Less in Hand to Offer

By Philip Rucker
Washington Post Staff Writer
Sunday, November 23, 2008

Charities are hurtin'.

After nearly a decade of record growth, U.S. nonprofits are getting hit from all directions. Some foundations are scaling back on awarding grants as endowments shrink in the stock market meltdown. State and local governments -- facing falling tax revenue -- are slashing budgets and cutting back on funding. Individuals, too, will probably hold back on giving this holiday season, experts say, as withered 401(k) accounts and sunken home values take a toll.

Add to that the troubled state of Fannie Mae and Freddie Mac. The mortgage finance giants have long been the Washington region's biggest corporate benefactors and gave a combined $47 million to charities last year. As a result of the federal takeover, Fannie and Freddie could decrease or halt their giving altogether, reshaping the area's philanthropic landscape.

In response, many area nonprofits have trimmed overhead costs, frozen hiring and are anxiously considering cutting programs and laying off staff members in a struggle for solvency and survival. The hardship comes just as they face rising demand for services from people hit by the crumbling economy.

"Things are brittle and delicate," said Diana Aviv, president of Independent Sector, a national coalition of charities. "I don't think nonprofit organizations can be confident for next year. They don't have cushions. . . . We could see the extinction or demise of a lot of organizations whose missions and whose works have been essential to society."

Steve Gunderson, president of the Council on Foundations, said the economic volatility boils down to this: "The needs in the community are probably as great as they've ever been, and the resources of philanthropy to meet those needs are probably as challenged as they've ever been."

Despite all the gloom, charitable giving tends to weather economic downturns. Over the past four decades, charitable contributions have fallen during recessions an average of 1 percent a year, adjusted for inflation, said Patrick M. Rooney, interim director of the Center for Philanthropy at Indiana University. In typical nonrecessionary years, giving grows by about 4.3 percent, Rooney said.

"The good news for charities is that it's not a precipitous decline," Rooney said of the historic trends. "Households don't make these wild swings and say, 'Okay, now we're no longer going to give because the economy's slowing down.' "

Yet this time, there are signs of trouble. Three-quarters of the region's leading foundations and corporate giving programs suffered a decline in assets because of plummeting returns on investments over the past year, according to a survey conducted in October by the Washington Regional Association of Grantmakers. About one-third of the respondents said they reduced grant budgets from 2007 to 2008, and about half of the organizations said they plan to award fewer grants in 2009 than they have this year.

The weakness in the financial and housing markets could not come at a more precarious time for charities. Nonprofit organizations rely on the generosity of Americans during the holiday season for as much as half their annual operating revenue, so many groups will not know the full impact of the economic downturn until they count receipts in January.

Last year, U.S. charitable giving reached a record $306 billion, according to Giving USA, and the surge in philanthropy has been accompanied by a growth in the number of nonprofit organizations. In the Washington region, more than 7,600 area nonprofit groups create a formidable force, employing tens of thousands and contributing an estimated $9.6 billion to the local economy, according to a recent report by the Nonprofit Roundtable of Greater Washington.

"Our sector was built on extra," said Robert Egger, president and founder of D.C. Central Kitchen. "We use extra food, extra time, extra money, and we're looking at the end of the era of extra."

Egger, a former chief of the United Way of the National Capital Area, said he thought donors this year would be more selective about charitable dollars and volunteer hours.

"You may see now the beginning of a consolidation of the sector," Egger said. "We're a saturated market. Can any local economy support the number of nonprofits right now? And if a thinning occurs, who will survive? This kind of economic situation will force people to either stay the way they are and just plead -- or evolve."

Warily Watching Fannie and Freddie

Fannie Mae and Freddie Mac are such a force in the giving community that any hint of a decrease, or end, to their contributions sets off alarms among nonprofit leaders in the region. The livelihoods of some homeless shelters, scholarship programs, food pantries and social service agencies rest heavily on the two firms.

Spokespeople for the two companies said they would meet existing commitments, but no new grants are being awarded while the federal government reviews the firms' charitable activities.

Nonprofit and business leaders joined local members of Congress in writing to the Federal Housing Finance Agency, pleading with it to continue charitable giving in the region. Board chairman James B. Lockhart III wrote in response that charitable activities are under review "to ensure that such activities serve their mission and are appropriate to the conservatorship status."

"It is envisioned that the enterprises will continue to make charitable contributions," Lockhart added.

Still, this hasn't eased rising anxiety among community leaders.

"You have some organizations out there that count on that giving from Freddie and Fannie, and the uncertainty is debilitating," said Jim Dinegar, president of the Greater Washington Board of Trade. If groups "are living hand-to-mouth, and many of them unfortunately do, they're not able to keep their staff and are not able to deliver their services."

Take, for example, N Street Village, which helps homeless women in the District. Over the past decade, the shelter has been a beneficiary of Fannie Mae's Help the Homeless Walkathon, collecting $275,000 last year.

The loss of that revenue, executive director Mary Funke said, "potentially displaces our day program and night beds. In the social service arena, it would scale back our services by about half. We serve nearly 800 women a year -- that's about one-third of the [city's] homeless women population."

"The ramifications are potentially putting people back on the street," Funke said. "The ramifications are children being malnourished."

Across the country, charities are scaling back their annual fundraising galas. "Everyone from Food and Friends to Miriam's Kitchen and all the D.C.-based nonprofits are toning down the elaborate parties," said Eric Kessler, managing director of Arabella Philanthropic Investment Advisors. "They're just being very careful about how they present themselves and how they use their resources."

Cutting Corners To Keep Giving

Nonprofit leaders, meanwhile, fret about how much individuals will give to workplace giving campaigns or to favorite charities.

"The smaller donors, the ones that are 'checkbook philanthropists,' they are the ones that will dry up the fastest," said Bill Hewitt, senior vice president and co-founder of Crown Philanthropic Solutions. "The larger donors tend to realize that organizations they care about are struggling in times like this and they tend to be stable."

Frida Burling, 93 and a Georgetown fixture, has long helped raise money for United Way, the Georgetown Ministry and other charities. In these tough times, however, she said she is cutting corners at home to afford to keep up her philanthropy.

"I turn out the lights more and we're going to use coupons for food," Burling said. "I'm not heating my outdoor room in this weather. But I expect to give as much to the United Way and my churches as I always do, maybe a little more."

But Burling -- whose late husband was a senior partner at Covington & Burling, the powerful D.C. law firm co-founded by his father -- said it is becoming harder to solicit gifts, even from members of Washington's moneyed elite.

"I think a lot of us still care enough," Burling said. "But I am worried that some people will give less for some of the big things."

There are other signs that top-dollar donors may keep their hands in their pockets this giving season, as a result of tumbling fortunes. Kessler of Arabella Philanthropic Investment, which advises wealthy donors on their giving, said many are cutting back this fall.

"One client got their September quarterly investment statement, and they immediately turned around and said, 'We're cutting our [philanthropy] budget by 25 percent,' " said Kessler, who declined to identify his clients.

Many major donors make charitable contributions based on the performance of their investment portfolios, said Gordon J. Campbell, president and chief executive of the United Way of New York. For them, "It's a whole new day," he said. "Are they going to give $250,000 instead of $500,000? That's the calculus that's going on with these individuals."

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