Economic woes put damper on some donations in 2007
By Holly HallThe sluggish economy is showing its effects on charitable donations, which rose just 1 percent last year after inflation, according to Giving USA, the annual tally of American philanthropy to be released this week.
Americans donated $306.4-billion in 2007, but fund raising is facing more challenges this year, especially as the housing and financial-services industries continue to crumble, fuel and food costs rise, and the stock market's volatility strains individuals and organizations across the country. Charities report that donors of all types have recently delayed or reduced gifts — or stopped giving altogether.
But not all charities faced trouble last year. Organizations that increased donations in 2007 tended to be large, sophisticated institutions and those that have worked hard in recent years to expand and diversify their fund raising and develop other sources of revenue that can offset the effects of a shaky economy, according to The Chronicle's interviews with more than 75 charity officials and fund-raising experts.
For instance, many charities are starting businesses so they don't have to rely entirely on money from private donors.
Other charities are finding ways to attract new donors, taking pains to keep donors from straying to other causes, or pushing contributors to make commitments not just for one year, but over long stretches of time.
But many of those same organizations, even as they look forward to the final months of the year when donors are most generous, expect difficult times ahead: "2008 is going to be a rough year for a lot of nonprofits," says Polly Aris Stamatopoulos, a Washington fund-raising consultant. "I know [nonprofit leaders] making midyear corrections and minimizing expenses so it doesn't hurt them at year end. If we have hit bottom, nonprofits might recover at year end. If we haven't, I would not be surprised to see groups doing layoffs or closing their doors. It could be painful."
Demand for Aid Rises
At first glance, it might not be apparent from the Giving USA numbers how much tougher the fund-raising climate has become: In both 2006 and 2007, the report said, giving rose by 1 percent.
But the report, produced by Indiana University's Center on Philanthropy, notes that the 2006 figure was in part the result of a steep increase in 2005 to help victims of Hurricane Katrina and the Asian tsunamis. When those donations are excluded, giving in 2006 rose 3.2 percent after inflation.
The slower results come at a time when many charities, especially those that serve needy or middle-class people, say they face increased demands for aid because of the economy's woes and cuts in government benefits and other support.
Fund raising varied greatly according to a nonprofit group's mission. Organizations that focus on international affairs received the biggest percentage increase — nearly 13 percent — while giving to the environment grew by the next highest percentage — 7.7 percent. Giving to religious groups grew by the smallest amount, just under 2 percent.
Among other key findings from the Giving USA report:
Individuals donated an estimated $229-billion, a drop of 0.1 percent from 2006. Individuals who died donated $23.2-billion through their wills, or 4 percent more than in 2006.
All told, donations by individuals, including contributions to family foundations, made up 88 percent of donations last year.
Corporate gifts declined by 0.9 percent, to $15.7-billion. Those contributions accounted for 5.1 percent of all donations.
Giving by foundations increased by 7.3 percent to $38.5-billion, accounting for 12.6 percent of all donations. The growth was fueled in part by a nearly 12-percent rise in the value of foundation assets last year, according to the Foundation Center. But new money is not flowing into foundations at those kinds of rates: Gifts to family and other foundations declined by 11.9 percent to $27.7-billion. That could be the effect of the stock market's ups and downs, researchers say, since many people donate stock to their foundations and are deterred from giving by market volatility.
Donations last year equaled 2.2 percent of the nation's gross domestic product, a figure that has changed very little in the past decade.
Comparing charitable giving with other spending by consumers, Giving USA also found that donors contributed to charity more than double what they paid for electronics and appliances ($129-billion) last year, but less than they spent on eating out ($416-billion), groceries ($609-billion), or their cars and other vehicles ($991-billion).
Researchers also looked at whether preliminary fund raising for the 2008 presidential election cut into charitable giving last year and found only a minimal effect. Donors contributed more than $580-million to candidates for the Republican or Democratic presidential nomination in 2007, or less than one-quarter of 1 percent of all donations.
Still, for groups that rely on donors now caught up in election fervor, the combination of a challenging economy and the race itself — expected to raise more from private sources than any presidential contest in history — is a problem.
"The economy and the election are hitting at the same time. We clearly feel the pinch," says Marie Matson, vice president for development at the John F. Kennedy Center for the Performing Arts. "When you do this for a living, you get a sense of your constituents and I know that every four years, there is always a little bit of a hit."
Trimming Appeals
To cope with the economic downturn, some charities are trimming their efforts to recruit new donors. Fund raisers say Americans typically aren't willing to support new causes when they are worried about their finances, so charities can end up losing money if they send out too many recruitment mailings.
Fund raisers at Oxfam America, which raised $61.6-million last year, started noticing in February that donors, particularly those who give $1,000 to $5,000, are making smaller gifts, and it has become more difficult to win new supporters. As a result, the charity has abandoned its plans to increase the number of appeals it uses to seek new donors.
"We weren't getting the returns we needed, but you hate to do that," says Stephanie Kurzina, vice president for resource development. "You hate not to have new donors."
Some groups are finding more time to seek out new donors by asking annual contributors to make multiple-year commitments.
The Natural Resources Defense Council, now in a five-year campaign to raise $400-million by 2010, has started asking many of its donors for multiyear promises. That helped raise $89-million, a 33-percent increase from 2006.
"By asking people for multiyear gifts, you lock them in, so that allows you to spend more time on new prospects," says Jack Murray, the council's director of development. "You're able to expand the donor base."
In Denver, the Mile High United Way has starting asking companies that make annual donations to agree to a five-year commitment.
"There have been a number that have stepped up," says Richard Audsley, the charity's interim president, adding that his charity raised $32.6-million last year, up from $25.4-million in 2006.
Five-year pledges, he says, "give us the opportunity to get more aggressive in approaching new businesses once we know we have fewer calls to make on corporations making multiyear gifts."
Reaching New Donors
Some institutions are succeeding by reaching out to members of ethnic groups who have not previously supported the institution in large numbers.
At the Museum of Fine Arts, Houston, efforts to solicit Hispanics, Muslims, and others are among the reasons donations have risen every year for the last three years, reaching $185.8-million in 2007, according to Paul Johnson, the museum's associate director of development.
Over the last seven years, for example, the museum has raised more than $8-million in cash, as well as donated artworks, from Hispanic donors.
Last year, the museum started a direct-mail membership campaign in Spanish, persuading 150 of the 2,500 Spanish-speaking recipients to attend a blockbuster exhibit of 19th-century French paintings. This year, the museum started an Islamic art collection, raising $4-million, mostly from wealthy Muslims who live in the Houston metropolitan area, and another $1.2-million from Koreans as part of a project to renovate its Asian galleries.
Improved Service
The New Jersey Performing Arts Center, in Newark, has reversed declining ticket sales with a new project to improve the loyalty of people who both donate money and buy tickets to events. The center decided to take action after discovering that it was losing up to 80 percent of patrons from one year to the next.
The center won grants totaling $750,000 and raised another $150,000 to start a new effort to better serve 4,000 of its top supporters, many of whom make gifts of $1,000 or more annually. Each supporter now receives one-on-one assistance from an employee at the center, who also offers special incentives for giving such as discounts on special performances and events.
That effort, along with a capital campaign to raise $180-million by December, has helped the arts center raise $12.2-million this year, up from $11-million in 2007.
But despite its accomplishments, the arts center, like many nonprofit organizations, is now losing gifts as the economy slumps.
Says Peter Hansen, vice president of development: "Performing arts, particularly in this region, gets a lot of money from financial services. They are all taking hits."
He estimates that his organization has lost $125,000 in donations to its annual fund from people who work in troubled industries, as well as a grant of more than $1-million and another six-figure grant from foundations whose assets have dropped with the stock market.
Concern about the financial downturn and a desire to diversify its income have prompted the center to start a new business venture, a real-estate development project consisting of at least 250 rental apartments and retail space to be built on the center's 12-acre property. The center is working with a commercial developer to obtain financing and hopes to break ground as early as next summer, Mr. Hansen says.
At first glance the project seems unrelated to the organization's mission of providing high-quality art performances, but Mr. Hansen doesn't see it that way. "A key element of our mission is the revitalization of Newark," he says. Since the riots of the 1960s, he adds, "this city has really struggled to recover. This will be the first new residential construction in downtown Newark in 45 years."
New Venture
The Anixter Center, a Chicago charity that serves children with disabilities, is also trying to start a new business.
The center has worked hard to increase contributions and will raise $200,000 in new donations and a total of $2.2-million from private sources this year, but that's not enough to keep up with $600,000 in cost increases. The state has frozen the center's yearly allocation, which provides most of the group's $33-million budget, with no increase to cover inflation, for three years in a row. And donations from companies are lagging: Sponsorships to its annual golf tournament have dropped by 20 percent this year.
"It is pretty abysmal," says Allan I. Bergman, the center's president, adding that he has at least 14 open positions he cannot afford to fill.
To provide new income, he says, the Anixter Center obtained $86,000 in grants and spent another $50,000 to $60,000 of its own money to create AblePlay, a business that rates toys on the degree to which they help disabled children develop motor, speech, and other skills.
AblePlay charges toy manufacturers fees to have disability specialists rate their toys, then charges another fee to post the findings on its Web site. Parents, teachers, and others use the site to search for appropriate play items for children with special needs.
While AblePlay has not yet turned a profit, says Mr. Bergman, "we have reached or exceeded expectations, and we think we'll break even by next summer."
He says Anixter expects that the business will produce a profit of $270,000 a year, after exepnses, within three years of breaking even.
Double Bind
Other social-service charities, particularly those that depend on donors of modest means, are caught in a double bind, with demand for services increasing but fewer contributions and other resources with which to help needy clients.
The Midnight Mission, in Los Angeles, which serves homeless individuals and families, says that nearly 20 percent more people have sought aid this year, even as contributions dry up and the increasing cost of gas has made it harder for the charity's fleet of vehicles to pick up donated food, clothing, and other goods. The mission's Easter appeal, which raised $250,000 in 2006, raised only $165,000 this year.
The mission's swelling client roster includes a growing number of Iraq war veterans suffering from post-traumatic stress syndrome or substance abuse, and families suddenly pushed out of homes they were renting when their landlords failed to notify them that the properties were in foreclosure.
"We are doing more with less, and we don't see any relief in sight, particularly as the economy continues to spiral out of control," says Orlando Ward, the mission's director of public affairs.
The troubled economy has made it harder for other social-service groups that were thriving with ambitious expansion plans before the housing crisis and other problems took root.
The Union Rescue Mission, in Los Angeles, purchased a former nursing home on a 78-acre property three years ago, with the goal of moving homeless women and children out of its shelter in the dangerous Skid Row part of town.
However, a legal battle with an association of residents who did not want the facility in their neighborhood delayed the move for two years.
Now the organization is $1.5-million short of the $3.5-million it needs this year to operate the new facility and is in debt for another $9-million line of credit it used to purchase and renovate the nursing home.
"The economy was booming when we made the decision and went into a downturn during the legal battle," says the Rev. Andrew J. Bales, the mission's chief executive officer. "I attribute most of our struggles to the economy. We have 72,000 donors; some are retired and deeply affected. Donors have lost equity in their homes and are a lot less confident about giving now." As a result, contributions have declined, from $48.8-million in 2006 down to $46.4-million last year.
To cope, Mr. Bales has stepped up his own personal solicitations, singlehandedly raising $2.2-million so far this year, up from $777,000 last year.
Mr. Bales says that he has also frozen salaries and is not filling open positions, but things could get worse. "We may have layoffs," he says. "We are concerned about staying afloat."
The complete Giving USA report will be published this month and may be ordered by calling the Giving USA Foundation at (847) 375-4709 or from the organization's Web site. It is available in both print and electronic formats at a cost ranging from $70 to $270.
Cassie J. Moore and Caroline Preston contributed to this article.