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Philanthropists | Philanthropy

From Boom to Bust: It’s a New and Scary World for Higher Ed Fundraising

INSIDE PHILANTHROPY   |  April 2, 2020 by Mike Scutari

Earlier this year, the Council for Advancement and Support of Education (CASE) found that alumni giving fell 7.9 percent from 2018 to 2019. Ann Kaplan, senior director of the study, said the drop “doesn’t necessarily mean anything in the long term.”

Then the coronavirus turned the world of higher education upside-down. Campuses are empty, classes have moved online, and administrators are trying to wrap their heads around potentially catastrophic financial losses. “My expectation is, there’s going to be a number of schools going out of business as a result of this,” said Rebecca Blank, chancellor of the University of Wisconsin-Madison.

While we are still in the speculative phase of gauging COVID-19’s impact on higher ed fundraising, intuition points to a fraught short- to long-term outlook.

First, donors will give less, complicating universities’ ambitious fundraising campaigns. Second, the coronavirus, which could cost universities $11 billion in lost room-and-board revenue, will force fundraisers and donors to recalibrate their priorities. The big open question involves the long-term fundraising impact of COVID-19. The Great Recession failed to compel development officers and donors to prioritize student support, even as collective student debt grew to $1.6 trillion. Will the post-coronavirus fundraising landscape look any different?

“Philanthropy… Will Decrease”

A growing body of evidence and commentary suggests that short-term fundraising for major projects will grind to a halt. A new survey from Grenzebach Glier and Associates, a consulting firm that works with nonprofits, found that 83% of responding fundraisers are canceling or postponing some or all of their solicitations as a result of the coronavirus outbreak. Fundraising consultant Michael Rosen told fundraisers to expect less support from individuals whose largesse is tightly linked to the GDP. And EAB’s Jeff Martin said higher ed fundraisers should prepare for a destabilizing drop-off in mega-gifts.

Nor can higher ed fundraisers find solace by drawing lessons from the Great Recession.

Paul N. Friga, a clinical associate professor at the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill (UNC), found that overall giving in 2008 dropped 11.7% from the previous year, and donations to education also experienced similar double-digit drops. In 2009, Friga’s employer, UNC, experienced a drop of $25 million in state support, $30 million in philanthropy, and $297 million in endowment returns for a total hit to revenue of $352 million, or 25% of the prior year’s operating revenue of $1.4 billion.

While UNC made up for the post-recession revenue loss by raising tuition, Friga notes that “increasing tuition will no longer be an option for higher education in dealing with the current economic meltdown, primarily because families cannot afford to handle the burden.” Friga predicts that “philanthropy, especially annual campaigns, will decrease as individuals lose jobs and personal net worth.”

Short-Term Responses

Fundraisers’ first inclination will be to lay low, given the sensitive nature of the crisis. “Fundraising in a time of uncertainty is really, really tricky, and you can’t push it too hard,” said Christina Paxson, president of Brown University.

However, many universities faced with multi-million revenue shortfalls cannot afford that luxury. As National Center for Responsive Philanthropy CEO and President Aaron Dorfman and Bethany Maki, the director of programs at Progressive Multiplier, noted, philanthropy’s most immediate aim should be to “make sure there are no holes in the current revenue generation bucket.”

While Dorfman and Maki’s advice is financially sound, higher ed fundraisers’ first order of business is addressing students’ immediate needs. With donor support, universities like Davidson College, Ohio University, Simmons University, UCLA, the University of Vermont and Penn State have rolled out emergency funds to support students facing hardships caused by the coronavirus.

Meanwhile, The Chronicle of Higher Education’s Goldie Blumenstyk reports that some of the foundations she spoke with are prioritizing “academic services for populations of students who were already at a disadvantage in getting to and through college” and facilitating “quality online learning, as well as access to it.”

In the longer term, Rosen noted that the crisis may compel donors to support medical and scientific research, STEM initiatives, or medical/nursing programs. Other donors may consider more substantial investments in online learning modules, like the Shared Course Initiative, which, according to Michael Poliakoff, president of the Washington, D.C.-based American Council of Trustees and Alumni, has “reached a critical mass of students and demonstrated its sustainability.”

And therein lies one potential silver lining to the coronavirus crisis: It may empower fundraisers to bring disengaged middle-of-the-pyramid donors back into the fold.

Poliakoff told me he was “curious to see whether in the short term this upends the trend of mega-gifts we’ve seen emerge in recent years, with a few philanthropists jumping in to contribute very large gifts to help colleges in this time of crisis, or whether we’ll see the opposite—a surge of grassroots support in the form of small gifts from alumni.”

Poliakoff’s comment points to the next logical question as we attempt to unpack the impact of the coronavirus on higher ed fundraising: How will the crisis affect ambitious campaigns and donors’ long-term priorities? For a possible answer, consider Northern California, where underlying challenges of higher ed fundraising persist at a magnified scale.

Plugging the Gap

In late February, the University of California, Berkeley, publicly launched the largest fundraising campaign in its history, “Light the Way: The Campaign for Berkeley.” The school hopes to raise $6 billion by the end of 2023. UC Berkeley also announced its Division of Computing, Data Science, and Society received a $252 million gift from an anonymous donor to seed the construction of a new brick-and-mortar “DataHub.” UC Berkeley plans to raise an additional $300 million to complete the project.

“This speaks to the enormous relevance and potential of computing and data science working hand-in-hand with disciplines from across campus,” said Associate Provost for CDSS Jennifer Chayes. According to The Daily Californian’s Nat Gott, data science is the largest growing major at the school.

Not too long ago, the state would step in and fund the construction of a new building to meet demand. No longer, John Aubrey Douglass, a senior research fellow at UC Berkeley’s Center for Studies in Higher Education, told me. “State funding has already evaporated for seismic retrofitting, new buildings and maintenance,” he said, leaving donors to fill the gap.

Complicating matters is the fact that, as Douglass noted in a recent piece calling on UC Berkeley to reform its tuition policies, the school, which receives 14 percent of its budget from the state, must now pay for new academic buildings partly through tuition income that diverts funding away from academic operational costs, including financial aid.

When administrators tap financial aid funding to pay for a building, students can see their out-of-pocket costs increase. That said, Douglass told me capital projects are not directly correlated with tuition increases at UC Berkeley—“thus far. There are a few exceptions,” he said, including the UC Berkeley Law School’s remodel and expansion and “fees charged to students for athletic facilities for student use.”

Making the Case

A $525 million building is a risky proposition, even in a world without COVID-19. But a closer look at complex machinations of running a public university in an era of diminished state funding shows why Berkeley’s administrators concluded it was a risk worth taking.

First, universities need to upgrade their buildings. The UC system’s 2019 Accountability Report found that in 2016–17 and 2017–18, “there has been an increase in projects that address enrollment growth and program improvements. UC must maintain and upgrade its facilities, of which close to half are more than 35 years old, with many in need of seismic upgrades.”

Moreover, “Berkeley’s UC DataHub is part of a larger campus academic strategic plan,” Douglass told me. Computer science has “growing enrollment and increasing demand, but limited space for majors, so the initiative will help expand the number of majors and is in response to student demand and labor needs in California and elsewhere.”

Douglass’ analysis may sound familiar. A broad range of schools, including Carnegie Mellon, MIT, the University of Washington and the University of Virginia are raising billions to build their own state-of-the-art STEM facilities to meet demand. Data sciences is a particularly hot funding area.

“The recent $252 million gift for the UC DataHub building aligns with the reality of fundraising—donors want to give to a specific project or university activity,” Douglass said, while noting that 99 percent of gifts to Berkeley are restricted by donors. “So fundraising only partially helps with general operating costs.”

Looking ahead, Douglass, who has eloquently laid out the case for UC Berkeley’s $6 billion campaign, said that “everything related to the planned expenditures of public universities will need to be re-evaluated. In any scenario, raising funding for capital projects and for operating costs will only increase in importance.”

He also noted that Berkeley will need to raise approximately $300 million more for its DataHub, “so that is going to be a challenge in the short term, with the dramatic economic slowdown and probable recession. But that is the case for the entire ‘Light the Way’ $6 billion campaign.”

Déjà Vu All Over Again

While universities need new buildings to meet growing enrollment or surging demand, some commentators still found it hard to justify pre-coronavirus restricted gifts to fund a $60 million donor-funded baseball stadium complex or a $40 million “Contemplative Commons” to address the problem of “academic isolation.”

And so the big open question here is the extent to which COVID-19 will alter donor priorities as the student loan debt burden inches toward $2 trillion. After all, donors are rallying to meet students’ short-term financial needs caused by the coronavirus. They’re also grasping the benefits of less expensive and highly scalable online courses. Perhaps this specific kind of support will persist once the crisis wanes.

Research courtesy of the Rockefeller Philanthropy Advisors and the TIAA Institute suggests that foundation interest in student support has picked up in recent years. Unfortunately, post-Great Recession data doesn’t inspire much confidence, particularly on the alumni front. In 2018, CASE found that alumni donors preferred gifts for athletics over student financial aid. Its most recent study noted that student financial aid “only receives 9.8 percent” of gifts earmarked for “current operations” from alumni, foundations, corporations and other sources.

UC’s Accountability Report shows a similar trend. The state’s universities raised $2.8 billion in 2017-2018. Donors’ No. 1 priority, at 35% of total funds raised, was “research.” “Department support” was second (33%), followed by “capital improvement” (12%), and “student support” (9%). Funding for “student support” has remained steady for the past decade, rising from 8% from 2008-2012, before peaking at 10 percent in 2014-2015.

A decade after the Great Recession, we’re still having the same conversation about philanthropy’s role in magnifying or, at the very least, failing to curtail the “student debt spiral.” When the coronavirus crisis abates, donors will have less money to give. Graduates will face diminished job prospects, and some will fall deeper into debt. Schools will raise tuition and universities will need to construct new buildings. All the while, fundraisers will be trying to drag multi-billion-dollar campaigns across the finish line.

The U.S. economy will eventually rebound, “and correspondingly, philanthropy to college and universities will rebound, as well,” Poliakoff said. But will higher ed fundraising look any different when it does?

The UC system’s accountability report suggests the sector will have no choice. “Gift support tends to be for research, departmental support, and capital projects,” it read. “The small amounts for instruction and student support cannot offset needs created by enrollment growth that has outpaced growth in core revenues.” 

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