Putting on the Brakes

Fund raisers try to adjust to a lull in gifts as the economy slows

Brian Berrigan, executive director of the Jesuits of New Orleans Province, cleared his

schedule for the last week in December in anticipation of the usual flurry of calls, faxes, and letters from donors seeking to make gifts before year’s end.

But far from being overwhelmed, “I found myself just hanging around the office,” says Mr. Berrigan, whose group coordinates the activities of the religious order’s schools, seminaries, and missionaries in 10 states from New Mexico to Florida.

Many nonprofit groups across the country faced similar lulls in what is usually the busiest fund-raising time of the year.

The slowdown, triggered by the drop in the stock market and a weakening in consumer confidence, did not appear to cause any major fund-raising declines. However, many charities say they received far fewer stock gifts than they have in recent years, which may well be a sign of the end of an era when many charities enjoyed double-digit percentage increases in fund-raising totals.

While charities say it’s not time to panic yet, many are taking steps to cement their ties to donors, build their endowments, and develop new sources of revenue in case a serious economic downturn is on the way.

The Jesuits of New Orleans Province, for instance, met its $2.5-million fund-raising goal last year. But Mr. Berrigan says his group is planning to step up its efforts to make personal visits to contributors. One reason Mr. Berrigan is concerned about the future: The charity had a lot more trouble raising stock donations last year. It had only 14 stock donors in 2000, compared with the 37 donors it had two years ago.

Because of the bull market, many nonprofit organizations have been pushing hard to get stock gifts in recent years.

Such donations are a good deal for donors: They receive charitable deductions for the full value of the stock and avoid capital gains they would incur by selling securities that rose rapidly in value.

And for charities, the stock donations may have been worth far more than the gifts the same donors ever would have made in cash, or may have made it possible for donors to support causes they might not otherwise have supported.

Stock-Market Drops

But as the Dow Jones industrial average saw numerous declines, and the Nasdaq, where most high-technology stocks are traded, dropped 39 percent in value, many donors had reason to worry about their portfolios and were less interested in giving securities.

“When the market goes down like this, people are either scared or they’re mad — two emotions that do not stimulate charitable giving,” says Steven Mourning, an investment adviser in Palo Alto, Calif., who counsels many wealthy donors.

Among the organizations that said stock gifts were not materializing as they had expected:

• Duke University received $16.1-million in stock in the last six months of last year, down from $26.6-million in the last six months of 1999 and $18.5-million over the same period in 1998. Those figures do not include one unusually large stock gift last year. The average stock gift fell from $27,000 in 1999 to $19,000 last year.

  John Taylor, director of alumni and development records, says that overall giving nonetheless appears to be up, despite the decline in stock gifts. He notes that credit-card receipts grew from $1.5-million in the last six months of 1998 to $2.4-million over the same period in 2000, suggesting that growing numbers of donors are giving cash instead of stock. Duke is on track to surpass the $408-million it brought in during its previous fiscal year, the 12 months ending June 30, 2000.

• Fidelity Charitable Investments — the charity run by the Boston investment company to oversee donor-advised accounts — received an unusually large proportion of its gifts in cash in December, according to its president, Cynthia Egan. In addition to the smaller-than-usual share of stock gifts, the average amount put into the accounts by donors was less than in previous years. Even so, the charity managed to raise $1.2-billion in 2000, compared with $879-million in 1999, in large part because it attracted 26,000 new donors to open accounts.
• America’s Second Harvest says two donors called its national office, in Chicago, at the end of the year to say they were delaying their gifts until the market recovered. Overall, the charity received about the same amount in stock gifts as in 1999, excluding one particularly large gift that year. “We were hoping for more,” says Rich L. Jacobs, national major-gifts manager.
• The Jewish Federation of San Antonio also saw a slowdown in stock gifts. “Normally in December we have several charitable gift annuities and at least three or four donor-advised funds. This year not even a phone call!” says Beth Karen Keough, an endowment associate. “Most donors said it was the downturn in the market that prohibited giving.”
• The Peninsula Community Foundation, in San Mateo, Calif., may have raised more money than any other foundation ever has in a year by bringing in $229-million last year. But that figure would probably have been higher if the stock market had held its value throughout the year, says Sterling Speirn, the community foundation’s president. He says one donor who had planned a major stock contribution ended up giving $10-million in cash instead after the stock’s value tumbled.

Although stock gifts were the most-visible signs of trouble, some nonprofit groups also saw drops in cash, particularly from wealthy donors.

Scott Whittet, director of financial development at the El Paso chapter of the American Red Cross, says that, while small gifts held steady, gifts of $1,000 or more were off 60 percent from the group’s $30,000 projection for the year. “A lot of donors I talk to are saying the economy’s bad and they just don’t have anything to give,” he reports.

Corporate giving also took a hit, says Mr. Whittet.

The El Paso chapter held its first charitable golf tournament in October, right after local corporations saw their third-quarter results. “Many were just unwilling to participate,” he says.

No Worries for Some

Some fund raisers say such experiences raise a red flag for this year, especially since a decline in giving tends to occur some months after the economy drops.

Nevertheless, most development officers describe themselves as cautious but not overly concerned as yet.

In plenty of cases, nonprofit groups say they have seen no influence at all from the economic slowdown.

At Harvard University, for example, giving in the second half of 2000 reached $283-million, compared with the $229-million raised during the same period the year before.

The Nature Conservancy took in $196-million in the last half of 2000, a 21-percent increase over what it raised during the same period the previous year.

“I rarely worry about the economy. I’ve raised money in recessions and I’ve raised money in boom times. People are compelled by the case, and if they can help, they will,” says David Whitehead, the organization’s development director.

E. Burr Gibson, executive chairman of the fund-raising consulting company Marts & Lundy, in Lyndhurst, N.J., says the universities, museums, and other large charities he works with had similar successes.

While watching the stock market fall at the end of last year, “I was worried more about my own finances than about our campaigns,” he says.

He says his experience is that even donors who suffered losses on Wall Street came through with big gifts. For example, a university in the Midwest contacted one donor after the value of his stock fell by half to see if more time was needed to fulfill a pledge.

“He told them no, he’d just give them twice as much stock,” Mr. Gibson says.

Cautious Views

At charities where small cash gifts tend to be the norm, many organizations said they fared well in 2000, but are less sanguine about the coming year.

The American Cancer Society rang up $94.2-million in receipts in the last quarter of 2000, a 7.4-percent increase over the same period a year earlier.

Harry Johns, executive vice president for strategic initiatives, notes that the average gift was $61.

“Small gifts don’t seem to be as vulnerable to economic swings,” he observes.

Mr. Johns adds, however, that the organization is cautious despite the good news because of continued warning signs in the economy. “We’re not sure the economic effects would have been felt yet,” he says.

History bears out that view.

According to Lester M. Salamon, director of the Johns Hopkins Institute for Policy Studies, giving typically continues to grow even in the early months of a recession, then levels off.

While a number of economists say the United States is likely to avoid a recession this year, corporate profits could still decline. A report last week measured consumer confidence for January at a four-year low.

The latest Philanthropic Giving Index by Indiana University’s Center on Philanthropy suggests that fund raisers’ confidence about their ability to bring in donations in the future has started to slip slightly.

The index for the last six months of 2000, which is based on a national survey of 270 nonprofit executives and 26 fund-raising consultants, saw a 2.7-point dip in confidence based on a 100-point scale.

But both the index and the economy remain relatively high, says Eugene R. Tempel, the center’s executive director. Annual economic growth is a healthy 2.2 percent, and the philanthropic index registers a 92.

Mr. Tempel cautions, however, that charities shouldn’t assume that they will have it easy even if the economic slowdown remains largely confined to the stock market.

Not only will wealthy donors be affected by the drop in their assets, but now that more and more people are invested in the stock market, a big share of Americans could feel the pain of a long market decline.

“When there is some uncertainty about the future, people focus a little more on themselves,” says Mr. Tempel.

Prepared for Hard Times

For now, most fund raisers are taking a wait-and-see attitude.

“Everybody’s a little bit apprehensive now,” says Paul Gramblin, director of giving at the Shriners Hospitals for Children, in Tampa, Fla. “All the economic indicators are heading south and are pretty volatile.”

But Mr. Gramblin says the hospitals plan no changes in fund-raising approaches as yet.

He expects to be able to continue to raise the roughly $250-million the organization usually takes in each year. Should economic conditions make that impossible, Mr. Gramblin says, earnings from the organization’s endowment can help make up the difference. Such earnings currently are enough to cover roughly 90 percent of the hospitals’ $567-million annual budget. “We will weather the storm, no question,” he says.

If the economy recovers, the temporary drop could prove to be good news for charities, says one Silicon Valley fund raiser.

After high-tech stocks plunged last March, “I had several donors say to me somewhat ruefully, I should have given the stock away when it was high,” says Peter Hero, president of Community Foundation Silicon Valley, which raised $225-million last year, more than double its 1999 receipts.

After many stocks rebounded months later, giving shot up, Mr. Hero says. For donors, stock volatility “helps reinforce the idea that you ought to take a look when times are good and not keep putting it off,” he says.

Some groups also believe that donors may prove even more receptive to their appeals during somewhat harder times.

Mark Desmond, chief executive officer of United Way of Nashville, says, “A soft economy, ironically, on some level makes people more aware of those who could be hurt.”

Charles Firke, assistant director of research at the Y.M.C.A.’s national headquarters, says that when money is tight, people who might otherwise do something more costly for their vacations, such as spending a week at Disney World, instead consider alternatives such as “sending a kid to Y camp for two weeks.”

No Disasters Expected

Even if the economy worsens in the coming months to a full-scale recession, many philanthropy experts say, charities will be in better shape to weather it than they were in 1991.

For one thing, charities “are much better prepared to do sophisticated fund raising than they’ve ever been,” Mr. Tempel says, citing growth in the professional organizations that represent fund raisers, as well as the number of training opportunities and senior-level fund-raising jobs created at many charities. Membership in the Association for Fundraising Professionals, for example, rose from 12,644 to 24,429 in the past decade.

In the last few years, many charities also have enjoyed record donations. The 400 biggest charities raised 13 percent more in 1999 than the charities that made the list the previous year — the third year of double-digit growth. Corporate donations also grew 12 percent in 1999.

The fund-raising gains, plus the bull market, have allowed some organizations that never before had endowments to start building them. More than 800 United Ways, for example, have endowments, according to recent figures.

“Charities are in fairly good shape,” says Murray Weitzman, an economist and consultant for Independent Sector, a coalition of charities and grant makers. “Unless we go into a depression, it’s not going to be disastrous.”

Keeping Donors Loyal

Fund raisers who have been through previous recessions and other economic dips say the best thing charities can do now is to focus on long-time donors.

Or as Mr. Mourning, who spent 25 years in the nonprofit world before becoming an investment adviser, puts it: “The first thing to do is dance with the one who brung ya.” He adds, “Strengthen and nurture philanthropic relationships you’ve already built. As times get tough, only your best friends stay with you.”

For the Peninsula Community Foundation, such advice will probably mean more efforts such as its “Venture Van,” a rented bus that takes donors and prospective donors on tours to see local charities at work fighting illiteracy and poverty. The idea is to make donors feel like venture capitalists touring a project.

Mr. Speirn — who knows the effects of a recession firsthand, having been laid off from his job in the charitable-giving department of Apple Computer in 1991 — says a tight economy makes it even more important to persuade donors that their dollars are being stretched to deliver maximum benefits.

Mr. Berrigan, of the Jesuits of New Orleans, plans to do just that by visiting as many donors as he can.

“Unless you get out there and see people,” he says, “direct mail and all the rest doesn’t count for much.”