How I Learned to Stop Worrying and Love the Inverted Yield Curve ...Fundraisers Should Too.

In December of 2018, a mini-yield curve inversion occurred. This was one cause of a late stock sell off at the end of Q4.

On Friday, the big momma happened: the 3 month/10 year yield curve inverted. The market tumbled again.

It doesn't matter if you have a perfect NCAA bracket or not. You don't need powers of prognostication to know what comes next...the big R word. That's right, it's on the horizon for late 2019 or early 2020 (my prediction): recession. The inverted yield curve has predicted four of the last four recessions. While experts want to see an inverted yield curve for a longer period of time before being certain a recession is coming, there's pretty clear indication that economic growth will be slowed.

What does this mean for fundraisers in particular and how should we amend strategies to match?

1. Modulate strategy for individual donors. If your fundraising is healthy, most of your charitable revenue comes from individuals. Not all donors are alike, nor are their portfolios or risk tolerance. For example, buy and hold investors are riding out this storm by getting liquidity now to be able to buy low through the slide. For some, liquidation of high basis shares and giving to your charity while doing a wash sale might be a tax-wise solution especially if bundling of gifts is an option. For high net worth individuals or those that rely on distributions or income from securities, charitable giving in late 2019 or 2020 may be more conservative. Again, bundling may be an appropriate option since it may be more likely that they will be taking a standard deduction in 2020. Having these conversations early with your most dedicated donors will help you understand their plans for giving over the next 18-24 months. Whatever your thinking is on donor-centricity, individual discussions with donors, their needs, and plans are the best source of information for your future plans.
2. Understand implications on grant making institutions. Some foundations and other similar organizations with endowments use Yale spending policies to make funding decisions. Depending on how these organizations determine spends, it will be important to recognize how giving will be altered in the next 18-24 months. Funding from corporations and corporate foundations will be impacted especially for industries that are more effected by the recession. Recession-proof businesses may provide an uptick in giving, something that buoyed corporate giving in 2009. While other industries may prioritize certain charitable sub-sectors or scale back gifts entirely through the slide. Rather than a one-size-fits-all strategy for institutional giving, charities need to thoughtful consider the position of the corporate/foundation donor and their priorities.

As a fundraiser, you may be tempted to be overly concerned about any form of recession. I'd caution you against a sky-is-falling mentality. We are long overdue for a recession and this is a very natural part of the economic cycle. All evidence seems to indicate this recession will be smaller and shorter in duration than the Great Recession. As always, preparation is key.

Here are some things you can do right now to prepare your organization to weather the storm:

1. Don't rely on gap fundraising in your budgets. If your organization looks at expenses minus program income and tells you to fundraise the difference, this is a recipe for disaster generally. Over the next 2-3 years, this could be fatal for your organization. Realistically assess your fundraising capacity and your donor engagement. Spend some more money on donor acquisition today and more money on donor retention over the next few years.
2. Budget well for the next few years. Flat may be the new growth for next couple of years depending on your sub-sector. If you are accustomed to overall growth in the number of gifts and the number of givers, now is a good time to reset and determine whether that rate of growth can continue through the slide. Work closely with your CFO and finance teams to ensure that you are controlling expenses while realistically projecting income. Work closely with your programs teams to determine your most essential services and consider delaying programs without earned revenue or sustainability strategies in place.
3. Donors who love you will continue to love you. That being said, pernicious donor acquisition and retention strategies will come home to roost soon. If you've been sowing great relationships and great stories of impact, your most loyal donors are going to stick with you. Even in the midst of the Great Recession, when charitable giving hit a 53 year low, it was a 6% decline. While some sub-sectors faced a more substantial decline and certainly some organizations did not survive, charitable giving at the height of the recession was a whopping $308 billion. Last year, giving reached just over $410 billion. Put in absolute terms, a 6% correction (which would be unlikely) would put nearly every charitable sub-sector at 2017 levels.
4. Prioritize planned giving. There's a great TED Talk that I'd encourage you to watch. I've referenced it probably a dozen times in the last few months. In short, the best time to talk about planned gifts was yesterday. The next best time is today. Future money is easier to spend than money you don't have today. How can your organization serve these future donors?
5. Perhaps most importantly, don't blame the recession or the tax laws or something else for your fundraising woes. When things go well, we can't celebrate how talented our teams are and then when things don't go well, complain about external factors. Most of the last decade has been easy for fundraisers. As Tom Ahern said, "people don't stop giving, they stop giving to you." That's even more true in troubling economic times. Fundraisers are about to reap what they've sown for the last few years. The sky is not falling and it long past time to stop focusing on tax benefits as a reason to give. If you have sown these stories, you've been doing it on rocks or dry ground. When they don't take root, you might be inclined to explain the problem in terms of the economy or tax changes. It's not too late, however, you can sow better seeds today! The recession is still months away (or longer) so changing your rhetoric and strategies can make a huge difference.

If you are headed to the AFP International Conference, I'd encourage you to attend one of the sessions on tax policies. Members of the Rogare think tank on fundraising, including myself, are sharing insights from the upcoming USA Critical Fundraising Report including tax/economic issues. However, the tax/economy issues may be the least insightful portion of the conversation as good fundraising requires much more than just reaction to external factors. The rest of this panel is full of brilliant, thoughtful, and accomplished fundraisers who will consider all of the other, more important things to address.

If you're local to Central Iowa, consider attending an upcoming session of the Des Moines Fundraising Institute where we focus on the evidence-based body of knowledge to improve fundraising for every size of organization and sub-sector.

What else would you suggest doing today to prepare for the recession? What's worked for you before?