The Recovery of Higher Education Philanthropy

By Cara Quakenbush
Principal Analyst, Development

It has been a long road back from the 2008 financial crisis for higher ed philanthopy. The good news is that more than four years after the financial collapse claimed the wealth of many of our most generous supporters and the confidence of many others, 2013 is likely to mark a significant step toward a return to relative normalcy. Here are 5 signs that 2013 will be the year colleges and universities will finally begin to rise from the recession (in nominal terms):

#1: Positive Trajectory

Unlike other philanthropic organizations across the country, higher ed experienced its highest watermark in 2008, followed by a precipitous and painful drop in philanthropy in 2009 and 2010. The good news is that while it may not feel like it in all corners of the country, the current trajectory is decidedly positive. In 2011—the most recent year for which data is available—higher ed emerged from its two-year slump, climbing 96% of the way (in real numbers) to its 2008 pinnacle.

 Source: Council for Aid to Education, Voluntary Support of Education Survey; Giving USA, Annual Report on Philanthropy, 2011

#2: Million-Dollar Gifts Are Back

We now know that the precipitous drop in giving experienced in 2009 and 2010 was driven primarily by top of the pyramid donors, particularly those who give the $1 million+ gifts, that can make or break the achievement of comprehensive campaigns and annual fundraising goals. Since higher ed typically receives more than half of all gifts at this level—58% in 2012—it also felt this drop most acutely: million-dollar gifts fell more than 50% between 2007 and 2010. 2011 and 2012 signaled a promising reversal of this trend, however, as million-dollar gifts grew by 62%. Although still only 75% of their 2007 high mark, this trajectory is a positive sign of things to come in 2013.

Source: Chronicle of Philanthropy, America’s Top Donors

#3: Stock Market Recovery

The single largest driver of million-dollar gifts, the stock market, is also on the rise. 2012 marked the year in which the losses stemming from the financial crisis, in real terms, were essentially wiped out of the capital markets. In July of 2012, the Dow Jones closed up 100% from its bottom in March of 2009, a positive indication for donors waiting for the one-year mark to make their gifts.  Since then chances are that many of the securities driving these gains have now been held for more than 12 months and therefore qualify for deductibility at full fair market value.

Source: Center for Philanthropy, Million Dollar List

#4: Encouraging Tax Environment

In addition to the stock market recovery, there’s another positive development as it pertains to big gifts: ATRA (or the American Taxpayer Relief Act of 2012),an outcome of the 2012 “Fiscal Cliff” negotiations. While this legislation covers a number of different areas that touch philanthropy, I’ll focus here on three of the most encouraging:

• Charitable deduction rates (and the corresponding tax rates) were raised on high-income earners, providing more incentive to give to charity in 2013.
  • 39.6% income tax rate for individuals earning more than $400,000
  • 20% capital gains tax rate for same income threshold
  • Reinstatement of the “Pease Amendment:” Provision that imposes a 3% reduction in the value of itemized deductions, including the charitable deduction, for taxpayers with AGI of more than $250,000 which, unlike the increases in income and capital gains rates, should have a net neutral affect on total giving
• The IRA charitable rollover returns.  Good news for the growing number of our more “seasoned” donors who like making tax-free gifts directly from the IRA, in a surprise addition to the ATRA legislation these gifts have been extended through Dec. 31, 2013. Development offices should take full advantage while it lasts.
• Estate tax deduction changes. Permanent extension of the estate tax, exempting the first $5 million of an estate and taxing the remainder at a 40% rate, indexed for inflation. The good news is that donors may see this as a stabilization of this part of the tax code after years of uncertainty (we hope), but since only a tiny percentage of all estates will be subject to these terms, it is unlikely it will have an effect, positive or negative, on bequest giving.

#5: Unemployment and Other Economic Concerns are Less of a Factor

Source: Eduventures Alumni Pulse Survey: Trending Drivers of Higher Education Philanthropy 2013

If you still aren’t feeling the lift, that’s because the numbers I’m talking about here are not inflation adjusted, they are nominal numbers. Many believe that to get back to 2008 highs in inflation-adjusted terms may not happen until the end of the decade if we maintain the current trajectory, but that 2013 marks an important step toward that end.