As Assets Slowly Recover, Foundations Grapple With How to Help Cash-Strapped Charities

More: Read the full special report on giving by big foundations.

Grant making by the country’s richest foundations is expected to tick up only slightly in 2011, according to a new Chronicle survey based on data from 187 funds.

The modest increase would come after two successive years of gains in foundation assets following the 2008 stock-market plunge that gobbled up a third of the foundation world’s wealth.

However, foundation endowments remain roughly 17 percent lower than before the recession, according to data from 65 grant makers for which The Chronicle has five years of data.

While this year is expected to be relatively austere, the economic recovery has prompted foundations to transition out of crisis mode.

Many are ending emergency grant programs made to help social-service groups and others hard hit by the bad economy, returning to making multiyear grants, and filling some open jobs.

They are also grappling with how best to assist nonprofits that face severe cuts or even dismemberment at the hands of federal, state, and local governments. In particular, many grant makers are seeking ways to help governments and nonprofits provide services more efficiently.

“We’ve dug out from the aftershock of the recession,” says Doug Stamm, chief executive of the Meyer Memorial Trust, in Portland, Ore. “We’re now trying to figure out what the new normal is for philanthropy.”

Better Next Year

Assets for 89 foundations that provided two years’ worth of data grew by a median of 3.4 percent in 2010, meaning that half the assets performed better and half did less well.

While the 89 funds are a small portion of the roughly 67,000 private U.S. grant makers, they represent about a third of total private foundation wealth.

Of the 107 funds that offered predictions for their 2011 giving, 37 percent expected to give more. However, nearly as many grant makers—33 percent—said giving in 2011 will be flat, and 11 percent anticipated a decline.

Next year is expected to mark a more significant recovery. Many foundations calculate their grants based on investment returns for the previous three years, so 2012 will be the first year that will not include 2008—the worst period of the recession. That said, some funds, like the Rockefeller Brothers Fund, in New York, increased the percentage of assets they distribute to 6 percent or more during one or more of the bad years but will return to levels that are closer to 5 percent as the economy gets back on track.

No ‘Champagne’ Yet

The recovery isn’t happening evenly. While the Kresge Foundation’s assets are an estimated 8 percent lower than in 2006, the John A. Hartford Foundation’s endowment is an estimated 29 percent below where it was that year.

The New York fund, which is dedicated to providing health care to older people, used to approve 20 new grants in a year but this year will approve no more than one, according to Francisco Doll, grants manager for Hartford.

“Don’t break out the champagne yet,” says William Jarvis, managing director at the Commonfund Institute, the research arm of the investment firm Commonfund, which manages investments for foundations and other nonprofits. “It will be a real challenge for foundations to keep pace with inflation and meet the levels of grant making they were making.”

But many foundations are less cautious now, which could bring new opportunities for grant seekers.

The Gordon and Betty Moore Foundation is going back this year to making three- and five-year grant commitments of significant amounts and plans to give more over all in 2011. “We’re feeling pretty confident that we won’t have to back off of that,” says Steven J. McCormick, president of the Palo Alto, Calif., fund.

Changes Here to Stay

In some cases, the recession has brought lasting change to philanthropies—and many grant seekers may welcome some of the new approaches. The Meyer Memorial Trust started offering unrestricted grants to help nonprofits pay basic operating costs in 2009 to help small and medium-size charities that were hurt by the recession. It has now stopped making such grants specifically to groups with economic woes but has decided to keep making unrestricted grants because of all the positive feedback it received.

Foundations are also slowly adding back jobs. The W.K. Kellogg Foundation shed about 50 jobs during the recession by offering voluntary retirement to employees and closing two overseas offices. The Battle Creek, Mich., fund has added back roughly half of those positions, but it’s not doing so lightly.

“We want to staff back slowly and deliberately,” says Sterling Speirn, Kellogg’s president.

Some grant makers and other philanthropy experts wonder if foundations have done enough to help charities weather the recession and prepare for an onslaught of government cuts.

The downturn hit some charities far harder than others, says Pat Brandes, executive director of the Barr Foundation, in Boston. She says philanthropy ought to consider helping out small charities and those led by minorities, which probably suffered the most.

“Otherwise, we’re just perpetuating the racial divide,” she says.

William Schambra, director of the Hudson Institute’s Bradley Center for Philanthropy and Civic Renewal (and a columnist for The Chronicle’s opinion section), says that now is not the time for bold new programs. Instead, funds should direct more money to nonprofits that meet basic needs and those that will be hardest hit by government cuts.

“Foundations are going to want to go back to business as usual, to funding experimental, innovative programs,” he says. “But the fact of the matter is that foundations have a new obligation in the wake of this severe coming fiscal crisis.”

Reducing Service Costs

Foundation leaders, however, say they simply don’t have enough money to help charities plug holes created by government cuts. Instead, many of them are seeking ways to reduce the costs of delivering services or help advance federal programs that could bring about sweeping change.

For example, the Kate B. Reynolds Charitable Trust, in Winston-Salem, N.C., gave money to help the state’s health association assist community-health centers in securing federal money available as part of the new health-care law and the stimulus plan. In all, 33 centers applied.

Last month, the Ford Foundation, in New York, gave $15-million over five years for an effort by the Urban Institute to help nine states test ways to provide social services more efficiently.

Also, the W.K. Kellogg Foundation is helping to pay for a software portal for Michigan’s Department of Human Services so people can more easily obtain food stamps, Medicaid, and other benefits. The philanthropy also gave $400,000 to help the state compete for federal money for public schools through the $4-billion Race to the Top program.

However, Mr. Schambra says he wonders why some foundations are so willing to line up behind government when it comes to ambitious programs like Race to the Top but seem to resist helping charities cope with budget cuts.

Few foundations in The Chronicle’s survey said they were starting new programs from scratch.

Among the exceptions is the Laura and John Arnold Foundation, a Houston philanthropy started in 2008 by John Arnold, a 36-year old energy investor, and his wife, Laura. The $670-million fund has been supporting efforts to overhaul public schools and is ramping up work to improve the criminal-justice and pension systems.

Shifts in the political climate also caused some changes at foundations. The Public Welfare Foundation, in Washington, ended a longstanding grant-making program dedicated to influencing health-care policy because of the health-overhaul law passed last year. That money will now go to its work in criminal and juvenile justice.

Unlike health care, the issue of climate change has failed to win support from Congress, but it continues to win new donors. Last year, the Barr Foundation decided to focus all of its environmental giving on the problem.

Some funds are also trying to be creative about putting Americans back to work. The Lumina Foundation for Education, in Indianapolis, started a grant program with an initial $8-million last year designed to help adults who attended college but didn’t finish—some 37 million people, the foundation estimates—attain their degrees.

As state and federal government agencies make more cuts in the coming year, foundations are likely to face even more grant seekers knocking on their doors.

But many foundation officials say they simply don’t have the money to do all that government does and describe their approach in similar terms to Stephen Heintz, president of the Rockefeller Brothers Fund: “The challenge for us is to think like an acupuncturist, where we can insert the tiny little needles we have in a way that triggers the biggest systemic effect.”

Noelle Barton and Peter Bolton contributed to this article.