Many charities feel vulnerable as economy slips
The faltering economy is starting to affect a growing number of charities and the people they serve. In
recent weeks, nonprofit organizations have heard from donors who are putting off big gifts, and some groups that rely mostly on small donations have also seen a falloff.
Many social-service charities — especially those in states like California, Florida, Michigan, and Ohio, which economists believe have already entered a recession — are facing increased demand and such a severe budget crunch they may have to lay off workers. Rising gas and construction prices are adding to the challenge of financing services and expansion plans that numerous charities have under way.
As signs of a long-term downturn continued to mount last week — reports showed that the U.S. economy in the final quarter of 2007 had its sharpest decline in growth since 2003 and that the number of repossessed homes grew by 51 percent last year — charities are beginning to grapple with the steps they may need to take to avert serious financial troubles.
“This is scary to me,” says Michael Seltzer, a philanthropy expert, consultant, and author of Securing Your Organization’s Future, a book about how nonprofit groups can survive hard times. “It’s going to have a dramatic impact on individual giving, foundation giving, corporate giving, government giving. We’re coming off a period of incredible accumulation of capital that led to major philanthropic gifts. We hope [a recession] won’t deter that.”
If past recessions are a guide, many charities can expect donations to tumble. According to figures released last week by Indiana University’s Center on Philanthropy, giving dropped an average of 1.3 percent — after adjusting for inflation — during the five national recessions since 1973. (Giving during non-recession years rose 4.3 percent.)
$100 to $300 Gifts
Many fund-raising experts say charities that rely on gifts from people of modest means are most vulnerable to fund-raising troubles now, and eventually those difficulties could spread to groups dependent on affluent people who give millions of dollars.
“The real impact of any recession is going to be on the broad donor base of agencies that rely on $100 to $300 donations from people who are the most affected by the meltdown in the housing market,” says Melissa Berman, president of Rockefeller Philanthropy Advisors, a New York group that counsels wealthy donors and foundations on contributions.
Historically, a bad economy affects different types of charities in different ways, according to researchers at Indiana University. Giving to religious groups remains fairly steady in bad times, dropping only marginally. Education, too, is not affected drastically by recessions.
On the other hand, civil-rights groups, community-improvement organizations and other such nonprofit groups took a hit during recessions in the 1970s. Giving to arts groups tends to experience bigger gains during good times and harder crashes during bad times.
Groups that rely on government aid are also likely to feel more of a pinch than other organizations. Already, the housing crisis is squeezing the coffers of many cities and counties and local governments will probably continue to see property-tax revenue decline, as people lose their homes and the value of real estate drops.
Still, charities have some time to prepare for tough times because giving to nonprofit groups tends to lag behind other economic indicators, says Patrick Rooney, director of research at the Indiana University Center on Philanthropy. Gifts might not decrease until months after a recession starts but not recover until long after it ends, since residual fear of hard times leaves consumers wary.
Charities that have built their endowments — especially with the help of the strong stock market in recent years — have a cushion that may help them weather the hard times. And they may be able to count on foundations in a way they have not in the past.
“The picture right now is very different than at the start of the decade,” says Steven Lawrence, senior director of research at the Foundation Center. Since the 2001 recession, he says, foundations have become more cautious about making multiple-year grants that might tie them up if their endowments sag.
Mr. Seltzer and other experts stress that economic downturns need not be disastrous. Many groups can prepare for a recession without cutting staff members or slashing services, they say.
And some groups can even find new opportunities for growth as the economy changes.
Five-Year Delay
In California, where the economy has been strained, arts groups are already facing signs of trouble.
Lial A. Jones, director of the Crocker Art Museum, in Sacramento, which is entering the final stretch of a campaign to raise $100-million, says she is worried about the drive, even though the museum has already secured $88-million in cash and pledges. The city is extremely hard hit by the mortgage crisis, and the number of foreclosures is among the highest in the country.
One donor has asked for a five-year extension on his promise to contribute $1-million.
The gift is tied to a property sale that the donor now wants to delay, because the property’s value has plunged along with the housing market. Other sources of support are on the wane, too: The museum is expecting its grants from the city to drop by as much as 20 percent next year, on top of a 7-percent cut it already suffered this year.
Ms. Jones and other charity leaders say they fear that delays or reductions in giving may become more common.
Edith Falk, a fund-raising consultant whose firm, Campbell & Company, in Chicago, routinely conducts interviews with wealthy donors to help charities plan for capital campaigns, says she’s noticed a big shift in donor attitudes.
“Since mid-December, the tone of the conversations has really changed,” Ms. Falk says. “In the last two weeks, every single conversation has been about us being in a likely recession. It has gone from a casual reference to being front and center.”
At Southwestern University, in Georgetown, Tex., fund raisers have been waiting for well over a year for a big gift from a donor who had planned to make the contribution with proceeds from the sale of a company. The gift is now in jeopardy because so many corporate buyout deals, including the donor’s, have been taken off the table in response to the economic downturn and the tightening lending market.
“It’s a significant blow to our long-term planning, but there’s nothing we can do about it,” says Rick McKelvey, Southwestern’s vice president for institutional advancement.
Kettle Drive
For charities that aid the poor, the strains of the economy have grown more serious. At the Salvation Army’s Southern California Division, donations to the charity’s year-end Red Kettle drive dropped, signaling difficult times ahead.
While the nonprofit organization is still counting some late-arriving gifts from companies and other donors, the money it raised on the street was down by 6 percent.
Meanwhile, demand for emergency assistance with necessities such as food, shelter, and medicine increased by nearly 25 percent last year, according to Lt. Colonel Paul Bollwahn, the divisional commander.
“Out here, the cost of apartments is up by nearly 6 percent, and foreclosures are up by a lot,” he says. “Food and utilities went up. It appears now we are in a situation where people still have their jobs. But for people getting hit, they are getting hit hard.”
Several charities with donors in housing and some other industries report that pledges and contributions have been canceled or stalled indefinitely.
Easter Seals has been warned to expect less this year from local fund-raising events and other activities conducted nationwide by brokers and agents who work for Century 21, the real-estate company, says Jeanne Sowa, the charity’s senior vice president of corporate relations. Last year, the company’s contribution totaled $5.2-million.
Dick Stevens, food and nutrition director of Hocking-Athens-Perry Community Action, a food bank in Logan, Ohio, says his group faced a $60,000 shortfall at the end of last year (its overall budget was $400,000), and was saved by a few gifts made around the holidays.
Nevertheless, food donations are down overall. While it used to take the food bank five pages to detail what it could offer to the needy, these days “we’re down to a one-page inventory that has about eight items on it,” Mr. Stevens says
Unable to cut services to food pantries — “When they can’t get food from us, they hit a wall,” Mr. Stevens says, and the families they serve don’t eat — he held a meeting last month with his six employees to discuss cutting personnel costs.
“It was a question of, do you lay off one full-time person or do you cut everyone’s hours back,” he says. “I’m leaning toward cutting hours. You lay someone off, and it’s hard to get them back.”
Employment Issues
Other groups, like Salvation Army branches in western Michigan and northern Indiana, have asked employees to work nights and weekends, says Matthew Saganski, the Salvation Army’s communications manager for that region.
“Our social-worker case loads are going way up,” he says. “We’re getting a ton of first-time clients.”
Donations have also been slower than normal, and the branches are considering bringing in more volunteers for extra help.
Even for charities not in dire straits, hiring has slowed recently.
“Whatever’s happening with the economy right now will affect donors, so the nonprofits are being cautious about hiring new staffers that are permanent,” says Nurys Harrigan, chief executive of Careers in Nonprofits, a Chicago recruiting firm. Some charities are taking up to 10 weeks to hire someone as they weigh whether they can truly afford to fill the job, and groups increasingly rely on part-time or temporary help.
Nanette Cantrell, vice president of human resources for CARE, the international aid organization, says the downturn hasn’t affected her organization yet.
But several employees who relocated to Atlanta recently to work at CARE have had a hard time selling their homes according to Ms. Cantrell.
“Now it’s more of a concern for people accepting any kind of a relocation package because they may not be able to sell their house,” Ms. Cantrell says. However, no one has turned down a job because of that problem.
Rick Bressler, business-development manager at Professionals for Nonprofits, a recruiting firm with offices in New York and Washington, says he’s noticed a higher number of applicants than usual for job searches, an indication, he believes, that employees from the corporate world are worried about downsizing."They’re getting nervous and looking at nonprofits as an alternative,” he says.
Recruiting volunteers is also a concern, particularly for charities that rely on them to provide transportation.
Dan Pruett, president of Meals on Wheels and More, in Austin, Tex., says gas prices for 15 vans his group uses to distribute food went up by $15,000 last year.
The increasing fuel costs have also discouraged some of the charity’s 3,500 volunteers who use their own cars to deliver meals, since the nonprofit food program is unable to reimburse them for their expenses.
Some charities are taking precautionary actions to avoid making cuts in the future.
HeadCount, a New York group that registers young voters at summer rock concerts, had hoped for a budget of around $1.1-million for the 2008 election year, says Virginia M. McEnerney, the organization’s executive director.
But because of uncertainly about donations from individuals and fluctuations on Wall Street, the group decided last month to set its budget at $450,000 instead.
That lower figure meant sacrificing an office (Ms. McEnerney works from home) and not supplying tents for all volunteers to sleep in at concerts. “If we could make ourselves a little more fancy and make the lives of volunteers a little more comfortable, we would do that,” she says. “But there are realities.”
She still thinks the group can meet its goal of registering 200,000 voters, however, because of its reliance on volunteers. “It can be time-consuming and expensive to train them, but it gets you through the lean time.”
And after holding back for a year, she hopes the momentum of the presidential contest later this year will allow her group to expand its future efforts.
As charity leaders evaluate their options, management experts who have studied past recessions urge them to weigh their choices carefully before making big course adjustments.
Researchers who looked at charities affected by the last major downturn in the American economy — 2001, when the dot-com bubble popped — found that “temporary” decisions often have permanent effects.
“People thought they were making short-term cuts or changes, but there’s a tendency for short-term changes to become institutionalized, to stick,” says Denise Gammal, a researcher at United Way of the Bay Area, who was a co-author of a report on charities in the San Francisco Bay Area.
One of the report’s most troubling findings: Charities that took on debt in the belief that they’d soon be able to repay it were mistaken. The report found that 29 percent of groups engaged in deficit spending in 2000, before the bubble burst, but 51 percent of groups did so by 2003. And many those groups were still in deficit years later.
“There was an attitude that [the economy] will eventually recover, and people need us more than ever, so we’ll spend to meet that need,” says Caroline Simard, co-author of the paper and now director of research at the Anita Borg Institute for Women and Technology, in Palo Alto, Calif. “But groups still in debt today will be more vulnerable than in 2001.”
Debra E. Blum, Brennen Jensen, Nicole Lewis, Elizabeth Schwinn, Erin Strout, and Denise Kersten Wills contributed to this package.