Giving to religious institutions drops for second year in a row. Why?

Giving to religious groups has slipped by a cumulative 3.7 percent since 2010. Still, religion remains America’s favorite charitable cause, with $95.88 billion in donations.

Church congregations may need to pass the offering plate again because giving to religious institutions has dropped for the second year in a row.

Charitable giving to the religious sector fell by 1.7 percent last year, according to the Giving USA 2012 report released this week. Since the start of 2010, giving to religious groups has slipped by a cumulative 3.7 percent (not adjusted for inflation).

This shows religion to be lagging in the evermore intense competition for donor dollars, even as other nonprofit sectors gain. Total charitable giving rose by 4 percent in 2011 to $298.4 billion. Of the eight sectors tracked by Giving USA, seven saw donations rise in both 2010 and 2011. Only religion lost ground.

Why is religion having a hard time?

“Declining attendance at religious services is part and parcel to the issue” of struggling to maintain or increase giving levels, says Robert Evans, a Philadelphia fundraising consultant for nonprofits and an author of the Giving USA 2012 report. “If you have fewer people coming through the front door, then how do you do it?”

But despite cutbacks in giving, religion remains America’s favorite charitable cause. With $95.88 billion in donations, faith-based organizations still collect far more than any other nonprofit segment. A distant second is education with $38.9 billion, followed by human services at $35.4 billion.

Yet religious institutions could be witnessing the start of a long-term slide, observers say. Precipitating factors, such as a weak economic recovery, portend more financial stress and hard choices about where institutions should cut in years ahead, according to David Roozen, director of the Hartford Institute for Religion Research at Hartford Seminary in Connecticut.

“The recession exacerbated downward pressure on church finances,” Mr. Roozen says. “You’ll likely see a continuation of this” as unemployment and wage stagnation limit how much churchgoers can give.

Large congregations have fared best in the recession’s aftermath, Roozen says, as they consume a larger share of a shrinking pie. Slumping donations have translated into painful staff cuts for small congregations and denominational offices. In one telling sign, the United Methodist Church this year did away with its longstanding policy of guaranteeing appointments for clergy as churches come to rely on fewer pastors and part-timers for ministry.

Shrinking attendance isn’t all that’s hampered the faithful’s fundraising efforts, according to Mr. Evans. Religious institutions have largely failed to keep pace with other types of organizations, such as colleges and hospitals, in deploying professional development teams. Synagogues that employ professional fundraisers have found the investment pays off, Evans says, but most congregations have no one trained in the art of asking for money.

“There’s no donor fatigue,” says Evans, who is managing director of EHL Consulting Group. “But houses of worship ... need to fine-tune their message more strongly for the people who want to make this a better country.”

What’s more, religious institutions are exempt from financial disclosure requirements that bind other nonprofits. As donors become more discreet and sophisticated, Evans says, they’ve come to expect more transparency than religious bodies are used to supplying. Donors who value transparency might therefore respond more favorably to nonreligious appeals.