Foundations Inch Up Giving

Assets grew last year, but grants won’t increase significantly(The original version of this article, as published in the March 17 issue, contained incorrect numbers for the Andrew W. Mellon Foundation. This article has been revised to reflect the new data, which shows that the foundation’s assets increased in 2004.)

As the stock market grew steadily for the second consecutive year in 2004, the assets of many of the nation’s wealthiest private foundations increased modestly, a new Chronicle survey has found. But

despite the positive performance in their investment portfolios, most grant makers still have less than they did at the end of 2000, when many charitable foundations’ financial returns reached a high-water mark.

In part because they have yet to fully recover from several years of stock-market volatility, most foundations said they plan to freeze their grant-making budgets at close to last year’s level.

“Foundations aren’t feeling flush, because they remember what goes up can go down quite quickly,” said Melissa A. Berman, president of Rockefeller Philanthropy Advisers, a nonprofit group in New York that manages giving programs for foundations and other donors. “We see a lot of grant makers making cautious and risk-averse decisions.”

Modest Gains

For the 142 grant makers that reported data for the 2003 and 2004 fiscal years, foundation assets grew a median 5.1 percent, meaning half grew by more than that, and half either grew by less or lost money.

But for the 114 foundations that reported assets for both the 2000 and 2004 fiscal years, 80 of them have yet to fully recover from the precipitous decline in the value of investments in recent years.

For example, the Bush Foundation’s assets grew by more than 12 percent last year, from $651-million to $729-million. However, due primarily to investment losses, the fund’s assets are worth far less than they were five years ago: $834-million.

“Where we are now puts us more in the range in which we were working in the late 90s,” said Anita M. Pampusch, president of the Bush Foundation, in St. Paul. “We’re not hoping for a lot of growth, we’re just hoping it’ll stay where it is now. We want a number to work with.”

Among the other key findings of The Chronicle’s survey:

• Sixty-seven of the 139 foundations that estimated how much they plan to give this year said they would spend about the same as in 2004; 57 said giving would increase; and 15 said it would decrease.
• Grant makers spent a median of 16 cents for every dollar given away on their own administrative expenses, such as travel costs, salaries, and consultants’ fees. The figures are based on data from the federal tax returns of 253 grant makers for their 2003 fiscal years, the most recent year for which complete data are available.
• Many of the largest grant makers are undergoing a leadership change. For example, half of the 10 wealthiest foundations either hired new chief executives in the past two years or are looking for new ones.
• Several foundations gave money to help with relief and recovery after tsunamis struck South Asia and East Africa in December, but they said the emergency grants would not reduce their overall grant making in 2005. For example, the Ford Foundation, in New York, the nation’s second wealthiest grant maker with $11.3-billion in assets, plans to give $6-million for such efforts, said Barry D. Gaberman, a spokesman for Ford. The tsunami awards will come out of a reserve fund and won’t decrease how much the foundation gives to other causes, he said.

$179-Billion in Assets

The organizations surveyed represent a substantial percentage of the foundation world’s wealth. In 2002, the most recent year for which data are available, the nation’s 65,000 foundations controlled an estimated $435-billion in assets. For the 142 foundations that The Chronicle surveyed, assets equaled almost $179-billion, with the 10 largest charitable funds accounting for $89-billion of that wealth.

While most of the 10 wealthiest foundations increased their assets last year, two faced declines. They were the Lilly Endowment, in Indianapolis, and the David and Lucile Packard Foundation, in Los Altos, Calif. (The Pew Charitable Trusts, which historically has been one of the largest grant makers, no longer appears in the survey because it converted to charity status last year.)

Lilly’s assets dropped more sharply than any of the other foundations in the top 10, declining $2.27-billion from the $10.8-billion it was worth in 2003. The foundation invests almost exclusively in Eli Lilly and Company; the pharmaceutical corporation’s stock fell almost 20 percent in value last year. The decline in assets pushed the Lilly Endowment from its position as the second-largest foundation in the United States to the fourth largest.

The Bill & Melinda Gates Foundation, in Seattle, topped the list for the sixth consecutive year as the nation’s wealthiest grant maker, with $27-billion in assets. The foundation is expected to grow during the next few years as the Gateses fulfill a $3.35-billion pledge to it. So far, the foundation has received $627-million from the couple as part of that commitment.

The Gates organization also made the largest single donation last year, nearly $537-million to the United Negro College Fund, in Fairfax, Va. The contribution fulfills a $1-billion pledge the foundation made to the nonprofit group to provide 20,000 college scholarships to minority students. When it announced the pledge in 1999, the foundation said it would fulfill the obligation over 20 years, but the grant maker decided to provide the full amount early to allow the United Negro College Fund to invest the funds sooner, said Lowell Weiss, a Gates spokesman.

Just three months into the new year, the foundation already has made another large commitment, pledging $750-million over five years to the Global Alliance for Vaccines and Immunization. The alliance is a nonprofit group in Geneva that the foundation helped establish in 2000 to increase the number of children in poor nations who receive vaccinations.

While Gates maintains its top spot as the wealthiest philanthropy, the foundation whose assets grew the most last year as a percentage of its size was the John Templeton Foundation, in West Conshohocken, Pa. The fund received $550-million from the organization’s founder, the international investor John M. Templeton, increasing its wealth to $895-million.

Pamela P. Thompson, a spokeswoman for the foundation, said the infusion will increase the amount the foundation spends this year to support its programs, which include research into the relationships between science and religion and efforts to promote entrepreneurship. Ms. Thompson would not say by how much the fund would increase its grant budget.

Increases in Giving

Along with Templeton, several other foundations are increasing their commitments this year.

To honor its 75th anniversary, the W.K. Kellogg Foundation, in Battle Creek, Mich., will spend $47-million during the next three years on grants, events, and publications to celebrate its history and its beneficiaries. The money is separate from the foundation’s usual grant making, which will not be affected by the new efforts, said William C. Richardson, the foundation’s president. Kellogg is drawing on a reserve fund it established four years ago to pay for the anniversary giving, he said.

Part of the money will support domestic and international programs that represent the charitable passions of the group’s founder, Will Keith Kellogg, the founder of the cereal company that bears his name.

For example, the foundation has given $7.5-million to build playgrounds in Michigan designed for children with disabilities. Mr. Kellogg, who died in 1951, developed an interest in helping disabled people after his grandson fell out of a window and injured himself, said Mr. Richardson.

The anniversary grants will also support children in southern Africa who have lost their parents to AIDS, the publication of a comic book about Mr. Kellogg’s life and charitable work, and a series of seminars worldwide on issues that concern the foundation.

The Jack Kent Cooke Foundation, in Lansdowne, Va., which last year became large enough to be included in The Chronicle’s survey, also will increase how much it gives in 2005.

The foundation, which was established in 2000, grew by more than 50 percent last year to $541-million after receiving a bequest from the estate of Jack Kent Cooke, who owned the Washington Redskins professional football team until he died in 1997. Mr. Cooke made his fortune in the communications industry as the manager, and eventually the owner, of several radio stations and newspapers.

The grant maker will increase its giving in its new fiscal year, which starts in June, from $13-million to $20-million. The foundation primarily provides scholarships to students in university graduate programs, colleges, and high schools.

Mr. Cooke established the foundation because he never achieved his “secret dream” of attending college and wanted other people to realize their educational goals, said Matthew J. Quinn, executive director of the fund. “He himself never went to college, and all his life regretted that.”

With the greater resources, Mr. Quinn said, the organization will explore new ways it can support Mr. Cooke’s dream. For example, it plans to give $1-million each to five colleges to establish programs that would help students from community colleges transfer to their institutions. The foundation has not yet selected the beneficiaries.

No ‘Dramatic Increase’

While the Cooke Foundation is benefiting from a windfall of new cash, most grant makers are reeling from the financial roller-coaster ride they have endured the last few years.

The Charles Stewart Mott Foundation, in Flint, Mich., for example, has yet to recover from the downturn.

“We certainly haven’t seen a dramatic increase in assets,” said Maureen H. Smyth, vice president of programs.

The foundation’s assets grew 5 percent last year to $2.5-billion, but that is still almost $382-million below its assets four years ago. In 2005, Mott plans to maintain its giving at about the same amount — $110-million — as last year.

In some cases, the downturn not only affected how much grant makers give, but how they give.

For example, several foundations say they are less likely to make long-term commitments because the market might drop unexpectedly again.

“When it all began to fall ever so precipitously, we were left with very large payouts because of grants we have made that were multiple years,” said Connie S. Thompson, chief financial officer at the Bush Foundation. “So some of the lessons we learned is that we should be more cautious about multiple-year grants, because the future could be more fragile than we thought.”

Even foundations whose assets have fully recovered from the volatility are cautious about giving multiple-year grants.

“We still make long-term commitments, but we’ll be more prudent about them,” said David J. Morse, a spokesman for the Robert Wood Johnson Foundation, in Princeton, N.J., which grew by $963-million last year thanks to a rise in Johnson & Johnson stock; roughly 45 percent of the foundation’s assets are invested in the health care-products company.

Due to the growth in assets, Robert Wood Johnson will begin programs it had planned to start last year but was forced to postpone because of financial losses. For example, said Mr. Morse, the foundation will start a $14-million effort to investigate ways to improve nutrition among children and teenagers.

Demand for Help

While many foundations are better off financially than they were a year or two ago, they also say that more charities are asking for money. At the Ralph M. Parsons Foundation, in Los Angeles, applications have increased so much that it has slowed down the organization’s review process, said Wendy G. Hoppe, Parsons’s executive director. Instead of taking four to five months to review applications, as was typical two years ago, she said, today the foundation’s staff members spend seven to eight months looking at proposals.

Parsons and other grant makers blame cuts in state and federal budgets for the rise in demand.

“The states have cut a number of programs we’re interested in, but we can’t pick up where the state or feds have cut,” said John Kostishack, executive director of the Otto Bremer Foundation, in St. Paul, which supports health and housing groups in four Midwestern states.

As a result of the decline in government spending, the foundation will provide more grants this year to teach charities how to lobby state legislators. “We’re trying to help nonprofit organizations acquire the skills to regularly affect policies,” he said. Mr. Kostishack said the amount the foundation will spend on the program depends on how many charities apply and how much they request.

The Mott Foundation plans to support similar advocacy projects on Capitol Hill. It has set aside $800,000 to help groups persuade members of Congress not to reduce spending on antipoverty programs.

“We are concerned about state and federal budget cuts,” said Mott’s Ms. Smyth. “We think they can have long-term effects in areas we’re concerned about.”

Some foundation leaders say the decreases in government support for charities have led them and their colleagues to provide more money for administrative and other overhead costs at charities.

“There is an increasing willingness to do operating grants,” said Ms. Hoppe, who called this a “common sense” approach to making grants. “Administrative expenses are essential to the delivery of services. The rent has to be paid, the utilities have to be covered.”

Ms. Hoppe said Parsons, which primarily supports social services, higher education, and arts and cultural institutions in Southern California, does not track how much it gives for operating expenses. However, she estimated the amount has been increasing in recent years.

But many grant makers, like the Burton D. Morgan Foundation, in Akron, Ohio, are hesitant to increase their giving for operating costs.

“We’ve never been opposed to it, but we want to keep it to a handful” of charities, said John V. Frank, president of the foundation, which uses about 10 percent of its grant budget to provide general support. “We don’t want them to become hooked on us like heroin.”

Turnover at the Top

Another trend affecting the foundation world is changes in its leadership. Seven of the 20 wealthiest foundations — five of them among the Top 10 — have either replaced their chief executive in the past two years or are looking for a new leader.

These organizations include the Mellon, Packard, Kellogg, and Johnson Foundations; the Gordon and Betty Moore Foundation, in San Francisco; the Rockefeller Foundation, in New York; and the John S. and James L. Knight Foundation, in Miami.

The Knight Foundation announced in January that Alberto Ibargüen, publisher of The Miami Herald, will take over in July as president, replacing Hodding Carter III, who is leaving to teach public policy at the University of North Carolina at Chapel Hill.

Mr. Ibargüen said operating a foundation has been a career ambition for many years: “For me, this has always been an ultimate goal. I said, ‘When I get smart enough, I would love to head a foundation.’”

Foundation observers said the turnover at big grant makers mirrors the business world, where many chief executives are leaving their positions as they approach retirement age. “There’s a generational shift taking place,” said Ms. Berman of Rockefeller Philanthropy Advisers. “It’s a simple matter of demographics.”

Some of the new leaders are assuming command after their foundations have endured tumultuous economic setbacks. At Packard, for example, Carol S. Larson, a 14-year veteran program officer of the foundation, became president in 2004 after the grant maker lost almost $7-billion in five years. The decline forced Packard to reduce its grant making and cut programs.

But Christopher C. DeCardy, spokesman for the fund, said the foundation hopes the rough period is over. “We’re not expanding, but we’re not scaling back,” he said. “Slowly, things might be turning around.”

Ms. Hoppe of the Parsons Foundation, whose assets grew by almost 11 percent in 2004, echoed Mr. DeCardy’s cautious optimism: “It’s taken four years to recover, but I hope it’ll make life better for foundations and grantees.”

Leah Kerkman and Cassie J. Moore contributed to this article.