Tight Funds in Tough Times

Charities seek ways to lessen pain from the global financial crisis

The economic downturn has started to cause trouble for many of the nation’s most sophisticated fund-raising organizations. Gifts from people of modest means and some multimillion-dollar commitments from wealthy donors and big companies have slowed or disappeared altogether, according to The Chronicle’s annual survey of the 400 charities that raise the most from private sources.

Donations to the charities on The Chronicle’s annual Philanthropy 400 list grew to $72.5-billion last year, a 4.5-percent gain after adjusting for inflation, but now many organizations say they are increasingly hard pressed to keep up with skyrocketing increases in the cost of providing services — caused by growing demand for aid, inflation, and other troubles exacerbated by the global financial crisis.

At the American Kidney Fund (No. 180), charity officials expect a $1-million deficit, even after it raised $118.3-million last year, a 32-percent increase. The first signs of trouble came in January, when direct-mail appeals to recruit new donors “tanked” and have since “never recovered,” says David R. Bobbitt, vice president of development.

Adding to the organization’s troubles: Its investments, which pay for some of its operating costs, were hurt by the stock-market downturn.

‘Even Billionaires Are Feeling Poorer’

Commitments from wealthy people are also lagging.

“Even billionaires are feeling poorer in this economy,” says Marshall Burke, senior vice president of resource development at CARE (No. 60), which raised $255.4-million last year, a 2-percent increase. “Some of our wealthiest donors say they cannot give as much this year, and some say they cannot meet their pledges. We are very concerned.”

Mr. Burke is so worried about how giving could drop in the next few months that he started a five-week contest to reward CARE employees who suggest the best ways for the charity to save money on operating expenses. Winners will receive gas cards worth $50.

The organization, whose reserve fund has sustained losses in the stock market, is preparing contingency budgets to calculate the effects of potential revenue shortfalls of 3 percent, 5 percent, and 10 percent this year, and looking for ways to defer spending until January, when officials will have taken stock of the troubled economy’s impact on year-end giving.

Many other organizations among the Philanthropy 400 are also preparing for hard times.

“We’ve been through war and economic ups and downs, but we’ve never seen anything like what we’ve seen in the last eight weeks,” says C. Richard Mattingly, executive vice president of the Cystic Fibrosis Foundation (No. 130), which brought in $149.9-million in 2007, a 12-percent increase. “It’s awfully hard when you’re seeing the markets move 500 points one way or another from day to day to expect anything but a challenging environment.”

2007 Gains

To be sure, some charities among the Philanthropy 400 are on target to meet or exceed their fund-raising goals this year, after reaping extraordinary gains in 2007. Junior Achievement Worldwide (No. 179), a charity that trains young people in business skills, raised 18 percent more last year. And as of last month, only a third of the way into its current fiscal year, the charity has raised nearly half of its annual fund-raising goal.

The charity’s fund raisers attribute the increases largely to donors who have been impressed with Junior Achievement’s more global approach, the result of merging its American headquarters with its overseas operations.

Other charities have successfully navigated hard times by offering donors special access to high-profile events and retreats, seeking out corporate marketing deals, and asking donors to support efforts to make their operations environmentally friendly.

And in a sign of how strong American fund raising has become in recent years, the minimum sum it took to make this year’s list was nearly $50-million, compared with $43-million last year and double the minimum of $24.8-million a decade ago.

At the top of this year’s list was United Way of America which raised $4.2-billion in 2007. While it kept the No.1 ranking for the fourth year in row, it still faces a struggle as it seeks to pay for all the services it has supported in the past: Donations rose by just 2 percent last year, not enough to outpace inflation, which was 4.1 percent.

The Salvation Army took the No. 2 spot, raising $2-billion, replacing the American Red Cross, which fell to No. 19. The Red Cross raised $606.3-million, compared with the $3-billion it raised in 2006, largely in response to Katrina relief efforts. The charity has foundered in the past year as it seeks to raise enough to finance its disaster operations and was forced to ask Congress for money. Last month lawmakers awarded $100-million of the $150-million sought by the charity. Now the Red Cross is trying to raise $100-million by December 31 to replenish its disaster-relief fund; as of last week, it had secured $50-million.

Rounding out the top five spots were the Fidelity Charitable Gift Fund, at No. 3, with $1.5-billion in contributions; the American Cancer Society, at No 4, with $1-billion; and Food for the Poor, at No. 5, also with $1-billion, mostly in donated groceries.

Gifts to the Philanthropy 400 accounted for more than $1 of every $4 raised by charities nationwide last year, and charities on the list generally did a better job of raising money than other nonprofit groups. In 2007, American charities raised 1 percent more after inflation, a total of $306.4-billion, according to Giving USA, the annual yearbook of philanthropy published by the Giving USA Foundation.

Rising Demand

Social-service groups are among the organizations that usually face the hardest time in a downturn, but things are not as dire as they might have been because many of the groups earned healthy increases in gifts last year.

Donations to the Salvation Army, for example, grew by 23 percent last year to $2-billion. But the charity says requests for aid from needy families have increased 20 to 40 percent in recent weeks. Seeking money to help those people will be challenging: Many of the aid requests are coming from people who were previously regular donors to the charity, says Major George Hood, the Army’s national community-relations secretary.

The Salvation Army got an inkling of economic problems late last year when holiday donations to the Army’s traditional Red Kettle drive increased by 0.7 percent, after rising 6 percent in 2006, Major Hood says.

“This was the first early indication of a slowdown, but then we got another gut check with the hurricane season this year,” he says. “Money just was not coming in at all.”

In response to Hurricane Ike, he says, the Salvation Army raised $15-million, and just $300,000 of that came from individuals.

To stretch hurricane-relief dollars further, the Salvation Army this month teamed up with another Philanthropy 400 organization, Feeding America (No. 17), and Kroger, the supermarket retailer, to provide 35,000 boxes of groceries to needy families in Texas who are still struggling after Hurricane Ike’s storm damage and power outages. The two charities together gave $900,000 to purchase food from Kroger, which provided the food at cost and transported it to Texas for free.

Other social-service groups say they have faced the same problem as the Salvation Army, especially in seeking money from people of modest means. Mass direct-mail appeals and e-mail solicitations have been sluggish.

“The numbers for August and September softened, and August was a very bad month in 2008 compared to 2007,” says Michael Wiest, executive vice president of fund raising at Catholic Relief Services (No. 82), which raised $213.8-million last year, a 3-percent decline from 2006. “We are seeing softening in direct mail and annual giving. Fortunately, the number of gifts has stayed the same, but we see a smaller average gift.”

At the Food Bank for New York City (No. 380), which raised $53-million last year, cash gifts have dwindled in both number and size.

In the last two weeks of September, the food bank’s direct-mail appeals produced 27 percent less than the same time last year and the number of donations slid by 28 percent. “For a hunger organization, this is our most important time of the year and, if this is any indication, we are quite nervous,” says Gregory Boroff, senior vice president of external relations. “People want to help, but their giving is down, they are showing their fear.”

For groups that provide social services and other aid overseas, financial troubles have been brewing for some time, as the dollar has weakened compared with other currencies.

The American Jewish Joint Distribution Committee (No. 67), an international-aid organization that has employees in Israel and the Ukraine, laid off 60 of its 875 staff members, including three fund raisers, despite raising $241.6-million, or 3 percent more, last year.

“We’ve discovered this year we are in a global economy,” says Steve Schwager, the organization’s chief executive. “Take an Israeli making about $72,000 in 2007,” he says. “That same person in 2008 cost us $90,000. We couldn’t support staff. I had to fire them.”

Annual Giving Dips

Concern about raising money from donors of modest means spreads well beyond social-service organizations.

At Skidmore College (No. 349), midway through a capital campaign, donations rose 207 percent last year, to $56.8-million. But the college’s annual fund has lost 495 donors this year who had made gifts of less than $500; that is about half of the donors who gave that much in 2007.

Says Michael T. Casey, vice president for advancement: “Those donors who are so important to the future are stretched to meet gas prices, higher energy costs, perhaps relocating, or finding a job. The annual giving fund is going to come under real pressure.”

In recognition of the pressure many donors feel, some charities have cut back or are planning to reduce efforts to recruit new donors. Others are treading more lightly in seeking repeat gifts.

“Everyone in America has been affected by the economic downturn, that’s what makes this so unique,” says Michael Landes, president of the fund-raising arm of the Eisenhower Medical Center (No. 251). “Our donors have children or grandchildren who have lost jobs or a house, causing them to help their family. Their portfolios have been reduced. It’s a fact that they have less available cash.”

The medical center began a new campaign to raise $200-million last year, which helped it secure $83.6-million, but Mr. Landes says that he is now slowing down campaign appeals in favor of simply keeping in touch with the center’s donors.

“We don’t want people to think that all we’re interested in is asking them for money,” he says.

Eisenhower recently mailed a brochure about its services to donors without asking for a gift. And Mr. Landes sent another thank-you letter without a solicitation to those who had supported the hospital for five or more years.

Stock Gifts Scarce

Charities that see a lot of gifts from people with stock are bracing for a big decline in year-end gifts.

“We’re assuming that people won’t have investment income to make stock gifts, which was a big part of our increase last year,” says David Gresham, executive director of development at the Navigators (No. 249). Giving to the Christian outreach ministry, which serves people in more than 100 countries, rose by 9 percent last year, to $84.9-million.

Community foundations and donor-advised funds in the Philanthropy 400 — which rely heavily on gifts of appreciated stock from donors who use securities to set up charitable-giving accounts — have already seen stock gifts slide.

Communities Foundation of Texas (No. 203), for example, watched contributions to its donor-advised funds shrink to $38.3-million in fiscal 2008, which ended on June 30, down from $50.4-million the previous year. Similarly, the Community Foundation for the National Capital Region (No. 177) has received $24-million in new contributions so far this year, only 60 percent of the amount it had raised by this point last year.

To offset such losses, community foundations, donor-advised funds, and other charities have been encouraging donors to make bequests, donate artwork, and give in other ways that don’t require stock transactions.

The Fidelity Charitable Gift Fund sought to increase the appeal of its donor-advised funds last year by cutting the minimum required to establish a fund, from $10,000 to $5,000. It also lowered the minimum amount donors can give from their charitable account, from $250 to $100, and recently lowered it again to $50.

Sarah C. Libbey, Fidelity’s president, says those changes have helped Fidelity achieve a 5-percent increase in contributions this year, compared with the 33-percent gain it achieved last year.

While gifts have grown slowly, Ms. Libbey says, donors are stepping up the amount they are distributing from funds they created in healthier economic times. From January 1 to September 30, the number of grants increased to $744-million, up from $741-million over the same period last year.

To keep the momentum going, Fidelity has announced a holiday promotion that will allow donors to give friends, relatives, and others a gift that allows them to earmark at least $100 to any charity they want. The money comes from each donor’s Fidelity gift account.

Other charities are finding ways to help donors overcome concerns they might have about setting up a fund that will be invested in the stock market, as most donor-advised funds are.

FJC (No. 354), a New York group, is allowing donors to choose to set up a fund that will be invested in a money-market account or in a fund that makes loans to nonprofit organizations at prime interest rates plus 3 percent.

The loans FJC makes to charities have never defaulted, says Leonard Glickman, the organization’s chief executive. “The good news for us and our donors is that we are not as exposed as others to the volatility of the markets.”

Election Effects

Some groups on the Philanthropy 400 list have yet to feel effects of the poor economy, and have been buoyed by the presidential election.

Public-broadcasting groups, for example, have been indirect beneficiaries of all the spending on the election. Companies have been stepping up their underwriting support to public stations so they can promote their businesses. With commercial broadcast stations so full of political advertising, companies have found they cannot buy the airtime they want.

And donors are showing intense interest in listening to economic news — and supporting stations that carry news about the election.

Northern California Public Broadcasting (No. 383), for example, completed its most lucrative radio pledge drive in history on September 30, raising $2-million. Last year giving increased by more than 25 percent, to $52.6-million, after the San Francisco charity merged with a San Jose station.

Support is growing because of people’s hunger for information during uncertain times, with the financial crisis and impending election providing high-profile news, says Scott Walton, executive director of the group’s communications. “There is so much excitement about the election and so much fear over the economy.”

Sue Hoye, Candie Jones, Maria DiMento, Cassie J. Moore, and Paula Wasley contributed to this article.

HOW THE TOTAL AMOUNT OF MONEY RAISED BY THE PHILANTHROPY 400 CHARITIES HAS GROWN (IN BILLIONS) 1990 $27.0 1991 $29.7 1992 $29.6 1993 $30.1 1994 $31.3 1995 $32.0 1996 $34.2 1997 $38.0 1998 $42.0 1999 $47.6 2000 $52.0 2001 $55.3 2002 $54.0 2003 $53.1 2004 $58.9* 2005 $66.5* 2006 $69.4* 2007 $72.5* NOTE: Figures are in 2007 dollars, adjusted for inflation. * Figures include all United Way affiliates.