The Tide Turns

Donations to big charities lag in uncertain economic climate

After four straight years of double-digit gains in donations, the nation’s largest charities turned

in a lackluster fund-raising performance in the 2001 fiscal year, according to The Chronicle’s 11th annual Philanthropy 400 survey. As a result of the tough economy, many big groups are now altering their fund-raising methods in expectation of months — or years — of financial challenges.

Donations last year grew 5.15 percent, after adjusting for inflation, compared with an average gain of 11.4 percent for the boom years of 1997 through 2000. Aggregate donations among the groups in this year’s survey totaled $47.2-billion, compared with $43.7-billion in last year’s Philanthropy 400.

“It seems like the party’s over,” says Louis Lo Ré, acting deputy executive director of development at Amnesty International USA (No. 358), where private giving declined 27 percent in 2001 from the year before, when it rose 90 percent on the strength of a large bequest. Despite the drop, giving to Amnesty last year was nearly $10-million more than two years earlier. “With the stock market down and a lot of people very jittery about what is going to happen with Iraq and Afghanistan, it makes people a little more cautious about being generous.”

The Philanthropy 400 ranks the nation’s largest nonprofit groups by how much money they raise from private sources. The groups posted an aggregate increase of 8 percent in donations before calculating for inflation, which ran 2.85 percent in 2001.

While many charities posted impressive gains in donations, some of those increases stemmed from one-time gifts. The Metropolitan Museum of Art, in New York (No. 10), and the Colonial Williamsburg Foundation, in Virginia (No. 58), for example, had triple-digit increases. But those groups were among seven organizations in the Philanthropy 400 that last year reached an agreement with the Wallace-Reader’s Digest Funds that gave them control of $1.1-billion in assets. The Metropolitan, for example, received $422-million of its $499-million in donations last year from Wallace-Reader’s Digest assets.

Likewise, the Stowers Institute for Medical Research, a biomedical research facility in Kansas City, Mo. (No. 3), had a 543-percent gain, thanks largely to $945-million in gifts of stock from its founders, James E. and Virginia G. Stowers. The Stowers’s gift helped the 21 health charities in the Philanthropy 400 garner a combined 29-percent increase in donations, before adjusting for inflation. But without the Stowers’s gift, aggregate donations to the health groups declined slightly from the year before.

September 11 Donations

For some charities, it was money collected in connection with the September 11, 2001, terrorist attacks that helped to bolster their fund-raising totals. For example, the New York Community Trust (No. 53) took in $189.5-million in the 2001 fiscal year, up 51 percent from the previous year, but $121-million of that was collected to help victims of the attacks and their families.

In fact, some groups that raised money for September 11 relief efforts still saw their 2001 fund raising sag.

The Salvation Army, which topped the Philanthropy 400 for the 10th straight year, posted a 3.4-percent decline in donations before adjusting for inflation, to $1.4-billion. The decline occurred despite the fact that the Army raised $10.1-million in donations related to the terrorist attacks in the last two weeks of its 2001 fiscal year.

The American Red Cross (No. 9) eked out a 4-percent increase in fund raising in the 2001 fiscal year, to about $664-million, barely outpacing the inflation rate. Because the charity’s fiscal year ended before the attacks occurred, that figure does not reflect the nearly $1-billion the Red Cross has raised in connection with September 11.

Economic Malaise

The poor showing by many charities reflects the economic malaise that is causing a number of donors to hang on to their money rather than give it away.

A survey this fall by the American Affluence Research Center, a market-research company in Pinecrest, Fla., found that nearly one in five respondents with a net worth of more than $3-million planned to reduce their charitable giving, while only about one in 10 planned to increase it.

As individual donors continue to pull back on their giving, so too are grant makers and other sources of support.

Foundation giving is expected to be flat in 2002 and could decline in 2003, according to a survey conducted last spring by the Foundation Center, in New York. What’s more, the endowments of nine of the nation’s top 10 private foundations lost a combined $8.3-billion over the first six months of 2002.

Likewise, college endowments fell 3.6 percent in 2001 and are expected to fall another 5 percent this year, found a survey by the Commonfund Group, which manages investments for 1,000 institutions.

And state tax revenue, a key source of money for many groups, especially arts and social-service organizations, fell 10.4 percent from April 2002 through June 2002, the fourth consecutive quarter of decline.

The National Conference of State Legislatures estimates that the shortfall between available tax revenue and budgeted spending will be $58-billion in 2003 for all states, up from $37-billion in 2002.

The eroding financial picture is putting renewed pressure on charities to come up with ways to attract more money from private donors.

Among the most effective approaches, fund raisers say, is simply to get better at asking donors to contribute.

That approach helped the United Way of King County, in Seattle (No. 284), post a 13.5-percent increase, to $45.3-million, in giving last year, despite decisions by the Boeing Company, one of the city’s biggest employers, to lay off as many as 30,000 workers, most in the Seattle area, and relocate its headquarters to Chicago.

The Seattle United Way’s gain stemmed in part from a new on-the-job fund-raising program in which the charity trained employees of local companies how best to approach their colleagues for contributions, says Karen Porterfield, director of community campaigns for the United Way. “The focus is more on one-to-one asking, and not by United Way people,” she says.

Seeking Real-Estate Gifts

Besides courting donors more aggressively, some nonprofit institutions are seeking donations of land and other assets whose value has weathered the punishing effects of the bear market on Wall Street.

Harvard University (No. 7), which last year had a 41-percent gain in private donations, received five gifts of $25-million or more from private donors, says Charles Collier, senior philanthropic adviser at the institution. Harvard fund raisers have been aggressively seeking nonstock contributions, he says.

“We continue to stress giving from assets that have not been depressed, such as real estate, or simply cash, and [also] being quite specific about donors making gifts from private family foundations and donor-advised funds, where there is enormous charitable money parked,” Mr. Collier says.

A frequent refrain from donors, he says, is that “I don’t have any appreciated stock to make a gift.” And yet, Mr. Collier adds, “They are sitting on a $4- or $5-million foundation that is basically in fixed income.”

Mr. Collier says many donors may be feeling a kind of “psychic bearishness” that doesn’t match their actual financial circumstances. “They had $10-million, it went up to $22-million, now settled back to $16-million, and they are feeling poor,” he says. “So we have to talk with them about the fact they still have substantial net worth.”

While tapping the nonstock assets of wealthy donors may be one route to success, some charities are putting new energy into courting smaller donors, including young ones who someday may become big contributors.

The Metropolitan Opera Association, in New York (No. 64), had a 75-percent increase in donations to $171-million last year. But without a windfall of $83.6-million in Wallace-Reader’s Digest money, its private donations would have slipped 10.5 percent.

To help shore up its fund raising, the opera last year began appealing to younger donors, in part by inviting them to attend in groups and holding special receptions for them during intermissions. So far, the effort seems to be paying dividends. Since beginning the program, the opera has received donations of $500 or more from more than 160 contributors ages 20 to 40, says Lillian Silver, director of development.

Site Visits for Donors

Still another strategy that is working for some groups is to invite donors to see firsthand the fruits of their contributions.

The AmeriCares Foundation, an international-relief charity in New Canaan, Conn. (No. 12), attributes much of its 42-percent gain in private support last year to an increase in donations of products, especially of medical supplies.

But the organization also has sought to reward individual and corporate donors with an annual “airlift dinner,” held at an airport hangar in White Plains, N.Y., that UST Incorporated, a tobacco and wine producer, makes available to the charity.

A dinner this month drew 375 people and raised about $150,000, says Debra Phillips, special-events manager for the charity. At the close of the dinner, 44 donors and representatives of corporate-giving programs boarded a chartered jet that took them to the Dominican Republic for a visit to AmeriCares projects, including a pediatric hospital, a nursing home, and a mother-and-child clinic.

The donors “all seem to come back with the same response,” says Ms. Phillips. “‘How can we help?’”

Reluctance to Give

Despite such success stories, however, few fund-raising officials see the current economic climate as anything but challenging.

“The biggest problem right now is not the economic recession or people losing their jobs; it’s the uncertainty about the economic future,” says Julia Walker, a fund-raising consultant in New Orleans. “People are reluctant to make major gifts unless they have a strong and close tie to the organization that’s asking them.”

Social-Services Groups

Human-service groups and organizations that serve youngsters have suffered as much as any group because of the chill in giving. As a group, the 29 organizations in those categories in the Philanthropy 400 raised $7.6-billion in the 2001 fiscal year, only 4.5 percent above the year-earlier total after adjusting for inflation.

Some human-service charities posted double-digit gains last year. Lutheran Services in America (No. 4, with a 107-percent increase in giving) and Volunteers of America (No. 165, with a 41-percent gain) were among them. Five years ago, the national office of Volunteers of America began coordinating the organization’s fund raising, adding such efforts as direct mail and solicitation of planned gifts, says Kathleen R. King, vice president for development.

But many groups that provide social services or help young people barely squeezed out increases that kept up with inflation, and many other organizations lost ground.

Working With Trustees

Girls Incorporated, in New York (No. 183), had a 4.3-percent decrease in private support, to $77.1-million.

Jan Roberta, senior adviser for institutional advancement, says that 70 percent of the organization’s contributions come from institutions, but that the group recently hired a fund-raising consultant to educate board members on how to solicit gifts from wealthy people.

Kids in Distressed Situations, in New York (No. 313), saw its private contributions decline by 8.4 percent last year, to $41.9-million. Mark Gelber, the group’s president, said the charity typically receives many of its gifts in the form of donated toys and apparel that did not sell during holiday seasons. Because retail sales were relatively strong last Christmas, fewer goods were available for donation than the year before, he says. But Mr. Gelber sees a benefit to this year’s cloudy economic climate. He predicts that Kids in Distressed Situations will receive as much as $50-million in private donations in the 2002 fiscal year if sales this Christmas are slow.

“If retailers have a bad Christmas,” Mr. Gelber says, “we always benefit.”

Arts groups are facing even greater challenges than human-service organizations because many traditional sources of money are drying up, says Russell Willis Taylor, president of National Arts Stabilization, a group in Baltimore that advises arts organizations on finances.

“Generally, our clients are feeling the pinch,” Ms. Taylor says. “Pick any state, and you’ll find state arts councils have really had their budgets slashed. There’s also been a definite decline in corporate sponsorships, as corporations are focusing more on education and social services. And now that foundations have less to pay out because their portfolios have shrunk, I think you will see more foundations put a cap on their giving to the arts this year.”

The arts scene is not entirely gloomy.

The Ford Foundation plans to give $13.4-million to arts groups over the next year, up from just under $11-million in the past two years, says Alison R. Bernstein, a Ford vice president.

The increase will go toward a working-capital fund to improve the financial stability of arts groups that raise less than $3-million a year, she says.

Despite such help, though, numerous arts organizations are finding it difficult to get private donations, grants, and corporate sponsorships.

Among them is the Museum of Fine Arts, Houston (No. 361), says its director, Peter Marzio.

The museum’s donations fell 14 percent last year, to $35.7-million. “It’s taking twice as long to get corporate sponsors to sign on,” says Mr. Marzio. “Where it used to take 10 visits to get a company to sponsor an exhibition, it’s taking more like 20 now.” As a result, he says, he expects to cut about $3.5-million from the museum’s $42-million budget next fiscal year.

Commercial Funds

If a bright spot exists in this year’s Philanthropy 400, it may be in the performance of commercial donor-advised funds.

The six funds on the list — the Fidelity Investments Charitable Gift Fund, Vanguard Charitable Endowment Program, National Philanthropic Trust, Schwab Fund for Charitable Giving, Ayco Charitable Foundation, and the U.S. Charitable Gift Trust — raised a total of $1.6-billion, nearly $1 of every $30 raised among charities on the Philanthropy 400.

For the second straight year, Fidelity’s Charitable Gift Fund ranked No. 2, bringing in $1.06-billion.

That performance was down slightly from last year’s $1.09-billion, but the Fidelity fund is still more than six times the size of its closest competitor, the Vanguard Charitable Endowment Program (No. 65), which grew 52 percent last year to $169-million.

Donor-advised funds allow people to contribute cash, stock, or other assets to special accounts, claim a deduction, and then recommend which charities should receive donations from the accounts.

Commercial funds compete head-on with those offered by community foundations, though it remains unclear how much the growth of the commercial funds has hurt the nation’s community foundations.

In this year’s Philanthropy 400, 13 of 25 community foundations posted fund-raising declines.

Over all, the community foundations in the list had a 2.7-percent median decline in donations, meaning that half the organizations performed better and half worse.

That modest decline would have been far worse were it not for the performance of a few foundations: the Tulsa Community Foundation, in Oklahoma (No. 92), a three-year-old group whose donations soared 360-percent, to $135-million; the Community Foundation of Greater Birmingham, in Alabama (No. 397), which received a $20-million bequest last year that pushed up its donations 240 percent, to $31.6-million; the Community Foundation Silicon Valley, which saw an increase of $85-million, or 82 percent; and the New York Community Trust, with its 51-percent increase of $64-million.

Carla Dearing, chief executive of Community Foundations of America, a group in Louisville, Ky., that provides help to such funds, says it is not unusual that community foundations are suffering, given the condition of the U.S. economy. “People feel uncertainty, and they wait to do some of the things they would otherwise do,” she says.

Hoping for Recovery

As donors watch the economy for signs of recovery, many nonprofit officials are simply hanging on and hoping for brighter days.

After growing strongly in the late 1990s, private support for the Make-a-Wish Foundation (No. 129), a group in Phoenix that fulfills wishes of seriously ill children, slipped last year by 0.3 percent before adjusting for inflation, to $107.8-million.

Still, Paula Van Ness, the charity’s president, is sanguine. Donations to the national office of the organization rose 10 percent this fiscal year. Part of the reason, she says, is that for three years Make-a-Wish has secured an estimated $25-million annually in pro bono advertising from media outlets, which has helped the charity publicize its mission.

Says Ms. Van Ness, “No one would want to think that a tough economy or the aftereffects of September 11 would keep children who have life-threatening illness from having their wishes come true.”