Philanthropy in 2017: Massive transfer of wealth brings new attitudes, behaviors

Written by: Jane C. Simons, MiBiz 12/25/16

GRAND RAPIDS — The growth of foundations and an unprecedented transfer of wealth are among trends the nonprofit sector will need to watch in the coming year.

That’s according to a new white paper released by the Dorothy A. Johnson Center for Philanthropy at Grand Valley State University that highlighted 11 important trends affecting philanthropy.

“We wanted to talk about the growth of philanthropy, growth in the number of foundations, and the increased growth in donors,” said Kyle Caldwell, executive director of the Johnson Center. “We are still going through this large transfer of wealth, probably the largest transfer we’ve ever seen in our country.”

The report cites a 2014 Boston College study that concluded $59 trillion in wealth will be transferred across generations between 2007 until 2061. The majority of this wealth transfer is happening within a relatively small group of high-net-worth families who are among the wealthiest 10 percent of Americans and own 75 percent of all of the wealth in the United States.

As a result of this transfer, new donors crave increased engagement in philanthropy, social causes and volunteering, Caldwell said.

“The way that the next generation wants to engage in philanthropy is different,” he said. “They’re not wedded to institutional giving. They’re far more hands-on and are willing to explore new vehicles of giving. How people want to engage may be different, and nonprofits will have to adapt to that.”

The Michigan Nonprofit Association is addressing this issue from an internal organizational standpoint by making sure young talent is nurtured and mentored.

“As the workforce continues to age, young talent is the most important asset that every nonprofit has,” said Donna Murray-Brown, the president and CEO of MNA.

Murray-Brown said the MNA’s “Leadership with Purpose” program features nonprofit leaders presenting on key industry topics. The program helps participants identify their strengths and determine where they can plug into the nonprofit sector. The MNA also launched a new category of individual membership focused on career development to connect people drawn to nonprofit work.

DRIVING UNITY, SENSE OF PLACE

Ensuring a pipeline of quality talent makes sense since fundraising efforts such as social media campaigns increasingly represent a way to engage and give that resonates with younger donors, according to the Johnson Center report. The report uses the example of the #IceBucketChallenge campaign that helped raise $118 million in unrestricted funds over eight weeks for ALS research and programming. These hashtags can drive broad conversations to help create social movement to support causes or raise awareness about issues, according to the report.

The report also highlighted the rapid spread of community-based philanthropy. Since the establishment in 1914 of the Cleveland Foundation, the nation’s first community foundation, there are now an estimated 1,834 place-based foundations worldwide based on the Community Foundation Atlas, which maps the identities, locations, assets, roles, and achievements of these foundations. These foundations, the majority of which are less than 25 years old, grant more than $5 billion annually.

“That movement of having community foundations where there is essentially a community trust overseen by a local board has really grown,” Caldwell said.

On a statewide level, the C.S. Mott and W.K. Kellogg foundations invested in challenge and development grants in the mid-1980s, a move that created a large wave of growth in philanthropy in Michigan.

NONPROFIT SAFETY NET?

Some of these Michigan-based philanthropic organizations have been called upon to help municipalities with issues in their communities. Caldwell said the C.S. Mott Foundation and other entities recently pledged $125 million to address Flint’s water crisis.

“This was the largest investment made until the Water Response Bill,” Caldwell said.

But, it begs the question: Where would that money have gone had it not been for the political failure in Flint?

“If you think about state government in all of its functions and the resources available through the tax base and philanthropy in Michigan, there is no comparison,” Caldwell said. “If you took all of the money from foundations and gave it to the government to run, the money would be gone in six months.”

In comparison to the Mott Foundation’s $125 million pledge, the U.S. Senate passed a $10.6 billion water projects authorization bill that included $220 million in loans and grants to help Flint deal with issues related to its lead-tainted drinking water system.

There is a misperception that philanthropic organizations have the ability to step in and provide governmental services, a concept Caldwell describes as “unscalable.”

Another example of the increasing confluence of government, philanthropy, and nonprofits is the $70.3 million donation to the city of Kalamazoo, driven by lead donors William Parfet and William Johnston, to stabilize the city’s finances over the next three years. Parfet and Johnston also are expected to begin a capital campaign and seek support from additional donors to raise $20.1 million for the city’s 2017 budget.

Situations like this, Caldwell said, blur the lines between what the traditional roles of government and philanthropy are, especially because governments are involved in very political issues.

“People are looking at big donors and giving them greater scrutiny,” he said. “Foundations need to be clear about the rules.”

A MATTER OF PRIORITY

On the state and federal level, Murray-Brown said the MNA will be keeping a close watch on tax reform.

“We will be working with our national partners, National Council of Nonprofits and Independent Sector, to ensure that charitable giving incentives are not negatively affected, because nonprofits rely heavily on charitable contributions,” Murray-Brown said. “We will also be very focused on the new budget priorities. If the cap on military spending is removed, we fear that funds for human services and other programs could be negatively affected.”

MNA officials also will be working to get a state bill that addresses the rise in the number of cases of local tax assessors challenging the tax-exempt status of charitable nonprofit organizations.

“We will also be working to ensure changes in budget and spending priorities at the state level don’t harm nonprofits,” Murray-Brown said.“Recognizing the challenges that are before us, any of the subsectors servicing a particular group of stakeholders could be impacted. If there are changes to charitable giving incentives in the tax code or large decreases in government contracts and grants, any number of nonprofit services could be deeply impacted.”