Trimming Holiday Hopes

Charities gird for lean season as recession’s grip takes hold

For nonprofit organizations, now in their busiest fund-raising season, hope mingles

with anxiety as they prepare for what is shaping up to be a difficult year ahead.

The nation’s first recession in a decade has strained corporate-giving budgets, while thousands of layoffs in the high-technology, airline, and other industries are jeopardizing the success of some on-the-job giving campaigns. Stock-market losses have shrunk foundation endowments and clouded the prospects for major year-end gifts of stock. State budgets are being trimmed, from Massachusetts to California, squeezing the agencies on which thousands of nonprofit organizations depend for support.

Added to this mix is concern that the flood of support for victims of the September 11 attacks has left some donors feeling tapped out and less likely to write additional checks to charities not connected with those recovery efforts.

Year-end totals won’t be available for several weeks. And while some charities report good donation numbers for November and into December, putting those numbers into context is proving particularly challenging this year. Charities still don’t know whether gains will be strong enough to offset declines seen in September and October, when many charities experienced delays in sending and receiving responses to mail appeals, or postponed or canceled special events.

Many charities are hoping for a holiday fund-raising bonanza. But interviews with scores of nonprofit officials and fund raisers around the country indicate that, while many nonprofit organizations are still going strong, others — particularly social-service charities and cultural institutions — face big challenges.

One ominous sign is a decline since last summer of 8.2 percent in the Philanthropic Giving Index, which assesses the climate for charitable giving — the largest drop since the index’s inception in 1998. The index “is definitely showing a slowing in giving that mirrors the slowing of the economy,” says Eugene R. Tempel, executive director of the Center on Philanthropy at Indiana University, which calculated the index after surveying 145 fund raisers and consultants around the country.

In California, a survey of more than 400 charities that provide food, shelter, health care, and other social services shows that donations were down an estimated $25-million through October of this year compared with the same period last year, while demand for services rose 60 percent. The nonprofit groups on average have lost more than $60,000 each in the past three months, according to the survey, while 750,000 additional California residents will require their services next year.

That combination of growing need and fewer donations means that “our state’s safety-net providers will face a period of unprecedented crisis,” says Robert K. Ross, president of the California Endowment, which is a member of the coalition that sponsored the survey. The coalition, called California Cares, is underwriting a publicity campaign to urge Californians to support their local charities.

New York, meanwhile, has suffered “the worst hit to the state budget since the Great Depression,” says Doug Sauer, executive director of the Council of Community Services of New York State. “Nonprofits that rely on state money or provide services on behalf of the state are very vulnerable.” He adds: “We’re anticipating that the nonprofit work force in New York State might be reduced 10 or 15 percent in the next year.”

Grass-roots groups with few financial reserves and strong dependence on a single type of revenue are particularly at risk, experts say. “The organizations that are going to have a difficult time are those that rely on very broad-based, small year-end gifts from the masses,” says David H. King, a fund-raising consultant in Atlanta.

Some Good News

But the picture is not universally bleak. Many groups expect giving this year to exceed last year’s totals, and some report a significant increase in the number of people offering to volunteer. Furthermore, charities hope that the lowering of income-tax rates next year will help prompt donors to maximize their tax advantages by making major gifts before the end of this year.

“We’re feeling pretty positive that end-of-the-year giving will be okay,” says Barbara J. Shaw, executive director of the Colorado Association of Nonprofit Organizations. “Pledge campaigns since 9/11 have been very well-received.”

Large, established institutions with strong links to their donors, like colleges, hospitals, and houses of worship, are generally doing well, fund raisers say — and in some cases raising more money than ever. “People are looking to sustain the organizations they know and love and that give them a deeper sense of their relationship to the world,” says David R. Bixel, a fund-raising consultant in Nutley, N.J.

Not only is United Jewish Communities on target to meet the $850-million goal for its annual campaign, but the group has also found a reason to be optimistic about future revenue: Individuals who gave both to this year’s campaign and to the group’s 2002 effort, which began in October, increased their contributions by an average of 7 percent.

In October, donors gave $5.3-million to the Presbyterian Church (USA) Foundation to create endowment funds and purchase gift annuities, up from $2.1-million last year. Officials were “humbled and surprised” by the increase, says Nancy H. Strapp, the foundation’s senior vice president of development. After the terrorist attacks, she says, “a lot of people came back to remembering how important their church life is.” Earlier in the year, the organization had to make staffing and budget cuts, in part because donations had been lower than usual.

Some fund raisers who focus on high-end giving to major institutions report little or no slowdown in large donations.

“We’re continuing to see seven- and eight-figure gifts through the end of the year,” says Mr. King, the Atlanta consultant. While some institutions that were about to start capital campaigns or other big projects did pause in September to reassess the matter, he says, all of his company’s clients have since decided to go forward.

Direct-Mail Delays

Most fund raisers do believe that the more than $1.3-billion raised for the attack victims and recovery efforts did have the effect of diverting donations from other charities, according to the Center on Philanthropy’s survey. But most of them also believe that any effect on other giving will have vanished within six months.

Although many charities were beginning to notice a falloff in donations last summer as the economy cooled, the September attacks, including the threat of anthrax-contaminated mail, disrupted many philanthropic agendas. Some companies and government agencies postponed on-the-job giving campaigns. Many nonprofit groups canceled fund-raising events or delayed major campaigns. And a number of organizations stayed out of the mail for several weeks, delaying solicitations just as they were gearing up for their most important fund-raising period of the year.

At CARE USA, direct-mail revenue was down 30 percent in September compared with the previous year, though it has recovered somewhat since then. During the anthrax scare, the charity raised more than $1-million in pledges by increasing its use of telemarketing. But after a lackluster fall, it still had more than 30 percent of its annual budget to try to raise in the last two months of the year.

The Orphan Foundation of America, a Reston, Va., charity that helps teenagers move out of foster care, has “written off the year,” says its director, Eileen McCaffrey. The group had expected to raise $3-million this year but will be lucky to get $2-million, she says.

Some businesses that had promised gifts to her organization decided instead to give the money to September 11 relief efforts, Ms. McCaffrey says. “We’ve lost about $120,000 in pledged money,” she observes. “They just turned around and pledged it to 9/11 funds.”

Decreases in Tourism

Cultural institutions that depend heavily on tourist revenue, like museums, zoos, symphony orchestras, and theaters, have suffered directly and indirectly from the sharp decreases in air travel and tourism after the September 11 attacks.

In Chicago, the Museum of Science and Industry cut 50 positions from its 350-member staff last month, 26 through layoffs and the rest through attrition, despite the fact that fund-raising revenues are up 8 percent from last year. Earned income, from admission fees and other sources, is down 5 percent, and the museum is anticipating reductions in foundation and corporate support.

Other institutions, including the Brooklyn Children’s Museum and the Guggenheim Museum, in New York, and the Shedd Aquarium, in Chicago, have also trimmed their staffs.

In a national survey by AMS Planning & Research Corporation of more than 850 performing-arts groups, 58 percent reported a decline in ticket sales this fall, as hundreds of performances were canceled in the latter half of September.

The prospect of leaner times ahead has prompted many charities to cut their budgets, make contingency plans for shortfalls in revenue, and postpone new programs or services.

CARE, which has cut 15 percent from its budget, not only has adopted travel restrictions and a moratorium on new hires but is also asking all of its employees to take three unpaid days this holiday season. It has postponed plans to start new programs to deal with HIV and AIDS, and girls’ education.

Some of its programs are attracting a lot of support. “Most foundations are still giving to us for Afghanistan reconstruction,” says Marilyn Grist, senior vice president for external relations. “We’re above our goal so far this year. But that’s not helping with our deficit,” because grants are restricted to one purpose.

Accion International, which makes microloans in developing countries, has seen no decline in either individual or institutional support this year. But it still is trimming nearly $500,000 from its $10.2-million budget — primarily by reducing travel and deferring the introduction of new programs.

“We are more concerned about 2002,” says Robin Ratcliffe, vice president for communication. “If the recession deepens and is an extended one, we fully expect to see a reduction in foundation and corporate contributions, especially from new sources.”

The Natural Resources Defense Council will not know until late next month how successful its fund raising was this year, says Jack Murray, its development director. But the board has discussed contingency plans that range up to a 20-percent cut in revenue under a worst-case scenario. The charity is also drafting a two-year budget, since it is likely to take that long for giving to recover, Mr. Murray says. Individuals are curbing their giving already, he notes, but any serious cutbacks in foundation support will be delayed a year, since grant-making cycles lag behind the market fluctuations of their endowments.

Other charities have suspended hiring and taken other measures to control costs: reducing travel, for example, while increasing the use of teleconferences, or limiting expenditures for staff development, or delaying some projects until next year.

Charities are also rebalancing the emphasis they place on various forms of fund raising.

The Nature Conservancy has cut back on mailings to recruit new members, which have produced declining returns since July.

“We recognize there are cycles in the economy,” says Stephanie Meeks, vice president of marketing. “It’s too expensive to keep throwing money at this problem.”

The effect of that decision will be felt in two or three years, she observes, when there will be a smaller pool of people who are ready to move from being entry-level donors to making more significant gifts.

Support from current members is well ahead of last year’s pace, however, contributing to a 25-percent increase in donations for July through October compared with 2000. “We believe we’ll be able to ride out whatever glitches this year may pose,” she says.

Foundation Help

While some grant makers are cutting back on giving because declines in the stock market have taken a chunk out of their assets, others are responding with new economy-related grants.

The California Endowment has given $10-million to food banks, mental-health programs, and other services to help people who have lost jobs in the Los Angeles tourism industry, while high-tech entrepreneurs in Silicon Valley are trying to create a $25-million fund to help nonprofit groups in that area cope with revenue shortfalls.

The Andrew W. Mellon Foundation has created a $50-million fund to help cultural and performing-arts organizations and support public parks in New York City.

Even with such assistance, many charities are preparing to take financial hits next year. Yet as they prepare for the worst, nonprofit officials are still hoping for the best.

Many hope that the generosity that millions of Americans displayed toward survivors and victims’ families after the September 11 attacks will continue to expand; that young people, many of whom donated to charity for the first time this fall, will make giving and volunteering a habit; and that more people will choose to pursue careers in the nonprofit world.

“In the long run,” says Kristin Lindsey, senior vice president of the Donors Forum of Chicago, “a new generation of givers might have been created who now feel how empowering it is to give in a time of need.”

The Chronicle’s special section on the ecomony was reported by Stephen G. Greene, Laura Hruby, Elizabeth Schwinn, Meg Sommerfeld, Martha Voelz, Nicole Wallace, Ian Wilhelm, and Grant Williams.