Tumult in Financial Markets Expected to Cause Problems for Charity Finances

As Wall Street reels from Lehman Brothers’ collapse and AIG’s federal takeover, charities are bracing for a tough fund-raising environment, especially because many donors are growing increasingly worried about their own financial portfolios.

“This is a perfect storm of bad omens for philanthropic giving,” said Eric Kessler, founder of Arabella Philanthropic Investment Advisors, which advises wealthy individuals and families on their giving. “You’ve got all of the horrible news from Wall Street, you have the election, and the hurricanes, and you are heading into the holiday giving period. Current events are creating a huge amount of need that philanthropists don’t plan ahead for.”

This week’s crisis in the financial industry has already caused fund raising to slow down. Bruce Flessner, a Minneapolis fund-raising consultant that works with many of the country’s largest charities, said that one of his clients decided this week to delay a big event to announce a new capital campaign. He declined to name the organization.

“They wanted to change the tone and flavor to be less flamboyant,” he said. “A couple of their best donors are getting kicked” by the Lehman Brothers and AIG fallouts.

Meanwhile, other experts warned that the Wall Street crisis is going to inflict financial damage that goes well beyond the loss of corporate contributions.

“Tax revenues will be down in New York,” said Doug Bauer, senior vice president of Rockefeller Philanthropy Advisors, another group that works with wealthy donors. The financial industry accounts for a big portion of the city’s tax income, Mr. Bauer said. “Revenues that nurture the social safety net in this city are not going to see the same level as they have in the past. There will be lots of strain in greater New York.”

Corporate Philanthropy

Several organizations expect a direct hit from the troubles at Lehman and AIG.

Donors Choose, an education charity, has relied on Lehman Brothers for 7 percent of its operating budget, or about $490,000, for each of the last three years, and is likely to lose that support now, said Charles Best, the group’s executive director. “They have been one of our two most generous supporters,” he added.

Harlem Children’s Zone, a group that aids poor families, will also almost certainly lose contributions from the demise of Lehman Brothers. According to Marty Lipp, the charity’s director of communications, it has received $6-million, or about $1-million annually, over the last several years from the company, in addition to other support including contributions from donors who worked at Lehman. Many of the company’s employees also volunteer in the charity’s tutoring programs. Nobody responded to a reporter’s calls at the Lehman Brothers Foundation, leaving it unclear whether the company will carry out any of its philanthropy commitments.

According to The Chronicle’s survey of corporate giving, Merrill Lynch awarded $43.7-million in 2007 to charity, and Lehman gave $39-million in its fiscal 2007 year, which ended November 30.

On the survey, both companies predicted their giving would remain the same this year, but with Merrill being sold to Bank of America, and Lehman filing for bankruptcy, that philanthropy is in question. Recent press statements by Merrill Lynch and Lehman Brothers do not mention the future of their charitable giving.

The federal government’s takeover of Freddie Mac and Fannie Mae has raised similar concerns among charities that benefited from the two mortgage lenders’ giving.

Less clear is the fate of AIG’s philanthropy. The company’s 2007 “Corporate Responsibility Report” issued last year does not contain totals for charitable contributions, but the report highlighted more than a dozen multi-year commitments the company entered into last year. Among them: A $5.2-million award to Accion International, a Boston charity that provides microloans in the U.S. and overseas, and a $4.7-million pledge to Count Me In, a New York charity that provides small loans and training to female entrepreneurs.

“Everyone is waiting for the dust to settle,” said Helen Parker, Count Me In’s chief financial officer. “Our attorneys have advised us to keep meeting the objectives” that AIG had set forth as a condition of awarding the funds, but whether the grant will be paid in full remains to be seen.