By Brad Wolverton
The declining stock market continued to erode the assets of the nation's largest private foundations in 2002, causing more than 100 of them to reduce or freeze their grant making for this year, according to a new Chronicle survey.
Among 131 grant makers that reported data for fiscal 2001 and 2002, foundation assets fell by a median of 9 percent last year, meaning that half of the funds posted declines greater than 9 percent.
Last year was the third in a row that foundation assets declined. The foundations that provided data to The Chronicle lost a total of $19.7-billion in assets during 2002. The losses have prompted some grant makers to cut off funds to charities they have long supported, eliminate staff members, and reassess their missions. Among the 10 wealthiest foundations, at least two are making cutbacks in staff members, operations, and programs: the Ford Foundation and the David and Lucile Packard Foundation. The Ford Foundation, in New York, the third largest in the survey, says that a 14-percent decline in assets last year, to $9.3-billion, is forcing it to make cuts so that it can increase the percentage of its endowment earnings that it gives away.
Conditions could worsen this year, some observers fear. "Foundations have run out of wiggle room," says Joel J. Orosz, a former official at the W.K. Kellogg Foundation who is now a professor of philanthropic studies at Grand Valley State University, in Grand Rapids, Mich. "If we have a fourth consecutive year of a downturn in the market, we will see some fairly sharp drops in grant making."
The survey also found that:
The grant makers in the survey represent a large percentage of the foundation world's wealth. The 133 foundations that provided asset figures were worth $149.8-billion in 2002. Total assets of the 56,000 foundations in the United States were $486-billion in 2000, the most recent year for which data are available.
The Bill & Melinda Gates Foundation, in Seattle, tops The Chronicle's list of the 10 largest grant makers for the fourth consecutive year, with $24.1-billion in assets, a decline of 4.5 percent from 2001. The Gates Foundation, which focuses on improving global health, domestic high schools, and libraries, made the largest single grant in 2002, $102.9-million, to the Washington Education Foundation, in Issaquah, Wash., to provide college scholarships to students from low-income families. Already this year, the Gates Foundation has given $200-million to help establish a global health program to increase research on diseases in the developing world.
Continuing DeclinesMany foundation officials and nonprofit executives said that they are concerned about the effects that continuing stock-market losses could have on grant making.
"I have heard a lot of investment people say they haven't seen anything like this since the Depression, and that really gives you pause," says Elizabeth H. Locke, president of the Duke Endowment, in Charlotte, N.C., which last year suffered a 20-percent decline in assets, to $2-billion. "When your assets decline for three straight years, it starts to have a deleterious effect on commitments you have already made, and certainly on ideas to start new things, because you're uncertain about what the future holds. We ask ourselves, 'Do we really want to start a massive new five-year program if we can't deliver on it?'"
Cost-Cutting MeasuresAs a result of the decline in assets, almost 80 percent of private foundations that responded to a recent survey by the Council on Foundations, a trade group in Washington, planned to make one or more cost-cutting measures this year, including staff reductions, hiring freezes, and travel moratoriums.
But it is the cuts that foundations are making in their awards that have caught the attention of most charities. Reductions in grants could deal another blow to nonprofit organizations that already are reeling from significantly reduced state and federal government funds and an economic environment in which nonprofit groups say it is harder to raise money from corporations and individuals.
Stock-market losses have forced one of the nation's largest private funds, the David and Lucile Packard Foundation, in Los Altos, Calif., to make sweeping cuts. Assets of the Packard Foundation have declined $8.2-billion, or 63 percent, since 1999, largely because of a slump in the value of Hewlett-Packard stock, which makes up most of its portfolio. The Packard Foundation, which now has $4.8-billion in assets, plans to give away $50-million less in 2003 than it did last year. It recently announced that it was eliminating its arts grant-making program and sharply reducing grants to help charities operate more effectively, an area in which it has been a leading grant maker. In addition, it has trimmed its spending on environmental programs, population-control projects, and programs that serve children and families.
The Packard Foundation drops from fifth to seventh in the Chronicle's list of the 10 wealthiest private foundations. The W.K. Kellogg Foundation, in Battle Creek, Mich., which focuses on health, education, and agriculture and has $5.5-billion in assets, moves to No. 5, just ahead of the William and Flora Hewlett Foundation, in Menlo Park, Calif., now sixth with $5-billion in assets. After increasing its grant making by 65 percent in 2002 as a result of a $2-billion infusion from Mr. Hewlett's estate in 2001, the Hewlett Foundation plans to freeze grants this year. By early 2004, it expects to receive the remainder of the trust from Mr. Hewlett's estate, a sum that is currently $550-million.
The Chronicle's list of the top 10 private foundations includes the same foundations that were in the 2002 list. Not included in the top 10 is the Gordon E. and Betty I. Moore Foundation, in San Francisco, which this year is expected to receive about $4-billion from the transfer of Intel Corporation stock from Mr. Moore, the company's co-founder. Had the Moore Foundation received that money last year, it would have placed eighth on the list.
Cuts Affect Big and SmallFoundations of all sizes continue to cut grants. The Robert W. Woodruff Foundation, in Atlanta, which supports charities in Georgia and has $2.2-billion in assets, plans to give 15 percent less in 2003 following last year's 13.7-percent decline in grants. The William Randolph Hearst Foundation, in New York, which helps private schools around the country build endowments for scholarships and has $498-million in assets, plans to reduce grants by 10 percent this year. And the Sid W. Richardson Foundation, in Fort Worth, Tex., which gives to education, health, and human services in Texas and has $230-million in assets, expects to distribute 70-percent less in 2003.
"We were off more than 20 percent in our total assets last year," says Valleau Wilkie Jr., executive vice president of the Sid W. Richardson Foundation. "We're telling grantees, 'We have nothing to give right now. Come see us at the end of the summer.'"
Even before the economic downturn, many foundations already were reassessing their operations, and had decided to pare their staffs and make program changes.
"Good institutions do periodic strategic planning, but when you have this kind of impact on your revenue stream, it focuses your mind even more," says Rebecca W. Rimel, president of Pew Charitable Trusts, in Philadelphia, whose assets declined 11.9 percent last year, to $3.8-billion. "This is not a time to be Pollyannaish. For years we have forced our grantees to focus on being fiscally sound and prudently managed. We can't hold ourselves to a different standard." Because of that, Pew has decreased its administrative budget modestly this year despite a rise in health-care costs.
Some other foundations that have laid off employees and made extensive grant-making changes say those moves are wholly unrelated to the economy. Since last summer, the Ewing Marion Kauffman Foundation, in Kansas City, Mo., which gives money for the education of children and the growth of entrepreneurial activity and has assets of $1.6-billion, has reduced its staff from 187 to 90. The organization is re-examining virtually all of its grant making, says Carl Schramm, the institution's president, and as a result gave 45.7 percent less in 2002. "We had planned a period in which grant-making activity would be subdued, and we're in the middle of that," he says. "We expect to resume in 2004 and make up for lost ground."
In late January, the Danforth Foundation, in St. Louis, Mo., shifted its grant-making focus to the development of plant- and life-sciences programs in the Midwest -- eliminating funds for education and community development -- and announced it will reduce its staff of eight employees to two. Earlier in the month, the $350-million Blandin Foundation, in Grand Rapids, Minn., which declined to participate in the Chronicle survey, announced plans to shift its focus to economic-development issues in rural areas. For the next three to five years, the foundation will not make new grants to arts, education, environment, youth, or recreation programs outside of its hometown.
Approaches to CutsInstead of reducing contributions to every grant recipient by a small amount, as many foundations have done during previous economic downturns, some are considering a different approach this time: reducing the number of organizations they support, says Melissa A. Berman, president of Rockefeller Philanthropy Advisors, in New York, which helps 12 foundations manage their grant making.
"Now," she says, "foundations are asking, 'Whom should we continue to support at current levels, and whom should we move out of our portfolio?'" The change, she says, is partly because of the depth of asset losses and uncertainty concerning the stock market this year, but coincides with a trend among foundations toward seeking to have greater impact with their giving.
Some charities say they have noticed a change in the way foundations finance new projects. "Foundations are doing less funding of new things," says Alicia Philipp, president of the Community Foundation for Greater Atlanta. "They're mostly sticking to the tried and true -- organizations that have been around and have a proven track record."
Some large foundations that are giving about as much as they did in the past have done so by drawing from reserve funds that they established when the stock market boomed during the 1990s. The Kellogg Foundation and the John D. and Catherine T. MacArthur Foundation, in Chicago, the eighth-largest foundation in this year's survey with $3.8-billion in assets, both increased grants by more than 10 percent last year with the help of reserve funds.
"It would be a shame to allow a momentary downturn in the stock market to affect important work that needs to be done," says Jonathan Fanton, president of the MacArthur Foundation. "We want to be countercyclical by maintaining or increasing our grant levels."
The MacArthur Foundation plans to announce two or three more long-term grant commitments this year, in addition to a recent five-year, $50-million series of grants it made to Chicago arts and cultural institutions, and a 10-year, $14-million grant to National Public Radio. The foundation also plans to give more general-operating grants to help nonprofit organizations during the economic downturn.
Time of 'Acute' NeedNonprofit groups feel an "acute" need now -- especially for unrestricted funds -- and foundations are being called on to help bridge the gaps created from cutbacks by government and corporations, says Susan Berresford, president of the Ford Foundation.
"The risk in a period of economic downturn as sustained as this is that foundations can become very inwardly focused and lose sight of their purpose, which is to support grantees," Ms. Berresford says. "Instead of becoming overly tight and controlling about the use of their money, foundations need to give with as few strings attached as possible."
The Ford Foundation now gives grantees more flexibility in how they use grant money, she says. Ford still expects grantees to account for program expenses, but it now asks grantees to do so in three or four broad expense categories as opposed to 15, which allows grantees to adjust more easily to their changing program needs, she says.
The Ford Foundation gave 37.7 percent less in 2002, largely because it made a $275.5-million grant in 2001 to establish the International Fellowships Fund, which provides money for graduate-level education. Excluding that contribution, Ford still would have given $42-million less in 2002. But during the next three years, Ford plans to pay out 6 percent of its assets annually -- more than the 5 percent minimum that federal law requires foundations to distribute. So far this year, the foundation has committed $5-million -- and expects to give significantly more -- toward a new 10-year program to support artists. It also hopes to attract an additional $95-million for the program from other donors.
Nonprofit organizations troubled by cutbacks have been forced to postpone expansion plans. John W. Stephenson, executive director of the J. Bulow Campbell Foundation, in Atlanta, which finances new buildings and additions to existing office space for nonprofit groups, says his foundation had a 45-percent decrease in applications during the last quarter of 2002. He says that many groups are postponing growth plans because the giving environment is so "hostile" right now.
Many foundation observers say health and human services are two of the areas most affected by the economic downturn. "There are immediate, critical needs right now in these areas," says Audrey R. Alvarado, president of the National Council on Nonprofit Associations, in Washington. "It's time for all of us to invest in significant ways, and that's my challenge to foundations: Cough it up."
One of the largest grant makers in health and human services has decided to give more during the downturn. The Robert Wood Johnson Foundation, in Princeton, N.J., which ranks fourth with $7.8-billion in assets, plans to increase its grant making by 10 to 15 percent this year, to more than $357-million, after giving 32.6-percent more in 2002 than it did in 2001.
"Because health and human services have been so impacted lately, and we have a tremendous commitment to those fields, we plan to pay out 6 to 6.25 percent of our assets this year," says Lewis G. Sandy, the organization's executive vice president. "We feel it's the responsible position."
Good With the BadIf something good has come from this period of economic turmoil, foundations say, it might be that they have become more prudent about their administrative costs and more collaborative in their grant making than in the past. Even foundations whose investments did well last year say the economy has forced a change in how they do business.
Assets at the Robert R. McCormick Tribune Foundation, in Chicago, rose more than 16 percent in 2002, largely as a result of an increase in the value of Tribune Company stock, in which the foundation invests 90 percent of its money. The Tribune Foundation now has $1.86-billion in assets, but does not plan to give away more than 5 percent this year, says Richard A. Behrenhausen, the group's president.
"Foundations had a free ride in the 1990s as assets grew," Mr. Behrenhausen says. "But now that times are tight, we have to be much more focused, more within program lines, less from the hip. That's good news for everyone."
Stephen G. Greene and Marni D. Larose contributed to this article.