Packard’s Spending Cuts Cause Budget Woes for a Budget Expert

The Center on Budget and Policy Priorities is used to squaring off against Congress or the president on

budget issues, whether Medicaid, food-stamp spending or deficit reduction. But for the first time in its 21-year history, the heat is now on the think tank’s own budget.

The center is one of many charities preparing to lose the bulk of its money from the David and Lucile Packard Foundation, one of its largest donors. And it is discovering that the Packard loss is just the tip of the iceberg.

Robert Greenstein, who founded the center to study the impact of federal and state budget decisions on low- and moderate-income Americans, has found himself making tough budget decisions much closer to home. He reduced his group’s 2002 budget by several hundred thousand dollars last year in anticipation of cuts from Packard and other foundations as the stock market fluctuated. “We saw the trend and instituted some economies,” he says.

This year, Packard’s grants are 8 percent of the center’s $7.9-million budget. Since 1991, the foundation has given the center $3.9-million.

But with many of the center’s multiyear grants set to expire this year and next, Mr. Greenstein worries that much deeper cuts in his charity’s budget could become necessary. Even if foundations decide to renew all those grants for the same amount the center received in the past, the organization anticipates a 10 to 15 percent budget shortfall next year. And if foundations make smaller grants — as seems likely — the gap will be wider. Although few foundations have lost two-thirds of their endowment, as Packard has, many are facing steep declines in the value of their assets.

Mr. Greenstein, who won a MacArthur “genius” grant in 1996, says he never thought the nation’s bad financial situation would last as long as it has. “Last year, I was wondering whether the Dow would stabilize in the 8,000 or 9,000 range or go back up,” he says. “Today, it’s 7,600.”

Mr. Greenstein says that in past years, even when the economy was poor, market downturns weren’t prolonged, and foundations — the mainstay of support for the center — were able to give consistently year after year. “There were often periods when we had holes in the budget, but then we raised the money,” he says. “This is unprecedented.”

Increased Challenges

The problems come at a time when the center’s work is increasing substantially, as the Bush administration proposes major changes to programs for aiding the poor and elderly, including housing, Medicare, and Medicaid. “These could be the biggest policy changes since the Great Society,” Mr. Greenstein says. “But they go in a different direction.”

The center, which describes itself as liberal in its social views but fiscally conservative, has been ranked as one of the most influential think tanks in the nation by congressional staff members and journalists. A 1998 survey of Congressional and administration officials supported by the Aspen Institute Nonprofit Sector Research Fund found that, on budget policy, the center is the most influential group in the country.

The organization’s mission is to make life simpler for charities and politicians, helping them understand the often-confusing world of government fiscal policy. Behind the scenes, the center studies the kinks in federal and state aid programs and figures out ways to smooth them out. It looks at changes in such dry topics as tax policy and figures out — to the dollar — how those changes will affect state budgets or moderate- or low-income families.

“These are very wonkish, arcane issues, but they have real impact on states’ ability to offer coverage and parents’ ability to take advantage of that coverage,” says Lois Salisbury, director of the Children, Families, and Communities Program at Packard, which has been a longtime supporter of the center’s studies on nutrition and health-insurance programs that affect children.

Beyond measuring needs, the center helps politicians figure out ways to meet them. Not only does it articulate how a Medicaid cut would hurt the poor, for example, it suggests other ways to raise cash.

Last year, the center helped make long-needed changes in federal food-stamp policy. The program was so mired in bureaucracy that many families in need had given up on it, preferring to stand in line at soup kitchens. At a time when other measures showed that the number of people who couldn’t afford to buy enough food for their families was growing, enrollment in the food-stamp program was falling. After consulting with program administrators and state advocates, the center’s analysts came up with 30 ways that the federal government could make it easier for people to enroll in the program, and Congress enacted 20 of those last year.

Packard, the primary donor supporting the food-stamp research, reduced its grant from $308,000 last year to $200,000 this year, and will give nothing at all next year. Ms. Salisbury of Packard says that the food-stamp analysis is coming to a “natural” end because Congress is about to start work on an extension of the federal welfare bill and will probably refer to research already done by the center. The foundation will continue to award funds for the center’s research on children’s health insurance, but will probably give less than the $450,000 it provided this year.

Mr. Greenstein says he doesn’t agree that the food-stamp work is winding down. Not only do advocates now have to persuade states to take advantage of the changes in the food-stamp law, he says, but when Congress renews the welfare law this year, it could pass amendments that would substantially undercut the program.

Mr. Greenstein was able to make up $85,000 of the Packard money he lost this year by asking for extra money from the Annie E. Casey Foundation, another long-term supporter. But Casey only provided money for one year. For 2004, Mr. Greenstein expects to pay for food-stamp research out of the center’s general operating budget, since few foundations are specifically interested in the food-stamp program.

Doing so, however, could prove difficult. Even if the economy recovers, Mr. Greenstein notes that many foundations will still reduce their giving over the next few years.

Speaking in the same measured, dispassionate way in which he analyzes the federal budget, Mr. Greenstein lays out the situation faced by his own organization.

Because foundations determine how much to spend based on a three-year average of their assets, declines this year mean that foundations will be averaging assets during three years of a slumping stock market. The last time Mr. Greenstein’s grants were about to expire, the foundations had some good years to average in. Also, while some foundations have been distributing more than 5 percent of their assets (the minimum required by federal law), Mr. Greenstein says they can’t do so indefinitely without risking losses in their endowments that could permanently affect their abilities to operate.

Preparing for Hard Times

The center has taken several steps to try to prepare for the rough road ahead. For example, it recently renegotiated its lease on Capitol Hill office space, and reduced its budget for consultants and travel. Employees have turned increasingly to the Internet, relying on e-mail and the center’s Web site to distribute studies to the states, news media, and members of Congress as a way to keep printing and messenger costs down. Mr. Greenstein says the center’s Web site now gets about 1.6 million hits a month.

The center has also decided not to hire replacements for some staff members who leave. Five of its 68 positions have been eliminated through attrition. “Basically, we’ve shifted more weight onto the backs of existing staff,” Mr. Greenstein says. “I think it’s fair to say they’re working very long hours now.”

Even so, the center has been forced this year to turn down more requests for help from state officials and nonprofit leaders who, for example, need figures and statistics to help fight state budget cuts.

To try to minimize future cuts to programs, the center’s board of directors has formed a fund-raising subcommittee to help identify new sources of income.

While the board’s members are not wealthy, they bring credibility and political connections to the organization. Susan Sechler, director of global programs at the Rockefeller Foundation, will lead the fund-raising effort, joined by Kenneth S. Apfel, former Social Security Administration chairman; Barbara Blum, former president of the Foundation for Child Development; David de Ferranti, World Bank vice president; and Robert D. Reischauer, former Congressional Budget Office director, among others.

For his part, Mr. Greenstein says he’s not losing any sleep yet — although he confesses that for the first time when he wakes in the night he finds himself pondering ways to solve the center’s budget woes, rather than the nation’s. He believes the center’s mission is so crucial that he finds it hard to imagine that others won’t be able to see it, too. Even now, he spends most of his time on policy debates rather than fund raising.

“My hope is that, if we’re in a situation where it looks like we’d have to take steps that would reduce our ability to impact policy debate,” he says, “the foundations that work with us would take steps to see this doesn’t occur.”