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Giving in Tough Times

How you can help and advise your clients in a slow economy.

July 24, 2008
by National Center for Family Philanthropy

The American economy is being buffeted by rising food and energy prices, housing foreclosures, a credit crunch and falling stock prices. Nonprofits are caught between two crosswinds: surging community needs and a drop in donations from individual givers — the main source of nonprofit revenue. Increasingly, nonprofits are looking to foundations to help them ride out the storm.

Meanwhile, declines in the stock market are eroding philanthropic assets. What's a funder to do? National Center for Family Philanthropy examines giving in a tough economy: how a family foundation or fund can help struggling nonprofits weather an economic downturn while still making a difference.

Helping Nonprofits Cope With a Tough Economy

According to Giving USA — a foundation whose mission is to advance research, education and public understanding of philanthropy — individual gifts accounted for about three-fourths of donations to nonprofits in 2006. But these gifts tend to slow in tough economic times and nonprofits stand to lose the important general-purpose dollars that keep their operations afloat. Nonprofits thus look to foundations, whose endowments preserve charitable dollars for such rainy days, for increased and creative support.

Many family foundations have obliged. A May 2008 survey from the Council on Foundations, Foundations Support Families Hit by Economic Downturn, found that four out of five (85%) family foundation respondents provide grant-making aid to vulnerable families, while nearly one-third (29%) had increased their grant-making in this area in the past year.

A Case Study

Established at the end of 2007, the Pierce Family Charitable Foundation in Chicago opted for an engaged, hands-on approach to its grant-making. The foundation funds the core operations of nonprofits working with homeless and immigrant families, such as Neighborhood Housing Services, which provides mortgage loans, homeowner education and foreclosure intervention services to families.

Funding of core support for key services is central to the Pierce philosophy. "We are trying to help organizations build their infrastructure so that they can serve their missions more effectively," says Sara Sinaiko, the foundation's executive director. "I believe that we are doing a very good job of leveraging the assets we have." The foundation combines these grants with in-kind gifts and technical assistance. The foundation has created a network of marketing, management, fundraising and accounting consultants who offer their services as part of the grant relationship. "Included in the grant process for 2008 is an allocation of about $5,000 for consulting," Sinaiko explains. "It's being received very well." Whether it's donating professional counseling time to train staffers in the use of fundraising software or donating computers in collaboration with the family business, the foundation concentrates on building capacity and sustainable organizations likely to survive leaner times.

Giving families are considering a number of non-grant-making strategies to help their grant dollars go further:

  • Offering technical assistance
  • Encouraging collaboration, where possible, appropriate and desirable
  • Advocating on behalf of grantees to connect them to potential sources of new funding
  • Considering program and mission-related investments that utilize the fund's entire financial base

Program-related investments (PRIs) are of particular interest to foundations working on the housing crisis, since PRIs can be used to purchase foreclosed properties and, for example, to convert them to rental housing for low-income families. The Hyams Foundation in Boston is among the many foundations considering such creative uses of foundation assets.

Philanthropists looking to help those hit hardest in their areas by foreclosures or rising food prices consult their local regional association and community foundation. These organizations can connect donors and grant-makers to effective nonprofits and similarly interested potential funding partners.

When the Downturn Hits a Foundation or Charitable Fund

American foundations reported an average annual return on investments of 9.9 percent for 2007, according to a recent Commonfund Institute report. The report attributed these strong results to foundations' use of diverse portfolios and alternative investments. While the rate of return was lower than the previous year's, the report said the return should allow for foundations to keep pace with inflation and continue their programs and services.

Indeed, more than half (58%) of family foundations polled in the Council on Foundations report said that the stock market would have no effect on their level of grant-making next year. But that leaves 42 percent of family foundations who do expect lower levels of grant-making and because both the Common Fund and Council samples included relatively few smaller foundations, the emerging picture for smaller, family-run foundations is less rosy. Smaller organizations typically do not have access to the investment options that have sustained the returns of larger institutions.

"While the majority of foundations say that the downturn will have no effect on their grant-making, this situation bears watching," the Council's report said, noting that, given past trends, the effects of a downturn are not usually felt for a year or two. In addition to prudent diversification, family foundations and funds may need to prepare for leaner times of their own. In the wake of steady stock market declines and the September 11 attacks, the National Center for Family Philanthropy published Giving Until It Hurts: Coping With a Tough Economy, a white paper on the strategies used by families in difficult economic times. Among the approaches families may need to use in the coming year are:

  • Cut administrative costs. Staffed foundations might consider a salary or hiring freeze. Others might consider teaming up with similar organizations and sharing office space, for example. Technology can help as well. Publishing an annual report online instead of in print saves important charitable dollars.
  • Decrease grants or grantees. Most foundations are established in perpetuity. Preserving charitable dollars for the future has to be considered next to today's needs, however urgent, and the foundation may need to change the way it does business in order to stay afloat. Inform current grantees about any change in focus or funding strategy and consider connecting them with potential sources of new funding.
  • Dip into the endowment or consider spending out. On the other hand, if the founder is not as concerned about perpetuity, the foundation might consider dipping into the endowment or even spending down to meet today's community needs.
  • Rediscover all your assets. Remember that foundations are not limited to financial assets in supporting partners' work. Consider lending time, in-kind resources, technical expertise, office space and voice to grantees' work to ensure that dollars when donated go as far as possible.
  • Stay the course and look ahead. A diverse portfolio is perhaps a life raft in turbulent times. As creatures of the stock market, endowments are bound to fluctuate and the past months may simply be yet one more fluctuation.

"We haven't felt as much of the pinch as I'd imagine a lot of folks have," says Mary Galeti, vice chair of the Tecovas Foundation. Galeti credits their position to the foundation's wise investment decisions. "I think everyone is feeling the need to give more towards support services," she says. "We are continuing to think about economic development and how we can make our dollars go further and aid in the recovery. That is why we are looking at organizations like Fund For Our Economic Future in Cleveland and international economic development. The surefire way to buffer a hurting economy is to get more people participating in it, so that is what we are trying to do."

The National Center has a number of publications for those interested in giving in tough times. For more information log on to www.ncfp.org.

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