Tightening Their Belts

Foundations expect to make grant-making cuts after a sharp drop in assets, Chronicle survey finds

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Article: How The Chronicle Conducted Its Survey of America's Largest Grant Makers

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By Noelle Barton and Ian Wilhelm

Stock-market volatility has led to a sharp decline in the assets of big foundations, and many grant makers expect to decrease their giving in 2009, a new Chronicle survey finds. However, a small but significant number of grant makers said they are doing more to help charities and Americans hit hard by the recession.

Assets declined a median 28 percent at the 104 foundations that provided data for fiscal 2007 and 2008, meaning that half had a sharper decline and half had a smaller one. The economic problems triggered a massive loss of philanthropic wealth, $50.4-billion. Last year, assets of the foundations in the survey totaled $163.4-billion, compared with $213.8-billion in 2007.

While the foundations included in The Chronicle's survey are a small percentage of the nation's 75,000 grant makers, they represent about 30 percent of foundation wealth and are an indicator of major trends in donations.

42 Foundations Plan to Give Less

While foundation assets suffered last year, overall grant making rose, in part because foundations develop their giving budgets based on previous years' investment earnings.

For 107 foundations that provided such data, the total amount distributed by the grant makers for charitable purposes actually grew about $500-million, to $10.5-billion, in 2008. But this year, most foundations say they expect their grant making to decrease.

Of the 112 funds that reported estimates of their giving this year, 42 said they are giving less, 25 said they would keep it steady, and 14 said they would increase it. Thirty-one said they did not know how much they would give.

Among foundations of all sizes, the Foundation Center, a research group in New York, estimates that 67 percent plan to reduce giving this year.

With predictions that an economic recovery may take a year, if not longer, foundation leaders warn that grant-making cuts will probably be deeper in 2010.

The Robert W. Woodruff Foundation, in Atlanta, plans to give about the same as it did last year — about $100-million — but its president, P. Russell Hardin, said giving is likely to drop next year depending on how its investment portfolio fares. He said the bad economy is forcing changes in how foundations view their grantees.

"In the past, what we have done is help those organizations grow, help them expand services, helped them build new facilities to add capacity," he said. "Now is not a time anyone can afford to do those things. Now is the time when organizations are focused on survival."

While the dollar value of grants made by many foundations may fall this year, 20 percent of survey respondents report that they plan to give a larger percentage of their assets to charity because of the sour economy.

For instance, the David and Lucile Packard Foundation, in Los Altos, Calif., lost about one-third of its assets in 2008 and plans to award almost $60-million less than it did last year, a 20-percent drop.

But Chris DeCardy, a Packard vice president, said it expects to dedicate at least 7 percent of its assets to charitable purposes. (Federal law requires foundations to provide at least 5 percent of their assets to charitable efforts annually.)

"This is priority one right now; this balance between trying to help this really urgent need and also being true to the mission and the founding principles of the foundation for the long term," said Mr. DeCardy.

Trimming Costs

In part to make room in the budget for grant money, philanthropies are reducing their operating expenses. Thirty-eight percent of the foundations in the survey said they are trimming their administrative costs to cope with the economic crisis. While few have laid off employees, most of the foundations said they have frozen hiring, cut travel budgets, or scaled back salaries and performance bonuses.

James McHale, senior vice president for programs at the W.K. Kellogg Foundation, one of the nation's wealthiest foundations with $6.4-billion in assets at the end of 2008, said the organization is scrutinizing every dollar it spends. The foundation, which lost more than $2-billion last fall, is cutting big expenses, like travel, but also smaller budget items. For example, it postponed a reconfiguration of its office space at its Battle Creek, Mich., headquarters and delayed the time the lights turn on in its parking garage.

"Those little things don't sound like much, but they really can add up," Mr. McHale said.

While the cost-savings effort helps, the foundation is decreasing its giving by $33-million during its fiscal year, which ends in August.

Despite the decline, the foundation is responding to the economic crisis. It is helping groups that work with disadvantaged children to apply for new government grants, available in the economic-stimulus package, for mentor services, and providing $2-million in emergency grants to food banks and other antipoverty efforts in its home state.

Emergency Aid

In all, 22 percent of survey respondents said they have changed their grant making, usually to benefit social services, or have offered noncash assistance to charities in response to the recession.

The Otto Bremer Foundation, in St. Paul, established an emergency effort to support Catholic Charities affiliates, the Salvation Army, local churches, and other antipoverty groups in northern Midwest states.

"We decided in October that, gosh, with everything happening there just seems to be such a real need. People need money to pay the electric bill, pay the gas bill, get groceries," said William Lipschultz, a Bremer trustee.

Mr. Lipschultz said the organization had planned to award $1-million, but with more than 260 requests for assistance, it provided $4.2-million in January to 81 charities.

In a sign of the desperate times, some grant recipients asked the foundation not to identify them publicly because of concern that they would be overwhelmed by people seeking help before they could prepare.

El Pomar Foundation has redirected its giving to do more for needy people in Colorado. While such grants usually make up about 30 percent of its charitable contributions, it is allocating an estimated 50 percent — roughly $8.5-million — in 2009 to such causes.

"I've been here a long time — 35 years — and I don't think we've ever looked harder or more intently at human services and social-service programs," said William J. Hybl, chief executive of the philanthropy, in Colorado Springs.

But the changes mean El Pomar must make cuts elsewhere. It is reducing employee benefits, trimming salaries for executives, and reducing the scope of the education and fellowship programs it operates.

For example, the fellowship program, which teaches recent college graduates about grant making and nonprofit work, will enroll fewer people. Currently it has 20 fellows, but that number will decline to 12 in June, said Mr. Hybl.

"We're dramatically curtailing those programs so we can devote more funding to direct grants," he said.

Offering Advice

With growing interest in how to repair the damage wrought by the financial meltdown and mass home foreclosures, some foundations have become informal advisers to other donors.

Next month, the Ewing Marion Kauffman Foundation, in Kansas City, Mo., will hold a full-day seminar to discuss how foundations and wealthy philanthropists can help create jobs and support entrepreneurs.

A Kauffman program called FastTrac, which teaches laid-off workers how to open their own businesses, recently expanded into New York, and other cities would like to adopt it, said Carl J. Schramm, executive director of the foundation.

"This program is getting enormous pull from the outside world," he said.

Similarly, the Harry and Jeanette Weinberg Foundation, in Owings Mills, Md., has been called on for its expertise in fighting poverty and helping needy people.

"Our program officers are being asked in a range of different ways to help lead the community or help lead specific issues in the community, whether it's housing, food, shelter, disabilities, or older adults," said Rachel G. Monroe, Weinberg's president.

For instance, a Weinberg program officer, Amy Kleine, recently co-founded a Basic Human Needs Affinity Group to assist Baltimore-area donors.The new group grew, Ms. Kleine said, "out of the current economic situation because more donors have focused their grants on nonprofits that provide direct services to meet basic needs, such as housing, foreclosure assistance, food security, and health."

Reaching Out

The economic emergency has also pushed Weinberg and other foundations to communicate more with grant seekers.

For example, the Packard foundation is holding public meetings with charities in several Northern California counties to discuss Packard's grant making. The meetings have been packed with 100 to 250 people each, said Mr. DeCardy of Packard.

"It is a way to let grantees know what we're doing, what our guidelines are, what's happening in our programs, and hear from people from the nonprofit sector writ large," he said.

During the gatherings, Mr. DeCardy said, foundation officials have often been providing "on-the-spot, quick consulting" to charities that did not fit within its grant-making priorities. To help those groups, Packard created a short list of resources available to charities to hand out at the meetings.

If there is a silver lining to the economic problems facing the nonprofit world, several foundation officials said, it is that the tough times have forged a stronger bond between grant makers and their beneficiaries and between foundations themselves. "The situation we're all facing has prompted us to reach out to each other and see where we might work together," said Matthew J. Quinn, executive director of the Jack Kent Cooke Foundation, in Lands­downe, Va.

The Cooke fund, which primarily provides college scholarships to low-income students, is talking with other education-focused foundations to find ways to collaborate because of the economic crisis.

And during a recent meeting with Washington-area charitable funds, Mr. Quinn said, he volunteered his chief financial officer to provide free investment advice. He said the offer was prompted by a new sense of camaraderie he felt at the meeting.

The gathering "was evidence that people are not hunkering down and pulling themselves into their shells," said Mr. Quinn.

"They're saying, 'Here's an occasion for us share what we have and help each other.'"

Candie Jones and Caroline Preston contributed to this article.

HOW ASSETS AT 71 BIG FOUNDATIONS HAVE CHANGED IN THE PAST 10 YEARS 1999 9.5% 2000 2.6% 2001 -9.3% 2002 -11.4% 2003 12.3% 2004 7.8% 2005 5.3% 2006 9.6% 2007 6.4% 2008 -28.7% NOTE: Percentages show median change in assets.