“A Very Tough Year.” Research Confirms Higher Ed Fundraisers’ Worst Fears About 2020

Photo: Kingfajr/shutterstock

Photo: Kingfajr/shutterstock

Last June, I spoke with Jeff Martin, senior director at education consulting firm EAB, about higher education’s imminent fundraising crash. “We’re nearly three months into the COVID-19 crisis, and university fundraising leaders are only just beginning to see the impact that the economic slowdown is having on their ability to secure donations,” he said at the time.

Eight months later, an EAB report has laid out the full scope of one of the most challenging fundraising climates in recent memory. It looks at how 104 university advancement teams navigated the period from the start of their fiscal years through December 31, 2020, compared with the same period from the previous year.

EAB found that more than one in four advancement teams saw fundraising revenues decline by more than 30%. More than half of institutions saw dollar declines, with the median institution experiencing a 9.4% drop in the value of new gifts and pledges. For 46% of institutions, the declines reached into the double digits. “While there are pockets of improvements, lots of institutions saw less fundraising revenue come in compared to the same time period the previous fiscal year,” Martin told me. “For a lot of institutions, it’s been a very tough year.”

A week after EAB announced its findings, the Council for Advancement and Support of Education published its own report finding that for the first time in a decade, total giving to higher education institutions fell slightly, from $49.6 billion in 2019 to $49.5 billion in 2020.

Martin told me that EAB partner institutions that thrived in 2020 did so thanks to the continued largesse of mega-donors. Yet even this seemingly good news comes with a catch. While advancement teams’ growing reliance on mega-donors is part of a long-term trend in higher ed philanthropy, “It signals some challenging times ahead if we’re not developing that gift pipeline to get more donors to give large gifts,” Martin said. As we’ll see, that will be a tall order for many struggling institutions.

Reassessing impact

Martin cited two causes of donors’ reduced support for higher ed institutions. Neither will come as a surprise to fundraisers. One, donors redirected their giving toward organizations on the front line of pandemic response. And two, they gave more for organizations advancing racial and social justice.

Martin told me this drop-off was especially acute for smaller donors who may have asked themselves something like, “Where will my $50 be more impactful this year?” Martin said, “There often seems to be a clear answer in their minds, and it’s not higher ed. That helps explain the median 4% drop in donors we saw across colleges and universities. In fact, over one-third of institutions saw a double-digit donor decline.”

On the bright side, some partners have effectively integrated social justice efforts into the larger advancement framework. “There are many institutions that are committing to rethinking faculty diversity, their role in the community and the way they deliver instruction so that the outcomes are more equitable,” Martin said. “For each of those priorities, there’s a dollar tag attached and advancement is at their disposal to generate funding to make progress.”

It’s at these institutions, Martin said, “that we’ve seen the greatest impact on fundraising strategy—VPs and other leaders are having to identify donors and put together proposals to cultivate donors in a slightly different way than in the past.”

Staying on the sidelines

The precipitous decline in higher ed support is understandable, given other urgent causes vying for donors’ attention. But we should also view EAB’s figures against the backdrop of the surging equities market. By December 31, 2020, the S&P Index was up 67% from its late-March nadir and had blown past its pre-pandemic highs.

Conventional wisdom suggests this would translate into greater support for universities, and to an extent, it did—higher ed mega-donors cut those big checks thanks to their ever-growing portfolios. But EAB’s data reminds us the market can be an imperfect gauge of donors’ generosity and risk tolerance.

Therein lies the second reason behind donors’ tepid support for universities across 2020: “top of the pyramid” donors took a “wait and see approach” given ongoing market volatility. With the market currently flirting with historic highs, Martin told me donors are still on the fence. “I’ve heard from countless partners that some of their bigger donors have continued the conversation about philanthropy with the gift officers they’re working with, but many of them have been tapping the brakes to see where everything ends up.”

First-time major donors are especially reluctant to take that multi-million-dollar plunge right now. “First-gift anxieties are challenging in even placid economic times,” Martin said. “Throw in chaos and uncertainty, and I think wealthy individuals who explored big-ticket higher ed gifts are saying, ‘Let’s revisit in 2022 or 2023.’”

Add it all up, and 49.5% of EAB partners saw a decline in the number of new proposals at or above $25,000, compared to 41.6% who saw an increase and 8.9% who stayed flat. Nearly two in five saw double-digit proposal drops.

“Expectations are skyrocketing”

Conventional wisdom also suggests that university presidents attuned to a turbulent market and donors’ attention to other urgent issues would dial back on how much they expect of beleaguered advancement officials.

If only things were that simple.

In the late summer of 2020, EAB convened groups of chief advancement officers and asked them, “Are your boards and presidents expecting fundraising returns to be higher, flat or sustained, or lower, given all the challenges?” Seventy-five percent said “flat or increased.”

At the same time, “54% of advancement teams are pacing behind where they were last year, and over 80% of them have seen budget cuts within advancement,” Martin said. “Expectations are skyrocketing, fundraisers have to do even more while the climate is dragging down performance, and they have to do it with fewer resources.”

As a result, higher ed advancement teams are pulling from an emerging playbook to help universities adapt to the new normal. But first, let’s look at the larger challenge that undergirds the entire exercise—how advancement officers are navigating the tension between what Martin calls “mission and margin.”

Fears of a “lost generation”

“There are a lot of advancement leadership teams and presidents who have chased higher and higher campaign goals,” Martin said. “For some institutions, fundraising is an end unto itself. It’s this idea that any gift we can close that brings us closer to $2 billion is something that we will welcome with open arms.”

But what happens if a donor’s mega-gift doesn’t strongly align with the university’s mission, calls for a construction project requiring perpetual fundraising for ongoing maintenance, or papers over more pressing needs like escalating tuition and pandemic-related financial shortfalls?

More often than not, universities sweep those questions under the rug while the advancement office fires off a press release lauding the gift’s potential to attract more donors and expand the school’s profile.

The alternative—leaving a misaligned $50 million gift on the table in the middle of a multi-billion capital campaign during a pandemic—is not an option for advancement officers being asked to do more with less. “There is so much competition for donors’ mindshare that if we don’t follow their lead and give them opportunities to keep giving for whatever inspired them in the first place, they’ll find another organization that will do that,” Martin said.

EAB partners fear that if a donor finds another organization to support, they’ll be gone for good. “Mentions of ‘a lost generation of donors’ have begun to punctuate my research team’s advancement-leader interviews in recent weeks,” Martin wrote on EAB’s website. “While the median institution only brought in 4% fewer donors than they did the year before—a sizable dip, but not a catastrophic one—60% of all institutions saw drops, and a startling one in five saw 20%-plus fewer donors compared to the previous year.”

An emerging pandemic-era playbook

Given the high stakes, most advancement officers have no choice but to occasionally prioritize “margin”—at least in the short term—for the sake of the university’s “mission” as defined by their superiors. That being said, Martin told me some of EAB’s partners “have either started questioning or are feeling pressure from their presidents questioning whether all dollars are created equal.”

As the vice president of a private research institution told Martin, “Even as our campaigns get larger and we produce more and more, there is a countervailing force that says ‘how much of that multi-billion campaign actually speaks to the core mission of the university?’”

Martin reeled off some of the ways officers are attempting to strike a balance between mission and margin. One strategy is to “come up with fundraising opportunities that speak to donors’ deepest, most motivating passions—fundraising opportunities that promise to transform the world but also align the university’s mission.” These “big-idea” proposals are designed to bring in mega-gifts in the $5, $10, $20 million range. (A previous EAB study looked at how leaders at the University of California, Davis set criteria for what constitutes a “big idea” to help advancement officers vet gift proposals.)

Some “big idea” proposals will align with the school’s mission. But many will not. As a result, some of EAB’s partners are thinking of ways for donors to make unrestricted gifts that can be used to fund more mission-aligned activities. Some are engaging “middle-of-the-pyramid” donors who contributed emergency support in the early days of the pandemic and asking them to give to the annual fund, which is the primary source of a university’s unrestricted fundraising revenues.

But if fundraisers truly want to move the needle, they’ll have to follow the money. That means cultivating mega-donors who have what Martin called “the deepest, most trusting relationships with the institution” and incentivizing them to make unrestricted gifts.

Martin told me some gift officers are putting “hybrid asks” in front of major donors by adding a $25,000 or $50,000 unrestricted gift on top of the restricted portion of the proposal. Officers are also creating “social stewardship opportunities” for donors who make an unrestricted gift. For instance, a donor who makes a multi-year unrestricted gift will gain access to the university’s President’s Society.

Leadership at the crossroads

At the start of the pandemic, fundraising experts and bloggers wondered if the crisis would force donors to reconsider their affinity for plush residential halls and glittering facilities, especially if schools retain a significant virtual footprint after the crisis subsides.

Martin told me such a shift has yet to materialize, due in part to many university leaders’ aspirations rooted still in a pre-pandemic mentality. “If presidents and provosts decide to constrain the physical or residential ambitions of the campus and think about serving different kinds of students through different modalities in the aftermath of the pandemic, advancement will follow and donors may follow, as well,” he said. “But that’s yet to be seen.”

Presidents and provosts may have no choice in the matter. While Martin said that students, faculty and leadership all miss the residential model, “I also think there’s been a couple of realizations, and one is that a lot of the infrastructure we built around that residential model is unnecessary at best, inefficient and harmful at worst.”

University presidents could paper over those inefficiencies so long as tuition dollars rolled in. Now they lack that luxury. An October 2020 report by Fitch Ratings found that “revenue stress, budget shortfalls and enrollment declines brought on by COVID-19” may decrease the number of capital projects slated for construction.

And although students aren’t clamoring for a fully virtual model following the pandemic, they’ve nonetheless become accustomed to the flexibility afforded them during the crisis. “I think post-pandemic, there will also be a greater desire from some students who want a hybrid approach,” Martin said.

Advancement officers will be keen on pitching proposals that build on emerging practices like “virtual advisement,” which, according to EAB research, offers several important advantages over face-to-face advising. Calling the practice an “unmitigated success,” Martin said, “It’s something we’re anticipating will flow into the post-pandemic era as well.”