by Paula Chiarmonte
by Paula Chiarmonte
Fund development is changing rapidly, both as a process and as a profession. Considered a semi-profession for the past fifteen years the field now features academic degrees, research, and certification standards. Four factors responsible for heightened professionalism include: (1) competition between the nonprofit and public sectors for available charitable contributions, (2) competition within the expanding nonprofit sector for contributed income, (3) growing national demand for goods and services generated from the public and nonprofit sectors, and (4) subsequent need for well-trained fund-raisers. Key topics appearing in the current literature reflect increased professionalism in the fundraising field. These include: fund development program management and evaluation, online solicitation, planned giving, and innovative approaches to fundraising
In response to this burgeoning growth, the nonprofit sector is increasing its use of the corporate model. This model is effective for business organizations managing the delivery of goods and services for profit, because quarterly profits and shareholder accountability are measurable indicators. Nonprofit services, however, are more difficult to quantify. Charitable organizations are just beginning to devise measurements to assess program effectiveness and stakeholder satisfaction.
Increasingly, many donors now expect a nonprofit organization to provide detailed proof that its operations are worthy of a financial investment. People support charities that most productively impact their areas of interest and want assurance that organizations will use their money wisely. Most major donors also prefer to designate their gifts to specific programs, which aim to accomplish a specific goal, rather than simply donate to meet operational needs. In addition, donors have high expectations for nonprofit organizations to provide more and better information. Governmental regulations also require more rigorous financial accountability. A federal law, mandated in June 1999, now requires a nonprofit to make copies of its three most recent Form 990 and Form 1023 documents, available to any type of request within a 30-day period.
Donor expectations and regulatory accountability require enhanced efficiency in the nonprofit sector. In response, fundraising professionals acknowledge that diversification of fundraising vehicles is the key to a successful annual development plan. Diversification addresses the questions from whom and how organizations raise money. Use of the diversification approach enables prediction of annual income goals and multi-year trend analysis for planning and reporting purposes. Like capital investment management, diversification reduces the risk of concentrating too heavily on one area of contributed income. Optimization of the various types of contributions including annual gifts, corporate and foundation grants, major gifts, capital gifts, and planned gifts is the ultimate aim. Ideally, the coordination of fundraising vehicles should be monitored to assure an organization's ability to meet its annual income goals.
The classic donor pyramid model has served the fundraising profession for several decades. This model sequentially builds on a platform of numerous donors making small, annual gifts. Moving upwards, the pyramid strategy seeks to increase contribution levels. The generally applied sequence encompasses annual gifts, corporate and foundation grants, major gifts, capital gifts, and planned gifts. Strategically, the objective is to continually acquire new annual donors who may be cultivated for larger contributions and eventually become major donors. An inverse relationship exists between the size of the donor pool and the gift value. In other words, the smaller the number of donors in a given category, the larger the gift values. For example, positioned at the pyramid base is the annual fund having the largest volume of donors contributing the smallest value gift. Positioned at the pyramid apex is the planned giving fund representing the smallest volume of donors contributing the largest gifts.
Fundraising vehicles addressed in the pyramid model answer the question whom and how, whereas, fundraising methods address the question for what purpose organizations raise funds. The three essential methods geared to three different types of campaigns include annual, capital, and endowment.
Typically, the Annual Fund targets many donors making small gifts through direct mail programs, special events, and membership drives. This fund targets a broad constituency for continual expansion of the pyramid base, and supports the organization's annual operating budget. An annual fund campaign acquires new donors, retains or upgrades current donors, and re-acquires former donors.
The Capital Fund targets major gifts from individuals, as well as corporations and foundations, to support building campaigns or special projects.
The Endowment Fund supports operational or capital budgets. Endowment Funds are frequently the result of specia òl interests, memorials, and planned gifts. The tangible gains of building an endowment are ually in the future, and the result of long-term efforts. An endowment includes capital and other assets, which are invested for long-term growth. Interest earned on the principal provides income, which may be reinvested or utilized. Organizations often link endowments with planned gifts. Outright gifts donated by individuals, corporations, foundations, or service organizations may also create endowments. Unlike other types of contributions from individuals, planned gifts originate from a donor's capital assets or investments, rather than from liquid assets or income.
Contributions from individuals, versus gifts from corporations and foundations, play a prominent role in fundraising. According to the Giving USA 1999 Report, giving rose 10% in 1998 to $174.5 billion dollars. Individuals gave 88% of this total, or $153 billion. Foundations contributed 7%, or $12 billion. Corporations accounted for 5%, or $8 billion. These statistics reveal how individuals can shape the agenda of their local communities.
The production of individual wealth is a result of economic growth in the mid to late 1990's. 95% of all contributed income, donated both to the public and nonprofit sectors, and is generated from 5% of the population! Clearly, the wealthy elite now controls a greater share of the country's economic bounty than ever before. Dependent on the social responsibility demonstrated by these individuals, increased charitable giving can result in an unprecedented golden age of charity.
Individual giving is crucial in advancing annual, capital, and endowment campaigns. Capital campaigns grew at an unprecedented rate within the past two decades in America. Nonprofit organizations, particularly in the health care industry and in higher education, swiftly responded to the economic benefits capital campaigns held for both the institutional host and individual donors. Although capital campaigns continue expanding nonprofit buildings and special projects, endowments may well prove to be the wave of the future. Endowment campaigns for special projects, memorials, and planned gifts will proliferate given continued economic growth. The role of planned giving in endowment building is of singular importance.
Most studies indicate that the amount of capital held by Americans over the age of 55 now stands at about $10 trillion. Since 1990, bequests alone account for more than $40 billion in charitable gifts to nonprofit organizations. Over the last several years, much has been written about the coming "transfer of wealth." Older generations are now passing on wealth, accumulated during the boom years following World War I, to family members and favorite charities. Projections indicate that within the 55-year wealth transfer period, from 1990 to 2044, the transfer will peak in the year 2017.
A planned gift represents a natural extension of the relationship an organization has built with its donors. For most individuals, a planned gift is the only way for contributors to make a major gift in their lifetime. Promoting planned giving opportunities may be the single most important step an organization can take in securing long-term financial stability.
Public libraries are unlike any other nonprofit or public organization in America. They possess historic longevity, broad-based community support, and a tradition of institutional stability. Accordingly, public libraries are poised to attract charitable contributions from a community's entire socio-economic spectrum. These two factors account for the favorable position in which we find public libraries — well situated to attract financial support.
In the early 20th century, communities established public libraries to ensure a democratic society, make self-education possible, and strengthen local community ties. By mid-century, public libraries endeavored to narrow the gap between the information rich and poor, and to safeguard intellectual freedom. With the millennium dawning, the new mandate of public libraries is to serve information users with "world class" resources, such as Internet access (over 50% of all Internet access occurs at public libraries), and close the "accessibility gap" separating the information haves and have-nots.
Libraries are uniquely positioned to play a profound role in the global information society of the 21st century. Our libraries conserve and transmit, not simply information, but culture itself. Historically, libraries store a nation's intellectual heritage, creating "cultural capital." In our mixed economy the private, nonprofit, and public sectors are dependent on information as "raw material" which fuels the production of ideas, products, services, and profit. Unlike the simple 20th century public sector funding model, public libraries now face the challenge of establishing successful cross-sector partnerships with private institutions, such as foundations and Friends' support groups, to jointly address local funding needs.
Fundraising is an active management process built on organizational strengths. It requires commitment to an organization's mission and values. Consideration of organizational form and relationships is fundamental to successful fund development. Indeed, "organizational readiness" is the foundation of every fund development program. Fundraising results will directly reflect organizational vitality.
Fundraising in the public sector is a relatively new phenomenon resulting from Republican public policy in the 1980's and early 1990's. The erosion of public funding, for such basic social services as the development of public libraries, caused these and other public sector institutions to compete in the arena of charitable giving once a bastion of the nonprofit sector. As a result, public sector institutions have "crowded out" less efficient nonprofit organizations.
The state of California is a pacesetter, nationally, in terms of private support for public libraries. California has become a veritable incubator of public-private partnership models. Evidenced by sheer volume, there are currently close to 100 public library foundations in California and many more Friends' groups.
Cross-sector partnerships became the modus operandi in the late 1980's and early 1990's engendering cooperation among private, public, and nonprofit institutions. Public-private partnerships were innovative and experimental. Nowhere is the integrity of this model more challenged than in the public library setting, in regards to its Foundation and Friends' support groups. Extremely divergent "corporate cultures" in public libraries and private foundations cause inherent tensions. Public libraries are bureaucratic, traditional, and serve a broad constituency. Private foundations are efficient, unconventional, and serve a highly specialized constituency. The probable polarization of a highly tradition-bound institution with an unconventional one requires special stewardship.
Dependent on the caliber of governance in both organizations, conflict may dominate, tipping a delicate balance of values and power. Indeed, the degree of mutual support and cooperation existing between the Library Director and the Foundation President largely determines the partnership's success. Friends' support groups play a key role as well because they often predate library foundations. The three governing boards of the library, Foundation, and Friends' must carefully coordinate efforts to advance library fund development. The Library Director's ability to understand cross-sector partnership practices, and the fundraising process itself, will usually determine the success or failure of this unique tri-board challenge.
Public library fund development is in its infancy and is strictly a North American phenomenon. Most initiatives across the nation occurred in major, urban public libraries, some of the country's oldest and best-established institutions. The American Library Association (ALA) is beginning to address fundraising in libraries at its annual conferences.
The Urban Libraries Council (ULC), representing major, urban libraries, created the Development Officers Discussion Group several years ago. (Among the 156 member libraries, ten are located in the state of California). This group met at annual ALA conferences within the past few years to discuss emergent practices. In April 1999, the ULC discussion group also met at the National Society of Fundraising Executive's (NSFRE) annual conference. Most public library development officers and library foundation executive directors prefer affiliation with the fundraising profession, rather than with the library profession. Currently, there is no research or related theory to shape the field of library fund development. Only now are best practices beginning to emerge as a result of increased professional dialogue.
I performed a study of national public library foundations in June 1999, for the Sacramento Public Library Foundation. My study examined relationships between libraries and foundations. I took a random sample of fourteen library foundations to map the range of existing models. The five models include:
Library, with no Foundation: set up either as a 501 (c) (3), or as a public entity, where either the private or public board governs and oversees management.
There are three prerequisites to consider prior to launching a plannedgiving program.
Management of planned giving encompasses four functions, as follows1 :
Three types of planned gifts include: (1) outright gifts, (2) gifts of bequests, and (3) income gifts. Gifts of bequests total approximately 80% of all planned gifts. Initially, public libraries should start planned giving programs by focusing on bequests. The Sacramento Public Library and the Sacramento Public Library Foundation recently received grant funding to establish a first-year bequests and endowment program2.The program features the following components:
A very high potential now exists for public libraries to successfully begin planned giving programs. The unique mix of a vigorous economy, popularity of public libraries, and a robust climate of charitable giving are timely factors. A planned giving program will enable libraries to receive a larger share of the $10 trillion now changing hands to enrich communities throughout the state of California, well into the 21st century.
A very high potential now exists for public libraries to successfully begin planned giving programs. The unique mix of a vigorous economy, popularity of public libraries, and a robust climate of charitable giving are timely factors. A planned giving program will enable libraries to receive a larger share of the $10 trillion now changing hands to enrich communities throughout the state of California, well into the 21st century.
The author wishes to recognize the editorial assistance of Sandra Felderstein who is the President of the Sacramento Public Library Foundation.
You can download an Acrobat version of the 53 page Draft First Year Bequest & Endowment Plan by Kathryn Covier Hannah & William C. Schopfer, CFRE (147KB).
Paula Chiarmonte is a consultant, fund-raiser, researcher, and librarian. As a consultant to nonprofit organizations in New York and North Carolina, she co-authored the publication, Handbook of Volunteer Management. Ms. Chiarmonte was a librarian at Cornell University and subsequently directed a national research project, funded by the NEH, culminating in the publication, Women Artists in the United States: A Bibliography and Reference Guide on the Fine and Decorative Arts, 1750-1985. Paula was Development Director at Arrowmont School of Arts and Crafts in Tennessee and Fund Development Officer at the Sacramento Public Library in California. She is an advisory council member of FRIENDS & FOUNDATIONS of California Libraries (FFCL) and Chair of the FFCL Committee of Library Foundation Executive Directors. Currently, Paula is a fund development consultant specializing in planned giving program development. She may be reached in Sacramento, .
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