The Changing Face of Giving

To the collection plates, the food drives and the swinging red buckets of the Salvation Army, Americans have always given--our nickels and our checks, our outgrown coats and canned hams. It’s part of many of our religious upbringing, part of our national identity. But what was once called “almsgiving” has become a multibillion-dollar enterprise now experiencing an unprecedented boom: Last year, charitable giving in the United States alone generated $175 billion, a 9% annual increase right on the heels of 21% and 11% increases in the previous years.

If the amount of money donated in this country has increased, the number of organizations seeking it has increased faster--in the last two decades, the nonprofit sector has grown by 60%, to more than 1 million organizations nationally.

This growth spurt has transformed more than just the numbers. Like a teenager contemplating the sudden new height and dimensions of adulthood, the philanthropic community is full of new ideas about how it works and its place in the world.

Among those changes is the emergence of the West Coast as a leader in foundation giving and philanthropic innovation. In California especially, where the overnight blooming of high-tech wealth is at its most vivid, the nature of charity--where it comes from and where it goes--is evolving at a rapid pace and in ways industry-watchers are only beginning to understand.

Like any other business, philanthropy is affected by outside influences: the economy, new technology, shifts in government policy and social trends. It consists of two distinct parts--essentially the givers and the receivers--often with separate needs and agendas. What the givers may see as a necessary or beneficial shift in priorities, the recipients may not, and vice versa.

Shifts such as the proliferation of family foundations and a trend among organizations to allow donors more control over the use of their gifts is challenging the two prongs of the philanthropic community to work together as never before.

“Philanthropy is a behavior,” says James Ferris, a professor in USC’s School of Policy, Planning and Development, “and nonprofits are the recipients, the vehicles for change. There are shared concerns, but there is a natural tension between the two. Foundations, for example, are trying to leverage their resources, to have an impact; nonprofits essentially want the money but no advice. It’s hard to understand the community as a whole, but critical if we’re going to move forward.”

And the goal is the creation of a more cohesive and presumably more effective charitable community: the new philanthropy.

Courses and Workshops All Over the Country

Ferris, who will head USC’s new Center for Nonprofit Management, opening this month, is part of the relatively new trend of philanthropic education, an attempt to understand both sides of the process, to study the industry as a whole. Across the country, nonprofit management centers and courses are cropping up at universities, and philanthropist round tables and conferences, workshops and speaker luncheons fill the reception rooms of Ritz-Carltons and Hyatt Regencies from Portland to Tampa.

“The fall is very bad,” says Ferris, with a laugh. “I’m on the road a lot in the fall.”

Even President Clinton has joined the circuit; in October, he and the first lady hosted 150 charity executives, donors and interested others at the first White House conference on philanthropy.

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“The new philanthropy” is a term already taking on mythic proportions. While some stalwarts argue there is nothing really new in the field, only more money and more participants, most insiders believe in the concept because the money fueling today’s philanthropy is new and the people donating that money are new to the role of philanthropist. They often are relatively young, with new ideas about how their money should be spent. At the White House conference, for example, hot topics included fostering traditions of generosity in the younger generations and the effects of the high-tech industry and its leaders on the nonprofit world.

In discussing the new philanthropy, a lot of numbers get tossed around--the growth of nonprofits, the increase of foundations (organizations established solely to finance charitable causes), the emerging millionaires--big numbers that keep getting bigger. But the biggest one, and the one at the core of many strategic conversations, is the much heralded “transference of wealth” expected to occur within the next 10 years when at least $10 trillion will be left by one generation to another.

The desire to see some of that money is the driving force behind strategies long-term and short on the part of charities, universities, community foundations and other nonprofits. Soliciting legacy gifts, which has traditionally been done on a more personal basis with well-known long-term givers, has evolved into widespread “planned giving” and “leave a legacy” campaigns.

But beyond the straightforward wish to be mentioned in the will is charities’ more fundamental need to understand the motivations and predilections of the newly rich, those who have inherited and those who have accrued.

Many of them are boomers who have always tended to go their own way; some are from the new harvest of baby millionaires--20- and 30-somethings who made their fortunes in the stock market or in Silicon Valley, and others simply successful venture capitalists. Microsoft founder Bill Gates, who recently established the $17-billion Bill and Melinda Gates Foundation, is the most visible member of this growing pantheon.

And, everyone agrees, nowhere are the differences between new money and old as marked as in the realm of charity.

“People treat wealth differently than income,” says Ferris. And, indeed, giving as a percentage of income has remained constant, at about 2%, for the last several decades. “There’s a lot of attention on the new entrepreneurs, are they going to give differently?”

“It is an exciting time because there is this new wealth,” says Andy Spahn, head of DreamWorks’ corporate affairs and president of the Geffen Foundation. “But there is a learning curve. People are busy reconciling themselves with having this money. They have to convince themselves that it’s real. That if they give a percentage away, it all won’t disappear. They say it takes several generations to make a real philanthropist,” he adds. “But now we’re seeing people learning to do it in a lifetime. But it takes awhile. Even our guys [DreamWorks principals Steven Spielberg, Jeffrey Katzenberg and David Geffen] are just now preparing to take their giving to another level, to make truly significant gifts.”

Foundations Have Doubled in 20 Years

One dramatic change that is being attributed to the emergence of these “venture philanthropists” is the proliferation of foundations, both family and community. Since 1980, their number has doubled in the United States--from about 22,000 to 44,000; in 1998, they gave an estimated $15.4 million in grants and had more than $283 billion in assets, according to the Foundation Center, a New York-based organization that collects information on foundations and corporate giving. California, in particular, has seen a boom in foundations: 1,385 of them have assets approaching $48 billion and last year doled out $2.17 billion to various charities, according to a recent survey by the Southern California Assn. of Philanthropists and Northern California Grantmakers.

“There is a definite shift in money and influence,” says Ferris. “The next 10 years will see the West Coast emerging as a real philanthropic power.”

Foundations appeal to the new philanthropists because they reflect the entrepreneurial spirit. Most are based on endowments, which are invested, and gifts are made out of the “profits” at a federally required minimum of 5%. And when you run your own foundation, you control where your money goes, something that appeals enormously to many of the new tycoons.

“They feel they made the money,” says Jack Shakely, president of the California Community Foundation, “so they should be able to say exactly where it goes.”

But this is not an equation that everyone agrees with.

“Making money in a certain industry and giving it away responsibly are two different things,” says Lon Burns, a consultant currently working with USC’s new nonprofit center. “It’s easy to give away money; it’s hard to give it away well. Even smart management skills aren’t necessarily transferable.”

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This CFO mentality has created a whole new category of giving in both new and long-standing institutions. “Donor-designated funds” is the current buzz phrase, spoken with relish or annoyance depending on the speaker. Donor designation allows people to earmark their gifts for particular programs or areas of interest while relying on the staff of large organizations, such as the United Way, to evaluate which nonprofit should receive the gift. It is an appealing alternative for those who don’t have the capital or inclination to operate their own foundation.

For the organizations offering it, the results are mixed. Donor designation is the MiracleGro of community foundations, which typically offer a range of donor participation levels, but is the salt sown in the gardens of larger organizations such as the United Way and the Jewish Federation, which have been forced to divert money from general funds that were their keystones into pet causes in order to keep their supporters.

“It does put certain nonprofits at a disadvantage,” Ferris says of donor designation. “Especially those serving the urban poor. Donors don’t know about their organizations.”

“The big organizations have better publicity,” says Joe Haggerty, president of the United Way of Southern California. “People recognize them and so feel they can trust them. And some people just go down the list,” he adds, explaining that on the back of United Way donor forms there is a list of affiliated charities. “It’s an alphabetical list, so if you are the American Heart Assn., you stand a better chance than some group that starts with L.”

More Control, More Scrutiny

The trend of donor designation goes deeper than choosing which charity to support. Many of the new foundations, and some of the old, are becoming more particular about where their grant money goes. Where in the past a nonprofit would simply get a check to do with what it would, that money now is often given specifically to a program--an adult literacy initiative, say, or a drug rehabilitation outreach program. And with that money often comes the expectation of intense scrutiny before and after the donation is made. While evaluations of some sort are required by most grant-making institutions, many in the nonprofit sector feel the atmosphere has become too intense and critical.

“What we hear from our grantees over and over again is: ‘We need general support money to pay the rent and the salaries and the donors want to fund programs,’ ” says Torie Osborn, executive director of Liberty Hill Foundation, which supports local community organizing campaigns. “The new money seems more results oriented. They want to see the impact immediately. Since we’re in the business of community empowerment and social change, we need to teach donors that it doesn’t happen overnight.”

“ ‘Our portfolio of grantees,’ I hear this phrase all the time,” says Claire Peeps, executive director of the Durfee Foundation, which supports the arts, education, history and community development in Southern California. “As if it is an investment. Foundations are trying to get smarter, but there is a real show-me-the-goods mentality that I think is coming from the younger members in the boardroom. The nonprofits’ concerns are that there’s too much program support, not enough infrastructure support and that the increased evaluations are killing them.”

To a certain extent this tension is, as Ferris mentioned, the nature of the beast. But there is a very real and influential school of thought that says if nonprofits want to be efficient and self-sufficient, they need to be run more like businesses. Bring on the MBAs and the bottom line--use grant money to create a system that will end your need for grant money.

But many long-timers in the field believe that a business plan can go only so far in evaluating and shaping a charitable concern.

“I have a lot of arguments with donors who want to approach it like it’s a business,” says DreamWorks’ Spahn. “They say there’s a formula, talk about overhead and number-crunching. Yes, we weigh those things, but there are other factors. There are people as well as numbers.”

Yet in a small way, this kind of bottom-line thinking has succeeded: Dues and fees for services, which include things such as pet adoption fees, YMCA membership fees and low inoculation fees at clinics, are now the single greatest source of funding for nonprofits in the country (38.6%), followed by the government at 31.7%. Private contributions, in fact, make up less than 20% of all nonprofit funding.

As the donors and foundations have skyrocketed, the number of nonprofits have kept pace. Currently, they employ 10% of the national work force and contribute 8% of the gross domestic product. California is home to 130,000, the largest concentration in the country. Although the majority are operated by volunteers, the state’s nonprofits employ 750,000 and generate and receive about $80 billion a year.

So it is not surprising that competition, for government and private money, is fierce, with larger organizations having an enormous advantage over the smaller ones. Less than 4% of all nonprofits nationally have assets greater than $10 million, yet these are the groups that receive almost half of all public financial support. More than 40% have assets less than $100,000, and they receive less than 3% of that support.

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Many donor conversations revolve around consolidating donations, focusing resources, increasing efficiency for real impact on communities, a challenge that seems at odds with a diversifying nonprofit sector.

“A lot of nonprofits address local issues,” says Peter Manzo, executive director of the Center for Non-profit Management, a management support and consulting group, “so their growth is a function of increasing population. But when people talk about the recent growth, I’m always afraid they are getting at the notion that there are too many of them. People use the word ‘duplication,’ and I think, ‘I hope you’re not saying that people are being served twice, because that just isn’t happening.’ ”

Collaboration is the solution many are offering--among foundations, between the private sector and government, and among nonprofits themselves--a solution Manzo thinks is a good one as long as the expectations are realistic.

“Saying money could be better spent with collaboration, that’s true,” he says. “But that also takes more resources, not less. When donors say, ‘If you would collaborate, I’d save money,’ that doesn’t work. Yes, you may be able to inoculate more people for less money, but if your goal is improved health care in a certain area, those numbers don’t take care of that.

“Real terms of improvement are hard to see,” he adds. “Dollars you can put on paper; it’s harder to appraise outcome.”

Fortunately, the charitable community, for all its recent metamorphosis, remains almost indescribably diverse, reflective of the nation that fosters and requires it. Along with terms such as “venture philanthropy,” “donor designation” and “portfolios of grantees,” there is another phrase one hears again and again from the employers and employees of charity: “There is no bad giving,” they will say, even while criticizing this trend or that development. “There is no bad giving.”

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Mary McNamara can be reached at mary.mcnamara@latimes.com.

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Funding Sources

Revenues for nonprofit organizations are a combination of private and public dollars. Below, funding sources, as of 1996:

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Dues, Fees and Charges: 38.6%

Government: 31.7%

Private Contributions: 18.9%

Other Revenue: 10.8%

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Source: California Assn. of Nonprofits

Where the Money Goes

A breakdown of California nonprofit groups, and the amount they receive from the state:

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Figures are for 1995, the most recent available.

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Source: California Assn. of Nonprofits