Tough Times For Philanthropy

Doug Alexander may have discovered the universal secret to personal wealth and contentment. “I never met a poor or unhappy philanthropist,” says the president and founder of Alexander Haas Martin & Partners, one of the nation’s top fundraising firms for nonprofits. “So, if you want to be happy and rich, just give your money away.”

Only the rich can afford that kind of happiness these days. The grim irony is that as the need for social and human services has increased in the midst of an economic recession, with its thousands of job losses and tumbling stock market, the capacity to give has decreased.

“It’s tough times for all nonprofits. Our venture capitalists are our foundations, and our investors are our donors. When they hurt, we hurt,” says Karen Beavor, director of the Georgia Center for Nonprofits, a statewide resource center for charitable enterprises.

“The government has continued to pull back support, donations from the corporate sector are down, and individual donations are also down,” says Beavor. “We’ve been here before, just not on this grand a scale. It’s the perfect storm for the nonprofit sector.”

Contrary to popular belief, most giving is done by individuals, not foundations and corporations. Of the $212 billion given away in the United States in 2001, individuals’ gifts accounted for $160.72 billion, or 75.8 percent. “Individual giving is still pretty strong, especially among people who support specific organizations that represent personal priorities,” says Alexander. “I mean, if I was worth $95 million and now I’m worth $75 million, I’m still able to give.”

But, he adds, philanthropy is not necessarily related to wealth. “Giving is much more of a psychological challenge than it is a financial one,” Alexander says. “You have to learn to be a philanthropist.

“The other side of the coin is the individual who gives to a charity that he doesn’t have a personal relationship with, the charity that relies on direct mail, television advertising or special events. Those types of organizations are hurting.

“The economy, rising unemployment, those kinds of things have really affected the small givers,” Alexander says. “If you or your spouse loses a job, your giving doesn’t decrease, it goes to zero.”

Unemployment has put a significant dent in the United Way’s fundraising, which relies on a workplace campaign where employees (mostly at large companies) donate a small portion of their paychecks. “But if you’re not at work, you’re not hearing the appeal, and we’re not getting your pledge,” says Mark O’Connell, president of the United Way of Metro Atlanta (UWMA). Not only did Atlanta lose the lion’s share of the 60,000-plus jobs that vanished from the state of Georgia in the last couple of years, “but we didn’t get the 70,000 to 90,000 jobs we had typically been adding every year,” he says.

So, the UWMA fell $9 million short of its $80.5 million fundraising campaign goal in 2002. It was the second straight year the United Way missed its goal.

“It’s not hard to do the math and figure out what happened in this campaign,” says O’Connell. “In an economy that’s pushing out jobs, the United Way has got its hands full.”

And tied. Because the United Way had over-committed itself to the 240-plus agencies it serves, based on previous years’ pledges, the organization had to dig deep into a reserve fund (i.e., liquid money), which plummeted from $12.3 million to $3.9 million last year. O’Connell expects that sum to evaporate before July 1, the beginning of the next fiscal year.

The agency has already cut 29 jobs (17 percent of the UWMA workforce) and funding for the next fiscal year is expected to be down by almost 30 percent. That’s a big chunk that won’t be available for organizations like the Red Cross of Atlanta, which gets 48 percent of its $10 million operating budget from UWMA.

“Our capacity to make grants has been hit hard,” says O’Connell. “The biggest challenge for us is to figure out how to allocate scarcity.”

Foundations are also being pinched these days, because they, too, feel the effects of a faltering stock market. In Georgia, particularly, the fortunes of some foundations are tied to Coca-Cola stock, which has lost its fizz. That’s true of the state’s big gun, the Robert W. Woodruff Foundation, whose Coca-Cola stock is a majority of its holdings. “Foundation fundraising, specifically in Georgia, is a little tougher now because so many of them have relationships with Coca-Cola stock,” says Alexander. “Woodruff, Campbell, Bradley-Turner in Columbus – all are basically Coke-related entities. They are obviously not going out of business, but they are negatively affected by what’s going on.” Even community foundations, which as a rule invest their donors’ funds in diversified portfolios, are suffering.

“Every sector has gone down. We’re just fortunate that all of our eggs are not in one basket,” says Alicia Philipp, president of The Community Foundation for Greater Atlanta.

Bending, Not Breaking

When Philipp came on board at The Community Foundation for Greater Atlanta (CFGA), assets stood at $7 million. Under her direction it has become one of the largest community foundations in the country, and one of the fastest growing. Assets were $400 million by 2000. But when Philipp met with foundation board members at their March retreat, she had some sobering numbers to share. Assets had fallen to $366 million by the end of 2002. Annual contributions, or new money, rose slightly in 2002 – after decreasing dramatically from 2000 to 2001 ($66 million to $40.1 million). The Atlanta foundation did approve $31 million in grants in 2002, but that was a 28 percent decrease from 2001 (almost $39.7 million).

Philipp’s board learned that philanthropy as an industry was standing on wobbly knees. Nine of the 10 largest private foundations in the U.S. saw their assets fall in 2002 by a combined total of $10.3 billion. The Woodruff Foundation, with all that Coke stock, was hit particularly hard; total grants decreased 62.1 percent from 2001 to 2002 (from $183,451,909 to $69,586,490). In a national study of major foundations, public and private, the Chronicle of Philanthropy found that grants were down almost 21 percent and that most foundations expect grant-making to decline again.

In a Community Foundation study of Atlanta-area organizations, the number of grants increased in 2002 by 26 percent, while the dollar amount decreased 47 percent ($172.2 million). All of the Atlanta organizations studied experienced asset reductions.

The Atlanta chapter of the Red Cross received 28,000 gifts in 2002. It expects to receive 20,000 this year, according to Chief Development Officer Colleen Zakrewsky. “The bottom line is, we won’t raise as much this year,” says Zakrewsky. “And it’s heartbreaking, because we get notes from long-time donors who have cut their gifts, saying they wish they could give more, but they’ve had a tough year. They just don’t have the money.”

Even donations of food have fallen off. Meanwhile, the Atlanta Community Food Bank handed out nearly 30 percent more food in 2002 than in 2001. “I have received calls every week from parents who have recently been laid off, have never interacted as clients in need of social services – have, in fact, been donors in the past,” Kathy Palumbo, community services director of the food bank, told the Atlanta foundation board. “They’re calling me because now they need help.”

All over the city, state and country, it seems, the enormous generosity that blossomed following the 9/11 terrorist attacks has withered. More than $1 billion was raised within weeks of the attacks, led by a coalition of nonprofit heavyweights, including the American Red Cross and the United Way. Trust, especially across racial lines, surged. But a study by the Atlanta Community Foundation shows that trust has gone down to previous levels.

“That was anticipated, but you wish we could have held onto that higher level of trust,” says Philipp. Increased trust equals increased giving.

“And giving has gone down. I think Sept. 11 was something of an anomaly,” says Philipp. “There was this incredible surge for a little while. But look at the headlines today, the NASDAQ is three years past its high. The economy and philanthropy was on a downward slide long before Sept. 11.”

Working Smarter

The bottom line for a nonprofit is hazy. How do you measure nothing in the black? For that matter, what is the black?

“We’re not good at articulating profit margins, yet we know we do a great deal for the economy of the state,” says the Georgia Center for Nonprofits’ Karen Beavor. “We create affordable housing, provide childcare, improve education and fight crime. Does five kids mentored mean five more kids not getting arrested, or getting involved in gang stuff? What is the value of that? Until we get better at measuring that, we’re going to be judged based on administrative costs.”

Like most businesses, nonprofits are learning how to tighten their belts, trying to do more with less. “My personal objective is to spend less money and be just as effective,” says Jack Shipkoski, Southeastern CEO for the American Cancer Society (ACS), based in Atlanta. He’s looking at renegotiating leases and cutting operating costs.

That could mean job cuts, like those at United Way and other nonprofits. All of this attrition has Philipp wondering if the Community Foundation should consider changing, or altering, the way it grants money.

“Maybe we should be making more operating grants, rather than programmatic type of grants,” she says. “We’d be giving money to nonprofits so they could be strong and survive, rather than saying ‘you have to start a new program, or apply the money to this or that program.’ Just money to operate with, or provide technical assistance.”

At the board retreat, Philipp also discussed putting money aside for strategic alliances between nonprofits and out-and-out mergers – a concept that’s easier said than done. “Most nonprofits are formed because of a person’s passion, and we’re talking about taking two passions, often two cultures, and putting them together,” says Philipp. “There are other ways besides merging to bring organizations together to alleviate some of their operating costs – sharing data, back-office stuff.”

Alexander believes board leadership is often at the heart of a nonprofit’s growing, or shrinking, pains. In fact, he’s writing a book about it. “I get frustrated at the lack of real leadership that most boards have,” Alexander says. “It’s the greatest untapped potential we have to make nonprofits more effective. We should be developing stronger, more engaged and responsible boards. There’s [a saying] we have: Boards are made up of competent people who, when they get together, tend to act incompetently.”

It’s out of that frustration that Alexander’s firm has started a new service called board renovation. The ultimate goal is to teach board members how to develop a sense of ownership in the nonprofit.

Alexander detects a “don’t ask, don’t tell” sort of philosophy on many nonprofit boards. “They come to a meeting and support whoever the staff is, whatever the staff is doing, then wake up one day with a crisis. Look at Life University, Morris Brown, United Way of America. They were all just going along. They weren’t treating their board membership like they were stockholders in a company, and that’s what we preach.

“You own this nonprofit, you have a fiduciary responsibility to act and ask questions, to know about the finances and the personnel. Most board members come to meetings three or four times a year and just want to hear reports of how wonderful everything is.”

At the Red Cross of Atlanta, says Zakrewsky, board members are paying for their ownership, signing personal checks for five and six figures. “It’s been humbling,” she says. “They don’t want us to be vulnerable.”

When Philipp met with her board in March, she didn’t sugarcoat anything. But she remains the eternal optimist even in an economic sandstorm. “Strategically, philanthropy now has the opportunity to help nonprofits create new alliances,” she says. “And when we come out the other side of this recession, we’ll come out with stronger organizations who have figured out unique ways to serve their clients.”

Joe Estafen, Philipp’s counterpart at the Community Foundation of Northeast Georgia, based in Gwinnett County, is also bullish. In spite of the present philanthropic depression, and the questionable outlook for many nonprofits, he has confidence in the human capacity to care.

“Look at all we’ve been through, just in the past year,” says Estafen. “Corporate scandal, a down economy, the threat and now the reality of war. With all of that, in my mind, the level of giving remains positive. I think good intentions, philanthropy and compassion still prevail.”

The Community’s Savings Account

Pearl Strickland was a college-educated seamstress. Her husband George, who dropped out of school when he was 12, worked 43 years for the railroad and through smart real estate investing eventually became one of Atlanta’s wealthiest African Americans.

With no kids of their own, they did their best to take care of Atlanta’s children. George was still working for the railroad when he died in 1953, and before her death in 1984, Pearl ensured that she and George would keep on giving. She established a scholarship fund at The Community Foundation for Greater Atlanta.

“She knew the value of an education and her desire was to provide scholarships, to keep giving long after she was gone,” says Alicia Philipp, president of the Atlanta Community Foundation for 25 years.

“The Stricklands saved their money in bonds, and she left about $400,000,” says Philipp. “Not a huge amount, but you don’t have to be a multi-millionaire to be a philanthropist.”

That’s the reason community foundations exist – to give the not-so-rich the same option the wealthy have always had, to set aside money that will grow in perpetuity for charitable purposes. The concept was born in 1914, the idea of Cleveland banker Frederick Harris Goff, who designed an organization that made it easy for individuals of all means to establish permanent funds that would distribute grants for the betterment of the community.

Goff’s idea of a fiscal separation of church and state – keeping the foundation’s investment and distribution arms apart – is one reason the community foundation model has prospered. Money growers manage the funds and civic leaders distribute the money earned.

“Community foundations have become critical resources all over the country,” says Karen Beavor, director of the Georgia Center for Nonprofits. “If the United Way is the checking account of a community, then community foundations are the savings account.”

Community foundation donors enjoy greater tax advantages, privacy (if they want it), flexibility, permanence and convenience. What they sacrifice is legal control.

“You don’t have the level of control with a community foundation that you have with a private foundation, no question,” says Joe Estafen, executive director of the Community Foundation for Northeast Georgia (formerly the Gwinnett Community Foundation). “But community foundation donors do have advisory capacity.”

To many donors, more important than the sophisticated finance and accounting departments at community foundations, or the low administration fee (usually about 1 percent of the total fund amount) is the knowledge base.

Says Philipp, “We know the community, we know what the critical needs are and how to link donors to those critical needs.”

Under Philipp’s leadership, the Greater Atlanta foundation has been one of the fastest-growing in the nation, and now is also one of the largest. But assets have since fallen to $366 million and annual contributions have fallen sharply, from $66 million in 2000 to less than $41 million last year.

The Northeast Georgia foundation has experienced drops, too, but Estafen isn’t complaining yet. In 2002 the foundation gave away $2.3 million, slightly down from 2001 ($2.5 million). It received $3 million in new funds in 2002, down from $4.4 million in 2001 (when one donor bequested $1.4 million).

“We’ve managed to hold our ground over the last three years, which isn’t bad given the difficult economy,” Estafen says. “Obviously, if things continue this way, the future is questionable.”

Philipp is thinking a lot about the future. For the past two years she chaired the national committee that inked a ground-breaking deal with Merrill Lynch. On April 1, Merrill launched a donor-advised program marketed to the firm’s clients on behalf of community foundations throughout the U.S. She calls it the highlight of her career.

“This provides us with an ideal way to really involve more people in philanthropy,” says Philipp. “You can see the environment is dramatically different for nonprofits and philanthropy. So, we’ve had to ask ourselves, ‘What can we do differently?'”