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Nonprofit fundraisers worry tax reform could limit donor base Infographic by Rachel Harper

Nonprofit fundraisers worry tax reform could limit donor base

BY Sunday, April 15, 2018 08:46pm

The fundraising climate in Michigan remains stable, but many nonprofit fund developers say they’re concerned about federal tax law changes.

That’s because the sweeping Tax Cut and Jobs Act of 2017 will reduce the number of people who itemize their deductions, potentially limiting the number of filers who take advantage of write-offs for nonprofit and charitable donations. 

Tax reform implications for nonprofits is one issue cited in the 2018 Michigan Fundraising Climate Survey from Detroit-based Montgomery Consulting Inc.

“In the 2018 tax year, we’re going to see a dramatic reduction in the number of itemizers,” said Michael Montgomery, author of the study and a principal with Montgomery Consulting. “We are a state income tax state so it hits us harder. We had a higher percentage of itemizers than other places in country. The new vision for the tax system doesn’t have deductions available for state and local taxes and that’s going to dramatically change how people in this country itemize.

“People are not overly concerned about the change in the tax rate, but they are very concerned about the higher deduction.”

The 2018 survey — the company’s sixth in an annual series — used a 756-organization cross-section of the Michigan nonprofit community focused on the types of organizations most likely to be actively soliciting from individual, corporate and foundation donors. Of the 104 survey respondents, 66.6 percent indicated that the higher standard deduction is likely to have a negative impact on their organization’s fundraising.

Survey respondents also reported receiving a smaller proportion of their total philanthropy from individual donors and more from corporations compared to their national peers who participated in the Giving USA study. In Michigan, individual giving accounts for 52 percent of total giving, compared to the national average of 72 percent.

Montgomery said this divergence has been a consistent finding in each of his six surveys.

“We’ve been moving in this direction for a couple of years,” he said. 

Fundraising success has also varied, according to Montgomery. 

“We consistently had 33 to 37 percent of the organizations that responded say that they did not meet their prior fundraising goal and this has been increasing up slowly over time,” he said. “At the same time, we have a shrinking proportion of respondents saying this year is better than last year.”


Keith Hopkins, president at Ada-based Hopkins Fundraising Consulting LLC, said despite some fundraising challenges for the state’s nonprofit and philanthropic sectors, he’s not experienced a decline to date. Instead, the current economy has provided one of the most robust fundraising environments in his 20-plus years in the industry, he said. 

While the economy is definitely a factor in the success of any fundraising project, Hopkins believes geography also may be contributing to the success of local efforts. Nonprofits on the east side of the state may not be faring as well as those in Grand Rapids or Kalamazoo where the economy is more diversified, he added. 

“The other factor right now that is helping to drive fundraising success is that in the last year, the stock markets have been up between 22 and 23 percent and a lot of folks got a tax cut that will help drive fundraising in the short term,” Hopkins said.

Still, many nonprofits in Michigan and nationally remain concerned about the tax changes. 

David Callahan of Inside Philanthropy wrote in a blog post that he has seen estimates of an annual reduction in charitable giving of as much as $20 billion because of the new tax laws.

“But in 2018 at least, my hunch is that net giving holds steady or even rises as the wealthy — buoyed by record stock market gains — continue to ramp up their philanthropy,” he wrote.

“Since most income gains in recent years have gone to the top 1 percent, it’s not surprising that this flush group has been giving more — even as donations by most Americans have fallen since 2000. This gap will widen further thanks to the new tax law.”

As a result, Hopkins expects the next two years to be good for those in the business of raising money.

“We are in this magical period where a lot of wealth is being transferred to Baby Boomers because of deaths,” he said. “For the first time, Baby Boomers are coming into quite a lot of wealth and there’s a generational transfer that’s occurring.”


However, the outcome of the midterm elections this fall or changes in the stock market could shift the current positive momentum in fundraising, according to Hopkins. 

To that end, Montgomery said he is paying close attention to anticipated and overdue corrections in the economy.

“We are in the ninth year of an economic expansion. We are two years past when another recession was expected,” he said. “We had five years with a record few corrections. Now we’re back to volatility and that makes people crazy.”

While Hopkins agrees that a correction or mild recession is due after the ninth year of a bull market, he said the nonprofits he’s spoken with on the west side of the state and in northern Indiana are hitting or surpassing their fundraising goals.

“I think a lot of it is good leadership and working hard to get community volunteers engaged,” Hopkins said. “Even in tough economies, the nonprofits that really plan well, have a very focused mission and well-defined asks, oftentimes they can be successful.” 

However, Montgomery said he thinks the negative impact for Michigan’s fundraising climate will be greater for several reasons if and when an economic downturn occurs.

“In much of Michigan, the recovery from the last recession is not terribly complete. Michigan’s recovery didn’t even start to resemble that of the whole nation until 2014,” he said. “I think it’s a combination of an auto industry that came out of the last recession permanently shrunk and reabsorbing that surplus labor has been difficult. Replacing that economic development activity has been tough.

“A lot of what we’re seeing now doesn’t pay the wages of a former manufacturing base. That is a working and middle-class economy problem that will hit mass-market charity causes like the Salvation Army and United Way rather than major educational institutions.”


Increased volatility on the United Way system has put additional pressure on their traditional grantees and on direct fundraising, Montgomery said. The situation has placed nonprofits in the health and human services sector behind the eight ball because of the shrinkage of large employers.

“Things are not dire at the present time, but I expect that over the next 12 to 24 months things are going to get worse,” he said. “I think we’re going to see a 5 percent drop in individual tax giving. If we see a general economic downturn, we’ll see corporate giving decrease. It will hit Michigan harder because our corporations have traditionally given more. These are big companies with strong philanthropic donations.”

For Montgomery, this scenario calls into question the need for nonprofits to look at mergers and acquisitions.

“One of the ideas we need to disabuse people of is that every new idea needs a new nonprofit,” he said. “It’s time for existing organizations to start thinking among themselves about mergers and marriages. It’s very, very hard to get that discussion started.” 

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