Staying Calm in Choppy Waters

To many people, South Florida evokes idyllic images of sand, surf, and relaxation. Scratch that surface, however, and the reality for many residents is far more complex.

“People had thought that Florida was recession-proof,” says Barbara Witte, vice president for philanthropic services at the Community Foundation of Broward, which serves the county just north of Miami. “There was always new construction and real-estate development. But with the real-estate bust, unemployment has grown along with the need for more social services.”

Enviable Position

By many barometers, South Florida has faced economic turbulence longer than most areas of the country, in part because it suffered devastating hurricanes in 2005, which helped prompt a downturn in the region’s usually robust real-estate market.

Two years ago, Broward County suffered the second-highest mortgage-foreclosure rate among the 100 largest metropolitan areas in the country, at a rate of one out of every 88 households — topped only by Detroit.

The early and somewhat slow progression of the economic trouble here has helped organizations like the Community Foundation of Broward reach the start of 2009 in a relatively enviable position, says Linda B. Carter, its chief executive, because it “squirreled away during the summer for the winter.”

The community foundation has over the past decade looked for ways to cut costs or share expenses with other organizations and has built a $1-million reserve for administrative and operating costs, while still responding to local needs, particularly to promote civic participation, prevent HIV/AIDS, and help young people who are “aging out” of the foster-care system.

Building a Cushion

Ms. Carter says her organization has also encouraged other local charities to set aside funds for the future.

“Here in South Florida, we said, Listen, the market went down after 9/11, it’s going to go down again, and you need to think about building an endowment so you have a permanent revenue stream regardless of what happens at any given time,” she says. “We’ve been saying, You may be healthy now, things may seem guaranteed, but we will get into dark times.”

Plenty of organizations are facing those hard times. Applications for grants from the foundation’s pool of unrestricted dollars rose from 30 to 279 in the past year, a reflection both of the foundation’s aggressive efforts to publicize the aid it has available and of the financial squeeze organizations are facing.

The tough financial state has also prompted the foundation to consider how it can hold the line on its own spending.

Ms. Carter says the most-recent estimates are that the foundation might be $100,000 shy of this year’s $1.6-million operating budget. At the same time, the foundation’s assets dropped approximately 22 percent from June 30 to November 30, from $90.4-million to $70.4-million.

“We are sitting down and saying, What can we shave, what can we delay, without compromising programs,” Ms. Carter says, adding that cutting travel and conference-attendance costs, as well as dues to several membership organizations, would be the first on the chopping block.

‘Not Sure When’

The foundation oversees 370 funds contributed by donors who want to earmark their money for particular causes or let the foundation decide where the needs are the greatest.

Ms. Carter says that many longstanding annual donors honored their 2008 pledges, but that “if you are approaching someone new who’s never given to you before, that might be delayed.”

“If there’s one consistent response we’re hearing from current and potential donors,” says Ms. Witte, “it’s that people want to make a gift, or create a fund, or add to their fund,” but they’re not sure when or how they’ll accomplish that. “They’re checking with their financial and legal advisers and being more strategic.”

Ms. Carter says that despite the foundation’s decline in assets, she and her staff members remain committed to distributing 5 percent of endowed funds annually, while also striving to make $5-million in grants each year. (The foundation’s current fiscal year ends June 30, 2009.) Also, the organization’s fund raisers say that many of the donors who have funds housed at the community foundation are already giving more than 5 percent yearly.

The foundation calculates its own 5-percent payout based on a three-year average of its asset value, so even though its assets have dropped sharply this year, the amount it distributes in the current fiscal year will be roughly equivalent to the previous year’s.

Anthony Timiraos, the foundation’s chief financial officer, says that using a 12-quarter rolling average helps mitigate short-term market volatility and the effects such instability could have on the fund’s spending.

Adds Mark Kasper, the foundation’s director of gift planning, who was hired in July to fill a newly created fund-raising position: “That’s the only way to weather this kind of storm. The nonprofits that aren’t doing that are the ones that are really in trouble, the ones that aren’t looking at a three-year window of opportunity as opposed to just today.”

Even so, Mr. Timiraos says that if stock values continue to tumble and the overall economic picture doesn’t improve in 2010 and afterward, the foundation may have to rethink its grant-making formula.

Staying Focused

While the foundation can’t do anything to improve the economy, Ms. Carter says, it will do all it can to communicate regularly with current and potential donors and refrain from fretting excessively about its own assets and giving portfolio.

But unlike community foundations in New York, Seattle, and elsewhere that have been working with local United Ways and other groups to discuss emergency solutions to financial crises, Ms. Carter doesn’t envision the Broward foundation taking that tack.

Too often, she says, such efforts lead to a “franticness” that can be counterproductive.

“I have a problem with all these groups that are raising extra money to be responsive,” she says, “when in fact isn’t that what we should have been doing all along? The implication is that we haven’t been responsive to changing community trends.”

Instead, she says, “this is a wonderful opportunity to slow it down. You can actually spend the time fund raising, circling back with your donors, and reinforcing to them the difference their philanthropy is making. The worst thing a community foundation can do is to be fearful. Talk about the good things; the fact that your assets are down is a given.”

Still, the foundation has had to make some tradeoffs. For example, 2008-9 marks the organization’s 25th anniversary, and it had hoped to increase the number of endowed “community builder” funds — those of $1-million or more — to 25 by the end of 2009, up from about 13.

As of the end of the year, however, it had added just two more such funds, and was uncertain about its longer-term chances,

Says Ms. Carter: “We were talking to various people about adding to their fund to get to that $1-million level or to create a new fund, realizing that wealthy people in the area are gone during the summer and early fall, and we had been planting those seeds from October on.”

Because of the economy, however, the foundation has postponed those conversations, as they’re not a “make or break” proposal for the foundation.

Staff members hope that in the months following the presidential inauguration, well-to-do residents will have a better sense of their financial status and whether they can “dig their way out of it,” Ms. Carter says. She adds that donors are anticipating tax changes but are not certain if those changes will herald new tax brackets or similar shifts, and have been talking to their financial advisers.

Meanwhile, “you have to discipline yourself to stay focused on the estate-planning needs of your clients,” says Ms. Carter, “because many times that’s the ultimate gift, the biggest gift, that they’ll ever make to your organization. And yet sometimes CEO’s and board members don’t provide enough tolerance for the process of cultivating someone over 5, 7, 10 years, but at the end of the process you get $20-million.”

Last year the foundation received just such a gift — $12-million from the estate of Mary Mackenzie, founder of a chain of maternity-clothing stores. Ms. Witte says the foundation knew that it was included in her estate plans, but didn’t know the extent of the gift until Mrs. Mackenzie died last summer at the age of 89.

And other wealthy donors still have strong incentives to give now, despite the losses in value most stocks suffered since September. “Much of the population we deal with is older, and many have held stock for many years,” says Mr. Kasper. “While it may be temporarily depreciated or depreciating, it is still appreciated from when they obtained it, so it may well be the most logical form of giving for them.” (Contributing stock that has risen in value is financially savvy because it helps donors avoid capital-gains taxes.)

Mr. Kasper says that the foundation also has received one gift of approximately $100,000 from individual retirement accounts, but hopes that amount will increase in coming months. And in October, he began sending out a weekly e-mail message to financial advisers to keep them abreast of charitable-giving opportunities.

Mr. Kasper adds that while donors may not make a cash gift this year, they are thinking more creatively about how they can use other assets. For instance, he says, “we just accepted a contract for a gift of a condominium worth over $500,000.”

“Estate planners are telling us that their business hasn’t changed, that they’re still very active, so people are still making these long-term decisions,” says Mr. Kasper.

Leadership Academy

Through its 10-year-old Nonprofit Resource Center, the Community Foundation of Broward is continuing to help local groups strengthen their leadership and withstand current economic challenges.

In early December, for instance, the center held a session for potential applicants to its 2009 Boards in Action Leadership Academy, which shows charities how to develop plans to weather the tough times and get their boards more involved in fund raising. Organizations in the academy receive not only individualized training and coaching sessions, but also a $10,000 “capacity building” grant.

Carrie Reppert Turner, the center’s director, says she senses a “keener interest in staving off potential problems,” and that representatives of 22 organizations came to the session, as opposed to the usual 12 or so applicants for the 15 slots.

Adds Ms. Turner: “Just because it’s a bad economy doesn’t mean you stop making the ask, and that’s what we’re hearing from local nonprofits. If you’re doing a service that the community can’t live without, tell that story, get it out there, make sure that people are listening.”

Donor Trips

At the same time, the foundation is doing its best to get the story out to donors and potential donors about the groups it supports.

In early December, for instance, the foundation took 15 people who have donor-advised funds at the community foundation on a visit to the Broward Partnership for the Homeless.

The trips “give the donors food for thought,” says Ms. Carter, who adds that more such visits are planned for next year.

Says Ms. Carter: “That’s what donors are saying they’re missing: ‘They’re all over me when they’re making the ask and when they’re invoicing me for my pledge, but not necessarily telling me, now that I’ve paid, what my dollars are doing.’”

“That’s what we’re doing now,” she says, “and in the course of that conversation, we’re planting seeds and listening for cues on where and when that next gift is.”