The 2022 giving slump exposes the fragility of top-heavy charity

When ultra-wealthy donors dominate philanthropy, our charities are less resilient.

378
SOURCEInequality.org

This week, the Giving USA Foundation published Giving USA 2023: The Annual Report on Philanthropy for the Year 2022. The numbers were bad. Really bad. 

2022 was, as the Chronicle of Philanthropy wrote, “one of the worst years in philanthropy history.” Steep revenue losses more than wiped out the giving surges of the previous two years, leaving charities in an even worse position than in the years before the pandemic.

The Giving USA analysts attribute the slump primarily to two factors: small-dollar donors giving less because of high inflation, and major donors giving less because of the poor performance of the stock market. 

What we would say is that the declines of 2022 reveal just how fragile we have allowed our philanthropic ecosystem to become. For the past couple of decades, wealthy donors have taken more and more control over our charitable sector, while increasingly distressed households of everyday Americans drop off the donor rolls. This has always posed great risks not only for charities, but also for our society as a whole. And, unfortunately, the consequences may now be catching up with us.

In the past, big giving camouflaged an increasingly top-heavy charitable system

Giving USA is the most comprehensive analysis available of national U.S. philanthropy, and is an invaluable compendium of otherwise inaccessible giving data. According to this year’s report, the total amount given to charity in 2022 was $499 billion. This was a 3.4 percent decline from the previous year, or a 10.5 percent decline when adjusted for inflation.

This is bad enough. But most of the charitable giving in this country comes from individuals — as opposed to corporations, foundations, or bequests — and giving from individuals declined almost twice as much in 2022 as overall giving. Individual giving was just $319 billion in 2022, a decline of 6.4 percent from 2021, or a 13.4 decline when adjusted for inflation.

Nearly every year for the past couple decades, Giving USA has been able to report record levels of dollars being poured into charitable coffers. But underneath that positive story lay a disturbing, relentless trend. More and more charitable dollars were coming from wealthy donors, and fewer and fewer were coming from lower- and middle-income donors — a trend we call “top-heavy philanthropy.” 

Top-heavy philanthropy poses at least two huge risks to charities. 

One is that it makes charities vulnerable to donor fickleness and donor control. When nonprofit organizations depend on a small number of very wealthy donors for a big chunk of their fundraising dollars, they must work harder to ensure those donors keep giving. They may even find themselves compromising their activities or their missions to keep the major-giving revenue streams flowing.

The other is that it actually means less money for charitable programs. When wealthy people give, they tend not to give directly to working nonprofits, but to intermediaries like private foundations and donor-advised funds. This means that even as the number of dollars given to charity has technically gone up, charities on the ground have seen less and less of it. 

Organizations are even more dependent on major donors than ever

Even before 2022, as charitable dollars were going up, donor numbers were going down. According to the Lilly School of Philanthropy’s Philanthropy Panel Study, the percentage of American households that give to charity slipped from 65 percent in 2008 to just below 50 percent in 2018 (the most recent year available). This is nearly a quarter of giving households gone in just 10 years.

And not only are everyday donors dropping out of the donor rolls, but they’re giving a smaller proportion of money to charity as well. The best indicator of this is what has happened to individual giving as a percentage of people’s disposable income — since the extra money a person has available to spend during the year largely determines how much that person gives to charity. Individual giving as a percentage of disposable income has been remarkably consistent; over the past 40 years; it has rarely strayed from a narrow range of 1.8 to 2.2 percent. But according to the most recent edition of Giving USA, it fell to just 1.7 percent in 2022. This is the lowest it has been since 1995.

In other words, in 2022, average Americans gave the smallest chunk of their disposable income to charity than they had in almost thirty years — smaller, even, than during the recession of 2007-2008.

This means that giving from individuals is making up a smaller and smaller slice of the total charitable pie — and the steep declines in individual giving in 2022 have accelerated this trend. In 1992, individual giving accounted for 78 percent of all giving. By 2022, according to Giving USA, donations from individuals had fallen to just 64 percent of all charitable revenue. As this happens, private foundations and corporations make up an increasingly large share of U.S. giving each year.

Top-heavy philanthropy means more money diverted from working charities

To make matters even worse, when more charitable revenue comes from wealthy donors, working charities actually receive less money. This is because when wealthy donors give, they tend to give disproportionately less to working charities, and disproportionately more to intermediaries like private foundations and donor-advised funds. 

In 2022, for example, of the $13.96 billion given to charity by the top six mega-donors listed in Giving USA, at least 73 percent of it — $10.14 billion — went to private foundations. Five of these six donors gave all of their 2022 giving to foundations.

With only a five percent payout requirement for private foundations and no payout requirement at all for donor-advised funds, the dollars going into them quite often have a hard time finding their way out. This means that the recent record-breaking levels of charitable revenue are, more and more, being funneled away from charity and into intermediary investment portfolios where they may stay for years.

As of 2021, more than a third of individual giving was diverted into intermediaries — up from just 5 percent 30 years ago. Individuals donated $326 billion to charity in 2021, but $50 billion of that money went to private foundations, and $73 billion went to donor-advised funds. And the trend has been going relentlessly upward, particularly in the past five years.

This spells trouble for charities — and all of us who depend on their work

The relentless decline in individual giving and the shift towards intermediaries have been a painful one-two punch for working nonprofits. They have been taking in smaller and smaller portions of the donations that come in. They have been increasingly at risk of losing significant chunks of funding if one or two major donors lose faith with them. And their major funders have been exercising increasing control over their programs and even their missions. 

And, if anything, these trends appear to be moving at light speed in the wrong direction. According to reporting by the Chronicle of Philanthropy, a full 5 percent of all individual giving came in the form of mega-gifts of $500 million or more, and a full 3 percent of total giving came from “just six individuals and couples” — meaning that organizations are even more dependent on the ultra wealthy. And more than three-quarters of private foundations plan to give the same or less in 2023 than they did last year — meaning that charities won’t be able to turn to foundations to make up for losses in individual giving.

The coming decade will be a critical one. National and global challenges such as climate change, crumbling infrastructure, and widening economic inequality demand our urgent attention. And the institutional expertise and skill of our nonprofit sector could help immensely with all of it — but not if it is hamstrung by declining support and autonomy. 

We have the power to reverse these trends. If our working charities walk on many legs — if they can rely on the support of a broad, stable donor base — they will be more representative, more effective, and better able to weather storms like this. We must take the steps to make that possible.

FALL FUNDRAISER

If you liked this article, please donate $5 to keep NationofChange online through November.

COMMENTS