How Bad Is It?

Economy's downturn prompts new challenges for charities

By Holly Hall

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The cataclysm in the nation's financial industry poses an uncharted set of challenges for nonprofit organizations. The downturn could potentially affect not just private giving, but money charities get from government sources — and it is hitting at a time of year when many charities get the bulk of their donations. What's more, for groups that serve the needy or others harmed by the economy, demand for aid is on the rise.

"This is a perfect storm of bad omens for philanthropic giving," said Eric Kessler, founder of Arabella Philanthropic Investment Advisors, which advises wealthy clients on their giving.

On top of an already slowed economy, he said, "you've got all of the horrible news from Wall Street, you have the election, and the hurricanes, and you are heading into the holiday giving period. Current events are creating a huge amount of need that philanthropists don't plan ahead for."

Charities could face significant cuts in the money they receive from government, not only because the federal government is spending money to rescue failed financial institutions, but also because the financial collapse will cause tax revenue to drop in many states.

"Anyone with money in the stock market, anyone with money invested in these firms getting hit, to the extent that their investment income declines and to the extent that their purchasing power declines, then income-tax revenues will decline and sales taxes will decline," said Nick Johnson, a director at the Center for Budget and Policy Priorities, in Washington.

Income and sales tax, he added, are the two main sources of tax revenue.

Changing Approaches

The downturn has already caused some charities to change their fund-raising approach.

Bruce Flessner, a Minneapolis fund-raising consultant who works with many of the country's largest charities, said that one of his clients recently decided to delay a big event to announce a new capital campaign. He declined to name the organization.

"They wanted to change the [event's] tone and flavor to be less flamboyant," he said. "A couple of their best donors are getting kicked" by troubles in the financial industry.

Charities in New York City, especially those that receive a lot of support from financial companies and their employees, are the most directly affected by the turbulence of the past few weeks. Gordon J. Campbell, president of United Way of New York City, said he is unsure exactly how much his organization will lose. While the United Way has received big gifts from Merrill Lynch in the past, he noted, it also benefits from long-term support from Bank of America, now in the process of buying Merrill Lynch.

To sort out its options, the New York United Way plans to hold a "regional summit" with other local charities to discuss problems such as government cuts resulting from shrinking tax revenue and possible solutions, including mergers and efforts to diversify sources of revenue.

Minimize Damages

While many charities have yet to decide what action to take in response to the challenges posed by the economy's woes, others are moving quickly to minimize potential damages in the next few months. Among them:

• The International Rescue Committee, a New York charity that helps resettle refugees, first noticed a "softening" in donations at the end of last year, said Janet Harris, vice president for development.

  Since then, the charity, which has received some $500,000 annually from Wall Street companies, has decided to cut back on mailings to recruit new donors.

  To replace them, it is holding a new "Give Thanks" fund-raising campaign, starting next month.

  In addition to appealing to individuals for big gifts, as well as seeking more-modest online and direct-mail donations, the charity's new campaign will recruit donors to hold fund-raising dinners in their homes.

  The charity has also recruited American Express and Ethan Allen to hold bigger dinners in three cities. Those dinners will provide refugees settling in the United States with their first traditional American Thanksgiving dinner.

  Just as important, the new corporate dinners will help International Rescue Committee attract publicity that might spur people to give, said Ms. Harris.

  "We are looking for a media platform, and we will get some nice coverage in the three cities."

• Associated Services for the Blind, in Philadelphia, is delaying its annual November awards ceremony and fund-raising event until the end of January.

  "Between the election and the economy, we needed to give corporate sponsors and donors more time," said Pat Johnson, the charity's executive director.

  Recruiting corporate sponsors and ticket buyers is likely to be more difficult this year, she noted.

  "Come January, it is a new budget year for many of them, so perhaps they will have new money."

• The AmeriCares Foundation, a Stamford, Conn., charity that last year raised $24-million in cash on top of hundreds of millions of dollars worth of donated medical supplies, is seeking $1-million so it can offer to match other donors' gifts dollar for dollar. "Particularly in the environment we have right now, people like to know they're getting as much value as possible," said Carolyn O'Brien, senior vice president of development.

  She said the foundation will start sending out matching-gift solicitations next month. So far, two corporations and a handful of individuals have provided $500,000 toward the $1-million goal for the new matching fund.

• Officials at Minnesota Public Radio/American Public Media, in St. Paul, had already scaled back fund-raising projections for this year, setting a goal of raising 3 percent more from individuals, instead of the usual increase of 6 to 10 percent. They also decreased the goal for corporate donations. At the same time, fund raisers have been asked to make 10 to 20 percent more calls on individuals and corporations for the current fiscal year, which began July 1.

  "We're going to have to get more people into the pipeline to even meet our conservative goals this year," said Jon Gossett, senior vice president of development.

• White Memorial Medical Center, in Los Angeles, which recently completed a $30-million capital campaign, is trying to figure out new approaches for donors who struggle to fulfill their pledges or maintain their level of giving. The medical center is now in discussions with one donor about accepting a gift of property in lieu of cash to complete a partially paid pledge.

  "We are having to be more creative and smarter," said Mary Anne Chern, the medical center's vice president of development. "The board has talked about this economy and how we will stimulate giving. We decided there are planned-giving opportunities we could take advantage of."

Other charities are also stressing bequests, gifts of real estate, life insurance, and other such donations as an alternative to giving cash or stock in coming months.

The stock market's fall has caused giving to drop at many community foundations and other organizations that offer donor-advised funds — accounts donors use to make charitable gifts.

Most donors contribute stock to set up the accounts, so donor-advised funds often feel both the ups and downs of the market. Gifts to donor-advised funds have decreased by 30 percent so far this year at the Boston Foundation and 36 percent at the Fidelity Charitable Gift Fund. The Fidelity gift fund is one of the biggest charities in the country, last year taking in more than $1.5-billion.

Fund raisers at the National Philanthropic Trust hope to buck the trend by "explaining options donors have to give assets outside of appreciated securities," said Drew Hastings, vice president of external affairs. "Some donors don't realize they can make a gift of real estate or part of a privately held company."

In another move to protect donors' assets, Mr. Hastings said, officials have spent the last week or so scouring money-market funds where some donor-advised funds are invested. The goal is to make sure those funds have not been invested in risky assets.

Wait-and-See Attitude

Most charities, however, even New York institutions that have raised millions of dollars annually from Wall Street companies and their employees, are adopting more of a wait-and-see attitude until they know for sure how the tumult in the financial industry will affect their donors.

Eric Levine, senior vice president of development at United Jewish Communities, which represents 155 Jewish federations, has been keeping close tabs on federations nationwide, including the largest, UJA-Federation of New York.

"Some large donors are telling federations they will maintain the same level this year or cut," he said. "But others are increasing, so it is hard to specify any pattern at this point."

Even so, Mr. Levine said, he is trying to get out ahead of the financial crisis by holding meetings and conference calls with Jewish federations across the country to discuss fund-raising strategies in coming weeks.

Jilly Stephens, executive director of New York's City Harvest, has canceled all new spending while she waits to see how much the downturn will hurt the hunger-relief charity. The now-bankrupt Lehman Brothers company was among the organization's top donors.

City Harvest, which has a goal of raising $3-million in December alone, is "watching the situation very carefully," Ms. Stephens said.

To that end, she said, City Harvest is developing a list of key indicators to provide an early warning of whether year-end giving is taking a nose dive. One indicator: ticket sales to one of the charity's biggest fund-raising efforts, a late-October tasting event involving 75 chefs and restaurants that has sold out in the past.

"We are anxious, and it is healthy to be anxious at a time like this," Ms. Stephens said.

At the Humane Society of the United States, the chief financial officer, Thomas Waite, said that his organization has met its fund-raising projections so far this year, but he is nervous about the "make or break" fourth quarter, when the charity receives most of its large gifts. "Everyone is looking at their portfolios and deciding what they can do," he said.

"We know it's not good," Mr. Waite said. "The question is: How bad is it?"

Cassie J. Moore and Paula Wasley contributed to this article.