sample for that year. More recent data for 2011 show that human services received about $35.4 billion, or 12% of total charitable contributions, that year (see Table 1).
Table 1. Charitable Contributions by Type of Recipient Organization in the United States, 2011
Type of recipient organization
% of total
Gifts to foundations
Gifts to individuals
(a) Includes contributions to United Way.
From Giving USA 2012: The annual report on philanthropy for the year 2011 (p. 10), by Giving USA Foundation (2012) Glenview, IL: Author.
Trends in Sources of Philanthropic Support
Assessing the importance of different types of philanthropic support for human services is more difficult. Individuals are the largest source of donations overall, accounting for 73% of total giving in vivo (see Table 2) plus another 8% in the form of bequests. It is likely, however, that most individual gifts go to religion, since churches rely very heavily on individual contributions. For example, Chaves (2004, p. 36) reports that three-fourths of congregations get at least 90% of their revenues from individual donations and that about 80% of all congregational income comes from individual donations.
Table 2. Charitable Contributions by Source in the United States, 2011
Giving by source
% of total
From Giving USA 2012: The annual report on philanthropy for the year 2011 (p. 10), by Giving USA Foundation (2012) Glenview, IL: Author.
Charitable support for human services differs considerable by income, however. Thus, a 2010 study of 800 high-net-worth households (income over $200,000 and/or net worth of more than $1 million) found that, while 85% contributed to at least one charitable organization that addressed basic needs and 61% to youth- and family-service charities, basic needs accounted for less than 5% of their total contributions and youth or family services for less than 9% (Center on Philanthropy, 2010, pp. 25, 33). For earlier years, more detailed data suggest that middle- and lower-income households (income of less than $100,000) accounted for 60%–65% of household contributions to these types of nonprofits, while households with income of $100,000 or more account for half or more of contributions to education, health, and arts-and-culture nonprofits (Giving USA Foundation, 2006, p. 4). Continued growth in high-income households will therefore benefit the latter fields, while growing income inequality and the loss of well-paying manufacturing and mid-level management jobs may hurt human-service nonprofits.
We know virtually nothing about which types of charities benefit from the more than $2.4 billion distributed by commercial-donor-advised funds in 2011, such as Fidelity Charitable Gift Fund (Bolton & Hall, 2012). On the other hand, United Way organizations have traditionally been a major source of donations for human-service agencies (and one of the major ways in which U.S. corporations support these agencies). It is also one of the most institutionalized sources of donations for human-service organizations.
The United Way system has struggled in recent years: the $3.9 billion raised in 2010 was down from $4.2 billion in 2008 (Barton & Hall, 2011), reflecting, at least in part, the great recession that started in late 2007.
Broader trends may be more important to United Way fundraising efforts in the long run (Grønbjerg, Harmon, Olkkonen, & Raza, 1996). United Way raises its funds mainly through workplace solicitations in collaboration with local corporations, but continuing layoffs at major corporations and manufacturing plants (traditionally the primary source of workplace solicitations for United Way organizations) have made it difficult for most United Ways to maintain donation levels. Thus, per-capita contributions to United Way declined from about $22 in 1974, to $18 in 2000, and to $12 in 2011 (computed by the author).
These trends may reflect growing absentee ownership of local corporations in the United States, which is likely to threaten corporate loyalties to the United Way and local communities. In addition, the traditional community-allocation system does not serve corporate marketing interests as effectively as more targeted donations with corporate tag names. Nor does the community-allocation system allow individual donors to connect to specific causes. Consequently, almost all United Ways now allow donors to designate which charities should receive their support. As a result, human-services agencies have lost their near monopoly on United Way dollars.
The same factors that threaten the workplace success of United Way campaigns may also limit direct corporate donations to human-service nonprofits. Total corporate contributions to all nonprofit fields, including support for United Way, amounted to an estimated $14.6 billion in 2011 (see Table 1). Nationally, corporate donations (including corporate foundations) more than doubled in constant dollars between 1981 and 2011 (Giving USA Foundation, 2012, p. 265), with health and human-services (combined) accounting for about 28% of the total in 2011 (Giving USA Foundation, 2012, p. 103).
Foundations (excluding corporate foundations) made grant payments of more than $41.7 billion in 2011 (see Table 1 above), up by a multiplier of almost 5.5 in constant dollars since 1981 (Giving USA Foundation, 2012, p. 264). Human-services received about 13% of grant dollars (and 27% of grants) awarded by non-corporate foundations in 2009, lagging behind support for education and health (23% each, Giving USA Foundation, 2012, p. 94).
An in-depth study of philanthropic institutions for the Chicago region (Grønbjerg, Martell, & Paarlberg, 2000) showed that institutional philanthropy for human-services is highly fragmented. While the majority of foundation or corporate-giving programs support human services, the programs vary greatly in whether they prioritize human services and in how much their volume of grants fluctuates over time. They differ also in how they focus their efforts, structure their grant making, modify priorities, and select agencies to fund. Philanthropic funders differ in their perceptions of needs, and relatively few track how other funders operate (Grønbjerg & Jones, 1997). Many have vaguely articulated funding objectives, do not systematically evaluate grant performances, and find it difficult to sort among proposals without relying on personal networks. As a result, agencies that are not already part of the funding streams encounter significant barriers to securing foundation or corporate support.
Implications for Human Services and Social Work
Overall, the implications of these findings for human services are that the staff of human-service organizations, including social workers involved in fund development, will have to acquire and utilize a wide variety of strategies and skills. On the one hand, government funding is such a driving force for many human-service nonprofits (Grønbjerg, 1993) that they must focus much of their attention on grant writing and contracting for public dollars. Private fundraising will almost inevitably receive less focused attention.
Philanthropic funding, however, is clearly very important to human-service nonprofits. For example, data from Indiana suggest that most rely on a broad array of donation streams: 62% receive individual contributions, 49% corporate contributions, 27% grants from community foundations, 23% funding from other private foundations, 17% United Way funding, and 16% bequests (Grønbjerg & Clerkin, 2004). Human-service nonprofits must therefore track all types of donors and seek to build sustained relationships with each donor.
This requires solid understanding of the fundraising process, starting with a well-articulated and documented “case for support” that highlights the organization's important mission, its relevant and well-designed programs, and its documented capacity to address its mission and deliver effective programs that meet targeted outcomes. It must also engage in sound stewardship, that is, demonstrate responsible use of gifts, build meaningful relationships with major constituency groups, and develop effective communication strategies targeted at diverse donor segments (Tempel, 2003). This means fundraising must be given priority and treated as a core program with dedicated time and effort—resources that are usually in short supply in most human-service organizations.
The ability to do so will be increasingly important since competition for donations (and for fund-raising expertise) appears to be growing. The share of philanthropic giving going to human-service nonprofits was as a high as 14% in 1972–1976, dropped to 6% in 1982–1986, and has hovered around 10%–12% since the turn of the century (Giving USA Foundation, 2012, p. 46).
Nonprofits that seek support from individual donors increasingly focus on the wealthy, where the return on fundraising costs can be maximized. Such a strategy helps them meet arbitrary fundraising cost standards imposed by major watchdog organizations. For example, the “Standards for Charity Accountability” established by the Better Business Bureau (2013) specify that program expenses must be at least 65% of the organization’s total expenses (Standard 8) and that the costs of raising funds should be no more than 35% of donations received from fundraising efforts (Standard 9).
Organizations that wish to secure smaller donations from middle- and lower-income groups, who provide the bulk of individual donations to human services, face an uphill battle to keep their fundraising costs low. They must compete for visibility and loyalty in an arena that is increasingly dominated by slick, sophisticated—and expensive—public relations efforts and by the billion-dollar capital campaigns of universities and major cultural institutions. Such efforts are likely to be beyond the scope of the vast majority of human-service nonprofits—they are too small, have too limited management capacity, and lack the cachet of major cultural or educational institutions to attract wealthy donors. Social workers who have solid fundraising skills will add value to the fundraising efforts of these nonprofits.
It is possible, of course, that the Internet and other information technology will become as successful in generating a steady stream of small charitable contributions for nonprofits as they have to some candidates in recent presidential campaigns (for example, Barack Obama in the 2008 campaign). The most recent nonprofit fundraising study, a survey of 1,600 nonprofits of all types, reported that 80% of nonprofits used some form of online fundraising, and 59% said that receipts from this source “increased” from the prior year, more than for any other method of fundraising (Nonprofit Research Collaborative, 2012, pp. 16–17). Whether these patterns hold also for human-service nonprofits is not known.
Many smaller nonprofits may not yet have the necessary information-technology sophistication to venture very far into these new mechanisms (Cortés & Rafter, 2007). Most may also not be aware that internet fundraising requires special attention to state registration and reporting requirements, as outlined in the “Charleston Principles” adopted by the National Association of State Charity Officials (2001).
Finally, some types of earned revenues, such as client fees, have a long and well-recognized role for human-service nonprofits and are likely to gain increasing prominence as these nonprofits learn to market their services more effectively to paying clients. That is likely to happen as government funding increasingly shifts from subsidizing nonprofit service providers directly through grants and contracts to subsidizing service consumers through indirect reimbursement schemes (for example, Medicaid) and tax expenditures (for example, tax deductibility of child daycare fees) (Grønbjerg & Salamon, 2012). Other types of income earned by nonprofits, such as more explicit commercial ventures, may have promise, but can be difficult to reconcile with the mission to serve clients in need (Kearns, 2000).
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