Surviving Tough Times

Big charities suffer first drop in donations in 12 years

For the first time in a dozen years, contributions to the nation’s largest charities declined in 2002,

the result of continuing economic uncertainty among donors and heightened competition for money among charities, according to The Chronicle’s 12th annual Philanthropy 400 survey.

As a result, many groups have altered their fund-raising approaches, and they are bracing for years of financial challenges. A number of charities have begun to focus on their long-term fund-raising prospects by adding staff members and sponsoring events to try to attract more major and planned gifts. Other groups are stepping up their marketing efforts or working closely with corporate donors to bring in more money.

As they look forward to better times, many charities are trying to put last year — one of the toughest for fund raising in memory — behind them. Donations in 2002 declined 1.2 percent, after adjusting for inflation, compared with an average annual gain of 12 percent during the previous five years. Aggregate donations among the groups in this year’s survey totaled $46.9-billion, down from $47.5-billion last year.

“Things are very unsettled right now in the fund-raising field,” says Charles J. Pagnam, vice president for development at Yale University, in New Haven, Conn. (No. 35), which had a 26-percent decline last year, to $256-million, in support from individuals, foundations, and corporations. “We’re all under pressure to keep getting large gifts to support capital growth. But in these economic times, the number of people willing to make large gifts has shrunk.”

The Philanthropy 400 ranks the nation’s largest nonprofit groups by how much money they raise from private sources. The groups posted an aggregate decline of 0.4 percent in donations before calculating for inflation, which ran 1.58 percent in 2002.

Giving to the Philanthropy 400 charities accounted for approximately one-fifth of the $241-billion contributed to charities nationwide last year, according to estimates compiled by Giving USA, an annual report on charitable giving published by the American Association of Fundraising Counsel Trust for Philanthropy.

Charities have to work harder than ever to attract and keep donors, says John T. Osterlund, general manager of the Rotary Foundation of Rotary International, in Evanston, Ill. (No. 172). Mr. Osterlund calls the current fund-raising climate the most competitive he has seen in 15 years. In the past, he says, the Rotary Foundation’s primary competition was other large charities, but now the organization also must contend with small and medium-size groups.

“Technology allows small, single-interest social-service agencies to compete on a big stage,” says Mr. Osterlund. “They can present themselves like big players.”

Big Gifts and Grants

While many big groups struggled, several smaller and midsize organizations made some of the largest gains in cash donations in 2002. Conservation International, in Washington (No. 44), received $261-million from the Gordon and Betty Moore Foundation, contributing to a 251-percent increase over the previous year. Two groups catapulted onto the list because of pledges from Ruth Lilly, an heir to the pharmaceutical fortune: Americans for the Arts (No. 66), which in 2001 raised $2.9-million from private sources, last year took in $175.6-million, while the Poetry Foundation (No. 92), which raised less than $1-million previously, reported $134.7-million in contributions. And the Museum of Modern Art, in New York (No. 143), raised $92 million — more than twice what it brought in during the 2001 fiscal year — in part because of a capital campaign.

Money collected in connection with the September 11, 2001, terrorist attacks helped to bolster fund-raising totals for several groups. As a result of the $1.1-billion given to its September 11 fund, the American National Red Cross (No. 1) bumped the Salvation Army (No. 2) from the top ranking for the first time in the survey’s history. Over all, the Red Cross brought in $1.74-billion — a 161-percent increase from the 2001 fiscal year.

The Red Cross, whose fiscal year ends on June 30, counted almost all of its September 11 donations as 2002-fiscal-year contributions because the attacks occurred after the end of its 2001 fiscal year. The organization counted $12-million as 2003-fiscal-year contributions. Without the September 11 donations, the Red Cross would have ranked seventh in the survey.

Since the end of its 2002 fiscal year, the American Red Cross has faced repeated fund-raising challenges, including the announcement earlier this year that the balance in its disaster-relief fund had plunged from $68-million last year to just $5-million.

The United Way of New York City, which received more than $500-million in September 11 donations, climbed to No. 11 from No. 134. And the New York Community Trust (No. 89) brought in $137.8-million, largely in September 11 contributions.

Emergency appeals for victims of terrorist attacks in Israel helped to increase fund raising at many Jewish federations. Private support for the Jewish Federation Council of Greater Los Angeles (No. 184), for example, rose nearly 42 percent last year, to $75.6-million.

Two foundation grants of $100-million each helped the University of Southern California (No. 9, with $585-million in donations) to become the largest fund raiser among colleges and universities in the 2002 fiscal year. However, donations fell significantly at five universities in the top 50: In addition to the decline at Yale, Harvard University (No. 13) dropped 30.1 percent; Columbia University (No. 31), 24.4 percent; Emory University (No. 46), 29.4 percent; and the University of California at San Francisco (No. 47), 23.7 percent.

Rounding out the top 10: Gifts in Kind International (No. 3), American Cancer Society (No. 4), Fidelity Investments Charitable Gift Fund (No. 5), Lutheran Services in America (No. 6), YMCA of the USA (No. 7), Nature Conservancy (No. 8), and Feed the Children (No. 10).

Focus on Major Gifts

Instead of tightening their fund-raising budgets after donations declined in the 2002 fiscal year, some groups expanded to focus on planned gifts and major gifts.

Boys & Girls Clubs of America, in Atlanta (No. 15), hired three employees to start a department that is helping local clubs attract more gifts from individuals and rely less on donations from businesses. The charity will test the new approach in April at 10 clubs, then expand it nationwide in 2005 if it is successful.

“The fundamental goal is to teach our clubs how to sit across the table from people and convince them that they ought to support our work,” says Kurt Aschermann, a senior vice president of the charity. Boys & Girls Clubs saw contributions rise 6.6 percent to $453.6-million in 2002, but expects giving to end up flat this year.

Father Flanagan’s Boys’ Home, in Boys Town, Neb. (No. 161), also is trying to do more face-to-face fund raising to increase the number of major gifts it receives. William D. Swindell, the group’s national director of development, says that the organization is making a concerted effort to visit several thousand donors who have made small gifts regularly for 20 or more years, even sending program staff members who are traveling on donor calls.

Donors don’t necessarily think about the difference between an outright large donation and a planned gift, Mr. Swindell says, so he has made sure that his development officers know the basics of one another’s jobs.

“A regular major-gift officer might not be able to write up a charitable trust, but they should be able to tell if the donor who they are working with fits in that category,” he says.

For some organizations, recruiting big donors has taken time and patience. Eight years ago a group of 22 children’s hospitals started the “Children’s Circle of Care” program for donors who give more than $10,000 a year to their organizations.

After starting with 566 members, the hospitals now have 3,300 members, says Doug Picha, executive director of the Children’s Hospital Foundation and Guild Association, in Seattle (No. 232), whose private donations rose 81 percent last year to $57.7-million. The gain came largely because of a $20-million gift from the Bill & Melinda Gates Foundation and a $10-million contribution from the Clairmont L. & Evelyn S. Egtvedt Charitable Trust, in Seattle.

Prison Fellowship Ministries, in Reston, Va. (No. 275), has also focused on increasing major gifts, but Alan B. Terwilleger, the group’s senior vice president for ministry relations, says that the economic downturn has taught the organization the importance of having a broad pool of supporters.

“We always are striving to create a balance between small donors and our major-gifts donors,” observes Mr. Terwilleger. “When the economy fell, we found that our smaller donors helped carry the day last year, and when the economy is bubbling and boiling, then the major-gifts folks seem to carry the day.”

Mr. Terwilleger says that Prison Fellowship Ministries is starting to see what he hopes might be the start of a rebound. During the first three months of the charity’s 2004 fiscal year, from July through September, major gifts were up 20 percent over the same time the previous year. The increase included $2-million that was pledged during a weekend retreat for donors.

Donor-Advised Funds

Despite the volatility in the U.S. economy, some charity officials say they have seen an upturn in private support in recent months after a sustained period of declines in giving.

For example, some corporate-sponsored charitable funds — so-called donor-advised funds that allow people to contribute stock, cash, or other assets to special accounts, claim a deduction, and then recommend which charities should receive donations from the accounts — are seeing gains.

“We had a slow beginning to our calendar year,” says Jon J. Skillman, president of the Fidelity Investments Charitable Gift Fund, in Boston. “But since May we have had five months running where we’ve exceeded our fund-raising results from last year.”

At the Schwab Fund for Charitable Giving, in San Francisco (No. 128), the dollar amount of donations increased 65 percent from July through October 2003 compared with the same period last year, says Kimberly Wright-Violich, president of the fund. She attributes the rise in part to her group’s efforts to reach out to people who have started foundations.

Still, the recent gains in donations at Fidelity and Schwab came in spite of an overall poor fund-raising year for commercial donor-advised funds. The six such funds in the Philanthropy 400 raised $1.2-billion in the 2002 fiscal year, down 21.5 percent from the year earlier after adjusting for inflation.

Fidelity received more than $1-billion in 2001, but just $735.4-million the following year, a 30.3-percent decline that caused it to fall from the No. 2 rank it had held since 2001. Mr. Skillman blames stock-market volatility for the decline.

Also declining were the Ayco Charitable Foundation, in Albany, N.Y. (No. 193), which fell 17.4 percent; the Schwab fund, down 18.2 percent; and the U.S. Charitable Gift Trust, in Wilmington, Del. (No. 338), down 40.3 percent.

Contributions to two other donor-advised groups — the National Philanthropic Trust, in Jenkintown, Pa. (No. 79), and the Vanguard Charitable Endowment Program, in Malvern, Pa. (No. 67), rose in 2002, by 20.1 percent and 3.2 percent, respectively.

Eileen R. Heisman, president of the National Philanthropic Trust, says deals with American Express and Morgan Stanley, which allowed the trust to market its services to the companies’ customers, contributed to the organization’s growth. Also, the nonprofit group housed the 9/11 Children’s Fund, a charity that benefited from the outpouring of gifts related to the attacks, which helped to increase donations to the trust, she says.

Like corporate funds, community foundations also receive much of their private support through donor-advised funds. Six community funds dropped off the Philanthropy 400, but several funds in small cities made sizable gains in the 2002 fiscal year. The Tulsa Community Foundation (No. 53) brought in $191.9-million — more than any other community fund last year. The Community Foundation of Middle Tennessee (No. 84) raised $149-million. And the Greater Milwaukee Foundation (No. 245) raised $52.9-million — 218.7 percent more than in 2001.

Health Charities Optimistic

Several health charities whose donations increased in the 2002 fiscal year say that they expect to raise the same or more this year by bolstering their advertising budgets, and by becoming more focused in their appeals than in past years.

The American Heart Association, in Dallas (No. 16), which raised $437.5-million in the 2002 fiscal year, up 8.1 percent from 2001, has started to tell donors that it is working to help reduce the incidence of death and other risks from heart disease and stroke by 25 percent by 2010, says Suzie Upton, executive vice president of development. “The idea is to create an urgency with donors,” she says.

The Alzheimer’s Disease and Related Disorders Association, in Chicago (No. 81), which raised $151.7-million — a 14.5-percent increase over 2001 — plans to spend $4-million more this year than in 2002 to try to raise public awareness of the group, says Ronald Champagne, senior vice president of development.

And the American Diabetes Association, in Alexandria, Va. (No. 86), which brought in $144.5-million last year — a 16.5-percent increase over 2001 — has seen continued increases in support this year. Its donations rose 4.7 percent in its 2003 fiscal year, which ended on June 30, and grew by 6.5 percent from July 1 to September 30, says M. Veneeda Bennett, the group’s chief development officer, citing numbers that have not yet been audited.

Corporate partnerships have accounted for part of the group’s increases. The association attracted $4.4-million more in 2002 from corporations than in the previous year by striving to meet the objectives of corporate donors, Ms. Bennett says.

As a group, the 19 health organizations in the Philanthropy 400 raised $3.22-billion, a 22.7-percent decrease from the 2001 survey. Most of that percentage decline, however, stems from the effect of a big, one-time gift the previous year: $945-million to the Stowers Institute for Medical Research, a biomedical research facility in Kansas City, Mo.

Likewise, a large, one-time gift in the 2001 fiscal year from the Wallace-Reader’s Digest Fund to two arts and cultural groups in this year’s survey had the effect of causing donations to arts groups to decline steeply last year in percentage terms. The 14 arts organizations in the survey saw their aggregate gifts fall 26.5 percent in 2002.

Some arts groups, however, say that they expect to raise at least as much in 2003 as they did last year, in part from capital campaigns.

The Metropolitan Museum of Art, in New York (No. 163), which received $424-million from the Wallace fund in 2001, expects to take in as much from private sources in 2003 as it did last year — $83.3-million — says Emily K. Rafferty, senior vice president for external affairs.

Despite the difficult fund-raising climate, the Museum of Fine Arts, in Boston (No. 336), which did not receive a Wallace contribution, kicked off a $425-million campaign in 2001 and raised 40 percent more in the 2002 fiscal year than it had the previous year, according to Patricia B. Jacoby, deputy director of external relations.

The weak economy also has not deterred some universities from starting major fund-raising campaigns this year. The University of Miami, in Coral Gables, Fla. (No. 153), announced a $1-billion drive this month. Harvard Law School opened a $400-million capital campaign in June.

Several environmental groups say they expect modest growth in the year ahead, with continued softness in foundation support counterbalanced by greater support from individual donors.

Because of several large bequests, the Nature Conservancy, in Arlington, Va., expects to see a “big jump again” in its fund-raising figures for the 2003 fiscal year, says its chief financial officer, Steve Howell.

Private giving to the Nature Conservancy rose by 36 percent, to $628.3-million, last year primarily because of several large gifts of land, Mr. Howell says. Cash donations were down slightly for the past two years, he says.

Despite a decline in support in the 2002 fiscal year and continued uncertainty about a turnaround in the economy, many charities remain optimistic that the worst is behind them.

The YMCA of the USA, in Chicago, which raised $713.9-million in the 2002 fiscal year — 9.8-percent less than in 2001 — is hearing from fund raisers in some of its chapters that private support is beginning to rebound, says Mark C. Johnson, director of national executive initiatives.

“I am not hearing any shouting and dancing in the streets that there’s been an obvious change,” he says. “I think that people are just cautiously optimistic.”

Stephen G. Greene, Marni D. Larose, Nicole Lewis, Elizabeth Schwinn, Nicole Wallace, and Ian Wilhelm contributed to this article.