Philanthropy and COVID-19

Effects of coronavirus on the economy and philanthropy

The following is a summary of internal talking points/position statement draft by Dr. Patrick Rooney, executive associate dean for academic programs; professor of economics and philanthropic studies.

Historical comparison

Given the unprecedented nature of this virus and the reactions around the world, there is not another historical episode with relevant data to which we can compare.

  • A “normal” disaster has a pause period at the start during which donors of all types decide whether or not this is something to which they want/should donate at all, and, if so, how big of a donation they are going to make.
  • After the initial pause, gifts either accelerate for the first 3-4 months, then taper off quickly, or they never really get going.
  • Often, there is so much disaster giving that the media and charities worry about “donor fatigue” and displacement of normal giving by disaster giving.

Current situation

The coronavirus pandemic is different in that there is a pause, but there is no reason to think that there is going to be an acceleration phase of disaster giving:

  • The development of the tests and the treatment (vaccine) are viewed as either public goods, (government) or private goods (private sector). There is less likelihood of giving to either of these types of organizations.
  • Typically, the natural disaster does not cause a recession itself, so the capacity to give is not altered by the disaster
    • 9/11 is the exception—a relatively short/mild recession then; some of the same business sectors (airlines, hotels, etc.) adversely affected.
  • There is no natural outlet to receive donations—even if people were to give. The typical disaster relief organizations (e.g., Red Cross, Salvation Army, Doctors without Borders, etc.) are not the charities that are most poised to address this crisis.
  • People will give in direct, informal ways (e.g., groceries, childcare for family and neighbors, donating to individuals through GoFundMe and other crowdfunding sites, and supporting specific families through existing school and congregation networks).
  • There will be an inequitable economic impact.
    • Many, especially college educated, will be able to work remotely and remain employed/paid.
    • Recessions inherently slow the economy, so those who earn their income from transactions may be harmed (e.g., salespeople, some attorneys, retailers, etc.).
    • Others will be unemployed or underutilized (e.g., retail, restaurant staff, etc.).
    • Some industries will be specifically damaged (e.g., hospitality, travel industry, etc.).
Short-run effects on donors
Short-run effects on charities

Wealth effects:

  • The stock market collapse will make donors feel poorer—even if they don’t liquidate.
    • Household giving and foundation grantmaking are highly, positively correlated with changes in the stock market. Giving and grantmaking may also negatively correlate with a drop in the stock market.
    • If the market turns around before the end of the year, year-end giving may offset this period’s likely hit.
    • If the stock market continues to decline, it may attenuate demand (and, therefore, perceived/actual wealth) from real estate values.
    • Interest rates and the bond markets are also collapsing, so unlike more normal periods, there may not be “safe” investment options.

Wealth effects:

  • As donors feel less wealthy if not poor on paper, they will be less likely to give at all and to give less to charities, hurting their capacity.
  • As foundations see asset base decline, the declining values of the investments will yield fewer dollars being paid out (even though their payout rates are fixed).
  • Some foundations may “lean in” during this crisis (e.g., Gates CZI are committing funds toward the coronavirus pandemic).

Income effects:

  • As donors feel less income directly and indirectly, they become risk-averse and may be less likely to donate or be less generous if they do give.
  • Non-spending leads to more non-spending, causing direct and indirect effects such as secondary rounds of layoffs, etc.

Fundraising effects:

  • Fundraising events that include large groups (e.g., galas, auctions, races, dances, etc.) are being canceled.
  • Major gift fundraising is often very personal: fundraisers and board volunteers visiting individuals/couples face to face.
    • Donors are more likely to decline these meetings.
    • Many are likely to postpone major gift decisions under uncertain market conditions.

Fundraising effects:

  • Some will still give even if auction/gala/ related sporting events etc. are canceled
  • Others will use that as an excuse to ignore the requests for now.
  • With social distancing and self-quarantine, major gift donors may defer or deny requests to meet with fundraisers and volunteers, which may hurt fundraising totals.
Long-run effects on donors
Long-run effects on charities
  • The pandemic and its effects could be relatively short, and the economy and the stock market could “snap back” relatively quickly. The economy is not tanking because of any speculative bubbles or bad business practices in the housing market, etc., so if the risk is removed, in theory the market would return to its old self relatively quickly.
  • If the pandemic is longer lasting or more widely felt than feared, this would hurt payouts from foundations and major gifts from major donors especially but would likely be widespread in its negative effects.
  • If the short-term effects last longer, then we also risk seeing an acceleration in the decline of households that regularly donate
  • Charities would receive fewer and smaller gifts from households.
  • Charities would receive smaller grants from foundations.
  • Charities with their own endowment or quasi-endowment will receive lower payouts.