Friday, May 22, 2009

NYT Offers Ways to Make Smart Gifts to Charities In This Economy

The New York Times offers ways to make smart gifts to charities as the economy suffers.

NYT suggests that people focus on how to do the most good in this stricken economy.  According to Peter Frumkin, a sociologist at the Lyndon B. Johnson School of Public Affairs at the University of Texas, donors operate from either of two “master theories of giving.”  One theory is direct service to individuals; the other is change through advocacy and public education.  In tough times, people tend to gravitate toward direct service because they want something concrete from their giving.  Direct service is like buying bonds and advocacy is like growth stocks and so in tough times donors re-balance their giving portfolios into safer investments.

According to the NYT, many charities face not just tough times, but disaster. At some organizations, volunteer trustees, especially those on the finance committee, have grown accustomed to monthly projections of income and expenses that are soaked in ever more red ink.  Nationwide, charities are reporting that donations are flat to down sharply, especially for organizations that rely on gifts of appreciated stock. This year, Americans are likely to harvest $426 billion in capital gains, less than half of the nearly $875 billion harvested in 2007, according to Citizens for Tax Justice, which calculated its own figures after the Congressional Budget Office decided in January not to issue its annual estimate.  NYT reports that with tax revenues falling, governments are tightening up on contracts with nonprofits and delaying or canceling new grants even though pleas for help are rising among social service agencies.

NYT provides three techniques to consider: conversion, deferral, and triage.  Conversion is a strategy for those who have a multi-year pledge to an endowment of a charity that needs operating cash now.  Endowments are intended to build long-term stability, but without money now an organization or other agency could be forced to curtail operations sharply or to close.  In a conversion, a person proposes that this year’s endowment gift go all or in part to operating funds the charity can spend immediately.  

Because pledges can be enforceable promises, NYT advises readers who need to make a deferral to get a written agreement that they are either reducing their commitment to the endowment or are extending the payment period.  The article suggests raising the issue by sending the charity a written notification along the lines of “my commitment to you remains intact, but I don’t have liquidity right now; when we have it my gifts will resume.”

Some fund-raising executives may press for a more specific timetable. How long it will take for the stock market to recover is speculation, but Allen Sinai, chief economist at Decision Economics Inc., told clients that he thought the market had begun to recover. He cautioned, however, that “our expectation is for a very muted bull market because the U.S. will not produce much in the way of capital gains realizations,” in part because investors have so many losses they can use for tax purposes to offset future gains.

The third technique is triage: separating out charities that will not survive without your support, and trying to assess whether they are worth saving. Letting some nonprofits go out of business troubles many donors, yet it clears out duplication and inefficiency, as well as organizations whose time has passed.  NYT cautions donors to think carefully about scale because the larger-is-better model isn’t always the best.  Professor Frumkin believes few donors would openly risk letting a smaller nonprofit fail by withdrawing support. Instead, he said, they tend to change larger gifts into small gifts, which he calls “nuisance grants.”


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