As the University of South Carolina entered the second year of a capital campaign in the fall of 2008, it was clear to fund raisers that this was going to be heavy sledding. The economy was taking a dive, and donors were reasonably on edge about making pledges.
“You were like, ‘Oh my God, is the world ending?' ” recalls Michelle Dodenhoff, South Carolina’s vice president of development and alumni relations. “And there wasn’t a clear consensus of ‘yes it’s bad, but we anticipate it getting better in the fourth quarter.’ “
It was in this era of uncertainty that South Carolina development officers began considering different options. How could a university ask donors for money when their portfolios had been ravaged and there was no clear path to recovery? Dodenhoff and her colleagues concluded that they would have to give donors more flexibility than the university had in the past, allowing for altered payment schedules and even escape hatches in gift agreements.
Gift arrangements at South Carolina had traditionally been rather vanilla. Major gifts came in over five year periods, which is the industry standard, and donors typically made five payments of equal amounts. But over the last year, the university has allowed donors to enter into “step up” payment plans, where payments start in smaller amounts and grow each year of the pledge. South Carolina has also allowed donors to extend payments over six or seven years, and gives donors the option of paying nothing in the first several years of a pledge. While no one took them up on it, development officials even contemplated a “financial hardship clause,” giving donors a way out if their economic circumstances changed dramatically.
“What we did was try to add some flexibility for the donors, and the important premise for this was an understanding and an empathy for what was happening in the economy,” Dodenhoff says. “It also was based on [the fact that] we trust our donors. If our donors say they are going to commit to this, we know they will make it happen.”
Only a handful of donors have tapped into any of the new payment options, but Dodenhoff says the university’s openness to different arrangements appears to have set donors’ minds at ease. She adds that "the door is always open" if donors later decide to alter payment schedules. South Carolina's flexibility may be paying off. It has been a banner year for the university, which raised a record $107.5 million in 2008-9.
The experience at South Carolina is mirrored at a number of institutions across the country, where development officers say they are increasingly open to flexible arrangements that give concerned donors more time to make pledges. Standard agreements are still the norm, but it’s clear the economy has changed the way donors and fund raisers talk about gift arrangements.
“We didn’t have those kinds of conversations in the past,” says David Onion, associate vice president for development at the University of Texas at Austin.
Austin launched the public phase of a $3 billion capital campaign Sept. 1, 2008, just days before Lehman Brothers filed for bankruptcy and the economy went into a tailspin. It was in this context that Austin heard from a small number of donors who wanted to make different arrangements. In a few cases, donors asked if they could make payments over seven or ten years, instead of five. Others were interesting in making “balloon payments,” which would culminate in a large gift at the end of a five-year agreement. Those suggesting balloon payments often planned gifts of stock that they believed would be more valuable two to three years down the line, and Onion says the university has entered into a few such agreements.
Balloon payments stand to benefit both the donor and the institution, particularly if a university has “challenge grants” as part of a campaign. Loosely defined, challenge grants guarantee that a donor will give a pledge on the condition that a specific fund-raising goal is met. In a campaign, a balloon payment can trigger a challenge grant donation, even before the balloon payment is made. Furthermore, donors receive a larger tax benefit if the stock’s value is higher when the gift is actually given, so there is an additional incentive for donors to hold out if they believe the stock will become more valuable in a few years.
There also may be some psychology behind donors' reluctance to give stock right now, according to C. Alan Korthals, a planned giving consultant.
“People kind of get an idea in their mind of what that stock has to be before they are willing to give it,” says Korthals, director of client support for Kaspick & Company, LLC. “It partly is an emotional thing.”
The fears for fund raisers entering the recession were two-fold. Many were just as worried about collecting pledges they had received as they were about finding new donors. While the experience has been different from college to college, fund raisers at a number of institutions say they’ve had to give current donors additional time to pay or reassess the size of a gift in the last year, according to Rae Goldsmith, vice president for advancement and resources at the Council for Advancement and Support of Education (CASE).
“Institutions will always work with donors who might find themselves in [difficult] circumstances to renegotiate a gift,” she says. “But we are hearing about it a lot more than we have in the past.”
If donors ask for flexibility, it’s typically in a college’s best interest to accommodate them, Goldsmith says.
“You don’t see institutions in many cases going out and suing donors,” Goldsmith says. “It’s not good for anybody involved.”
Don Hasseltine, vice president for college advancement at Dickinson College, says his office has seen “less than a handful” of donors asking to renegotiate terms. In a few cases, donors have asked to skip a year of payments or extend the pledge period, he says. In each case, the donors have been accommodated.
“There may be some colleges that can be hard line,” he says. “We’re just not in the position to do that. We want to build a strong philanthropic culture for eternity.”
But colleges don’t have unlimited patience.
“If someone said ‘I need 15 years to pay this sucker off,’ then we might be in a different ball game,” Hasseltine says.
More common than donors who want to renegotiate gifts, however, are donors who just aren’t ready to give at all, several development officers said. Onion, a fund raiser at Austin, says pledges are down “significantly.” That's something of a relative designation, however. Austin recently had what a lot of universities would call a big year, finishing with $283 million. Even so, last year's total was about 25 percent below the record gifts Austin collected in 2007.
“We are hearing a lot from individuals who are interested in making a difference, but they are clearly leery of making a gift not knowing what is around the corner,” Onion says.
Donors have expressed similar concerns at the University of Georgia, according to Tom Landrum, senior vice president for external affairs and chief development officer.
“We’ve had probably more than five major gift prospects -- people who would be million dollar prospects -- who have said to us ‘I’m going to make a gift, it will be a big gift, but not right now. You won't have to call me; I’ll call you,’ ” Landrum says.
As donors wait to grow more comfortable, Georgia has stepped up its efforts to cultivate relationships without necessarily talking about gifts, Landrum says. Much of the last year has been an opportunity to get to know donors better, thank them for previous pledges and talk broadly about the university’s goals.
“You plant the seed,” Landrum says. “You build the relationship on sincerity and consistency, and one day that gift will come to benefit the institution and the students who are ultimately the beneficiaries.”