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The Strongest Source of Funding for Arts & Culture - Will It Last?

  • Posted Mar 07, 2019

Despite a slight increase in individual giving, data shows that predictions about the negative effects from the Tax Cuts and Jobs Act (TCJA) may become a reality.

The federal tax law, which was signed in late 2017, raised a lot of questions and concerns about the impact it would have on individual giving for nonprofit organizations across the nation. Even before the bill was signed, researchers warned that a spike in individual giving could be in response to the uncertainty of what this bill will mean for the following year and may not be reflective of a rising trend. 

Based on previous behavior in response to tax changes, researchers in the field forecasted a drop in the number of low-to moderate-income individual donors for 2018 due to the new law. With this decrease, they also expected an increase in the amount from major donors in order to meet the new standard deduction of $12,000 for singles and $24,000 for couples. In other words, they predicted that wealthier, tax-motivated donors would be incentivized to give slightly more generous donations than in previous years, but the pool of donors would decrease overall.

 

Reports are beginning to show if these predictions were accurate.

According to the Fundraising Effectiveness Project’s 2018 Fourth Quarter Report, which collects and summarizes data from 13,601 nonprofit organizations in all sectors, individual giving increased by 1.6% in 2018 due to a number of individuals giving $1,000 or more. Gifts in the amount of $999 and under decreased in 2018 compared to 2017, as did the number of individual donors as well as donor retention rates.

Despite these seemingly positive outcomes, experts continue to express concerns about what this means for the future of individual giving.

In a recent article by The Nonprofit Times, Elizabeth Boris, chair of the Growth in Giving Initiative of the FEP, states that “[this] increase masks some serious long-term trends that are presenting huge challenges to the sustainability of fundraising and philanthropy.” Boris explains that charitable giving cannot and should not rely on a small, wealthy group for individual contributions because it simply isn’t sustainable.

 

Our own research also confirms findings that the individual donor pool is shrinking but giving higher average amounts to arts and cultural organizations.

Over the past 9 years, we’ve been tracking arts and cultural funding behavior from 5 of the top sources; trustee, individual, government, foundation, and corporate. Our data shows that individual donors have consistently been the strongest and most reliable source of contributions, with an upward trend since 2014 that also outpaced inflation by 22%.

However, the average number of donors per organization fell annually from 480 in 2014 to 462 in 2017 – a 3.75% decrease in the average pool of donors per organization. Additionally, the average gift amount increased from $327 in 2014 to $436 in 2017 – a 33% increase in the average amount given.

 

 

In 2017 the Arts Museum sector averaged the largest number of individual donors at 2,191, which is nearly double the average of the second highest sector, Other Museums, which had 1,041. Arts Education, Community, Dance, and General Performance sectors averaged about 225-280 individual donors. The lowest average number of individual donors, at 166, was seen in the Music sector, which also had the lowest average expenses in 2017.

Performing Arts Centers and Opera sectors averaged 1,000 and 948 donors, respectively, while the Symphony Orchestra sector averaged 596 and the Theatre sector averaged 549 donors.

Our data also breaks down findings based on market and organization size. We found that in 2017, New York organizations averaged 883 donors, nearly double the number of donors in the next highest category, Medium Markets, which averaged 468. Organizations in Chicago, San Francisco, Small, Very Small, and Large Markets all average between 300 and 400 individual annual donors. While Los Angeles and Washington, D.C. have the lowest averages between 250 and 300. 

 

Based on our observations, this downward trend in the number of individual donors per arts and cultural organization began before the tax bill went into effect. This raises the question of whether the decline will continue and, if so, whether that decline curve will be steeper moving forward. The trends and key findings from 2014 to 2017 are based on data provided by over 2,400 arts and cultural organizations across 11 different disciplines in the nation.

Read The Fundraising Report

Focusing on donor retention may be key in maintaining financial health during this time of uncertainty.

While the full impact of TCJA may still be uncertain, what is certain is that, when looking at our data from 2014 to 2017 as well as the data provided by the Fundraising Effectiveness Project for 2018, the individual donor pool is on a downward trend. We also know that these donors are giving larger average amounts each year and that is effectively maintaining an upward trend in overall individual giving, making this a very important source of funding for all arts and cultural organizations of all sizes in every market.

 

Tips and tools to improve donor retention and evaluate your strategies:

The Flywheel Effect

Look at relationship-building strategy as a large flywheel that needs a push to gain momentum instead of the traditional marketing funnel. By taking steps to ensure positive experiences for your patrons in person, on the phone, and online, you can increase patron satisfaction, raise retention rates, and gain organic supporters through peer-to-peer marketing. Your current supporters are your most valuable asset.

Learn More

The KIPI Dashboard

The KIPI (Key Intangible Performance Indicator) Dashboard is a free diagnostic tool for arts and culture organizations that provides financial and operating performance results relative to similar organizations nationally. This tool is designed to help leaders assess health and sustainability and hone strategic decision-making.

Find Your KIPI Score

Data Literacy Courses

We offer a range of free training and educational resources designed to help cultural professionals and grantmakers put data to work. Our resources range from high-tech to high-touch. Online training sessions, reference resources, and webinars let you choose what and when you learn. In-person workshops and training sessions offer a more customized experience.

Learn More

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