Friday, November 14, 2008

Charities Bracing For Lean Times Ahead

The New York Times reports that although few fund-raising experts or nonprofit leaders are predicting an implosion in giving - a long fall from the more than $300 billion that was donated last year in the United States - they do acknowledge that their world has changed and are preparing for leaner times.

Some experts, like Robert F. Sharpe Jr., president of the Sharpe Group, a fund-raising firm in Memphis, point to historical data showing that swings in giving are not nearly as severe as broader economic ups and downs, and that during some of the worst times philanthropy remained strong. “Just about any way you look at it, the Depression was one of the best periods for charitable fund-raising,” Mr. Sharpe said.

Patrick M. Rooney, interim executive director of the Center on Philanthropy at Indiana University, said the most reliable indicator of individual giving was Standard & Poor’s 500 stock index, with a 100-point jump translating into an additional $1.5 billion of philanthropy from people who report donations on tax forms. “It works just the same way on the downside,” he said. Using that rule of thumb and the price of the index on Nov. 6, such individual giving would drop this year by about $8.7 billion from an estimated $187 billion, according to Mr. Rooney. That’s far less than financial markets have fallen. Mr. Rooney warned, however, that the timing of the market collapse could exacerbate the impact on giving. “If there’s a precipitous drop in January or February, no one pays much attention, but many households started thinking about their year-end charitable giving just as they got their third-quarter statements — and they could bet their fourth-quarter statements were going to be worse,” he said.

The effects of the downturn are already being seen among big and small donors, some experts say. Recent surveys in Indianapolis and Memphis by the Center on Philanthropy show that households with an annual income of less than $50,000 are likely to stop giving as a result of the downturn. Kimberly Wright-Violich, president of the Schwab Charitable Fund, said that contributions by individuals to their donor-advised funds “hit a brick wall in September.” She said such contributions fell by 43% from July through October. But she said she expected some stabilization to occur by the end of the year.

While individual giving is hard to forecast, giving by institutional foundations should remain level or rise over the next year. That’s because foundations typically achieve the legally mandated 5% annual payout rate using a 3- or 5-year rolling average. Thus, next year’s budget in many cases will reflect at least 2 years, 2006 and 2007, of solid growth in assets. That said, many foundations have experienced declines in their assets that at the very least will affect their giving in 2010 and have already resulted in decisions to postpone new programs.

But Lucy Bernholz, president of Blueprint Research and Design, a nonprofit consulting company in San Francisco, said it was difficult to gauge how individual donors, who collectively account for 88% of philanthropy in the United States, would behave in the current financial climate. “Bill Gates or the Google guys, single-handedly they could throw out an enormous gift or so and keep things afloat,” Ms. Bernholz said. “That’s a bit of an exaggeration, but we have so many new, big donors these days, and we don’t know how that will affect things.”

Many big donors have seen their wealth decline sharply. Maurice R. Greenberg, for example, the former chief executive of A.I.G. who has given $700 million to various institutions, has lost about $2.8 billion and seen the value of the assets in two foundations he controls decline by billions. “Obviously, that’s going to curtail significantly the giving that we have been doing in the past,” Mr. Greenberg said. “You can’t give what you have lost.” He said he and his family planned to live up to commitments they had made, although they might extend the time they had to complete gifts and he still planned to make charitable gifts. “We will either shorten the list or just cut back on the amounts given to each of the beneficiaries,” he said. Many smaller donors work through donor-advised funds, which are giving accounts established through brokerages like Vanguard and Fidelity. Once money is committed to those accounts, it must be used for philanthropy. So at Charles Schwab, for instance, the more than $1 billion that flowed into its charitable fund last year will at some point flow to charity, regardless of what happens in the markets and economy.

Detroit and other major American cities have come to rely as well on corporate philanthropy, which has been highly dependent on corporate performance in the past. The financial services industry is the second-largest source of corporate donations after pharmaceutical companies, which largely make their contributions in kind. Charles Moore, the executive director of the Committee Encouraging Corporate Philanthropy, said he expected financial services companies to continue their philanthropy, though perhaps at reduced levels in the near term.

Charities that receive individual and corporate gifts say that hard times are already beginning. Roxanne Spillett, chief executive of Boys and Girls Clubs of America, said that each of the local clubs she had talked to — there are 4,300 around the country — was reporting higher demand for services. Additionally, clubs are grappling with rising insurance premiums and higher energy costs, she said. “If you asked me a month ago, I might have said Newark is crashing, but clubs in another city, say, Chicago, are doing pretty well,” she said. “Now, uniformly, club leaders say they are bracing for a very tough end to ’08 and a tough ’09 and even beyond.” Ms. Spillett said the national organization was increasing the number of “asks” it makes to donors, increasing its stewardship calls to top givers and increasing face-to-face meetings with contributors. It is putting together a white paper to advise clubs on potential cuts and stepped up fund-raising. The national organization relies on corporate donations, and Ms. Spillett said she had seen some reluctance among those donors to make multiyear commitments, and some may be reducing their gifts.

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