TOPICS > Economy

Charities Feel the Pinch During Economic Crisis

December 25, 2008 at 6:25 PM EDT
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Charitable groups across the country are feeling the pinch as the economic crisis has frozen people's pocketbooks and slowed rates of charitable giving. Philanthropy executives give an update.

RAY SUAREZ: This is a traditional season of giving for many Americans, when the holiday spirit and end-of-the-year tax breaks encourage a spate of generosity in most years. But this is not a normal year.

With the economic downturn taking a toll on all forms of spending, how are charities feeling the pinch? And how do they adapt?

For answers, we turn to Art Taylor, president and CEO of the Better Business Bureau’s Wise Giving Alliance, which monitors charities; Stacy Palmer, editor of the newspaper Chronicle Of Philanthropy; and Major George Hood, national community relations and development secretary of the Salvation Army. He oversees the charity’s national fundraising.

And, Stacy Palmer, let me start with you. Are we still holding our breath and seeing what the end of the year brings? Or do we already know what impact the economic downturn has had on charitable giving?

STACY PALMER, The Chronicle of Philanthropy: We already know that it’s a pretty tough time, but these last few weeks are very crucial for many non-profit organizations, and we’ve seen giving drop in many places, but one bright spot has been that, for many social services organizations, the ones that provide food to the hungry, the very needy people, they’ve seen a little bit of an increase in part because there have been so many stories about how desperate people are and how middle-class people, as well as low-income people, are turning to charities for help. So giving has increased a little bit, but not nearly enough to meet the demand.

RAY SUAREZ: Art Taylor, what about those not-for-profit institutions that give to others out of their portfolios, out of the holdings they have and husband from year to year?

ART TAYLOR, The Wise Giving Alliance: Sure. Foundation giving has been hit by this, of course. Their endowments are down as a result of the declining market, although many will tell you that they will step up to the plate and try to give a little bit more because of the demand.

It will be very difficult for them to sustain that over a long period of time, particularly if their portfolios don’t rebound. So we’ll have to see what happens with that.

RAY SUAREZ: Major, I guess the terrible paradox for organizations like the Salvation Army is that need increases as means decline.

MAJ. GEORGE HOOD, The Salvation Army: Yes, that’s very true. We’re seeing some tremendous increase in need across the country.

I was talking with one of our units in Columbus, Ohio, just yesterday, and he cited for me that, last year — they go out every night and feed the homeless people in the streets of Columbus. Last year, they were serving 125 meals a night. This year, they’re serving 375.

And most of those growth numbers he is seeing are the faces of women and children who are living in the streets of Columbus. That story is replicated all across America: increased demand for utility assistance, increased demand for housing, increased demand for transportation.

And as we now are into this Christmas season, we’re seeing the increased demand from people who say to us, “I have been a faithful donor to the Salvation Army. Today I’m asking you for help, and I’m embarrassed by that.”

But we’re now seeing donors, historical donors who are now people who are coming to us saying, “Can you help us?” because the needs are so great.

Donors prioritizing their giving

RAY SUAREZ: Do stories like that change the way the public responds? Are there people who might in a normal year give to a music-in-the-schools program or the local ballet who now might give to a service provider instead, Art?

ART TAYLOR: I think that there's some very difficult conversations going on in nonprofit organizations right now about what they're able to do, but I also believe that, because people will prioritize their giving, there may be some winners and some losers, in that there may be some organizations that seem to meet a more immediate need and that strike a chord with donors, and people may end up giving more to that type of organization.

We'll also have to wait and see what the government's response is to the more immediate need. We can always remember -- must always remember -- that government plays an important role in solving some of the social needs, as well, although we know that our government is also strapped at this time.

RAY SUAREZ: And, Stacy, what's your response to that same question?

STACY PALMER: Yes, indeed. You know, people really focus on the immediate needs, and they're thinking about their charitable giving, so many of the other organizations, art organizations, environmental groups, colleges, will get hit by people who think maybe they're not as needy, but there are certainly plenty of demands on those organizations, as well, and foundations are cutting back their giving to these groups.

Corporations, many of them have shrunk, merged, collapsed, gone under, so that kind of giving isn't happening. So many groups are really facing a tough time, and many of them lost their own reserves. Charities were told to save, that it was a good thing to make sure that you had plenty of money on hand, and now they were wiped out by this, as well.

RAY SUAREZ: So the kind of instruments that they would have kept their surplus in have declined in value?

STACY PALMER: Just like our individual portfolios, many charities themselves have lost money that they had invested in the stock market and elsewhere. And they invested very cautiously, but now they just don't have the money available.

And the thing that's so distressing about what's happening for the charities is that they usually lag behind the rest of the economy. And so they're beginning to see the problems on their own finances, but, you know, the fact that they're so strapped already is a sign that the need is going to be very great in 2009 and 2010.

And many of the organizations we talked to say they're planning for quite a long time when they know that they're going to have to cut back on their staff and their services and that there's a certain point where they can't be anymore creative and efficient. It is going to mean cutting programs and services.

Downturn may kill some non-profits

RAY SUAREZ: Well, let's talk about what best practices is, because you could either give at the same pace you generally do, these organizations can distribute service at the same pace they usually do, and just close the doors in July, or already anticipate a bad year, and cut back the month-by-month expenditures to try to make it to December. What's considered the right way to go?

STACY PALMER: One of the problems about what the right way to go is that it often means cutting back and saying, "No." And most non-profit groups don't want to do that. They're very passionate about providing their services.

And one of the things that a number of surveys have found is that most non-profits aren't really ready or prepared for the fact that this economic downturn is going to hit them so hard and so that they're not necessarily taking all the steps they should.

Some forward-looking groups are thinking about things like mergers, collaboration, finding ways to make sure that somebody else takes care of the back-office stuff so that they don't have to worry about it, cutting their costs, and becoming more efficient, but, unfortunately, some groups are so small that they just didn't know how to do this.

And so those are the ones that are vulnerable. Some people think as many as 100,000 non-profits might go under in the next couple of years because of this downturn.

RAY SUAREZ: Well, Major, do you find yourself in the "no" business?

MAJ. GEORGE HOOD: Well, we hope not. We've made a promise to America that we will do the most good for the most people with the most need. And our commitment is to serve as many people as we can.

The issue for us is beyond this Christmas season, because right now is our key fundraising time. And when we assess what we've spent for holiday assistance enrolled into the new year, we will have a better picture of what we're going to be able to do.

Our first objective will be to cut administrative costs rather than turn away people. And so you have to look at ways to cut back. We've already decided that unfilled positions aren't going to be filled. People who leave, those positions are not going to be filled, unless they are critical to delivering the mission of the organization.

Travel expenses have to be curtailed, all sorts of things that you can do to eliminate overhead costs so that you can keep that money focused on addressing the needs of the people who need you so desperately.

Level of services will surely dip

RAY SUAREZ: Well, looking forward often means looking behind you. How does this pattern, Art Taylor, compare with that that you saw in the last couple of recessions? There are some things you can reasonably expect for 2009.

ART TAYLOR: Well, we say reasonably. We don't know what's reasonable with this particular round of economic decline. But historically what we know out of the last eight recessions, six of them we've experienced a decline of between 5 percent and 8 percent in giving.

So if things hold true to that number, I think most charities at this point would be pretty happy. Although you have to understand, that does mean a dramatic decline in services over the short term.

The other thing we don't know about this recession is how long it will last. And I think that is probably one of the biggest concerns that charities have. Even those with reserves might be able to carry out their services for a time, but if the recession lingers, then we have a whole new set of challenges.

RAY SUAREZ: Well, is there a different approach that an organization takes if they think they're battening down the hatches for 6 months as opposed to 18 or 18 as opposed to 6?

MAJ. GEORGE HOOD: Sure. Sure. There are options and some opportunities that charities have. We all know that there could be a lot more consolidation and a lot more mergers among nonprofits providing the same service. And you'll certainly hope to see some of that.

But there are also partnerships that charities can engage in. Maybe one organization will provide transportation services that will cover a group of them while different ones will be providing services.

So there are things that nonprofits can do to mitigate some of this decline, and they're very creative and resilient, but we can't expect that the same level of services will continue when they're hit this hard.

When will things turn around?

RAY SUAREZ: Are there laws governing how foundations and other institutions of the kind have to disburse money and have to collect money during a time like this? I mean, they can't just close the door and say, "You know, we're just going to hold on to what we've got for this year until times pick up," can they?

STACY PALMER: No, absolutely they're not allowed to hoard their resources, so they need to spend on programs, and, you know, I think most groups are looking at ways to extend their services. Nobody's thinking about just sort of battening down the hatches.

Foundations are covered by laws that say that they have to give at least 5 percent of their assets each year. And what charities, grant-seekers are looking for is saying, "Please give more. This is an emergency situation. And even though you're only required to give 5 percent, we need 10 percent, we need 20 percent, we need an emergency infusion."

And the foundations are worried about, maybe if they give too much, they might end up going out of business 20 years, 50 years, 100 years from now. So there's great tension between the very wealthy organizations that give away the money and the charities who are saying, "It's pretty desperate out here. We need your help."

RAY SUAREZ: So who what will we see this winter? From everything you've said, it sounds like it's going to be a tough winter. You've talked about an increase in need. When will the muscles relax in the back of your neck? I mean, when will you start to see things turn around?

MAJ. GEORGE HOOD: We've tried to determine, are we on the front edge of this financial decline? Are we in the middle of the cycle? Or are we looking two years down the road?

And I think that the dialogue to how are we going to manage within an economic downturn is a dialogue that needs to be shifted. How are we going to look into the reality of a new economy in this country that will allow us to sustain ourselves into the future?

Managing today is one issue. What we're going to do two or three years from now in a new economy and an entirely different ballgame, how are we going to sustain ourselves for the long haul?

And that's the kind of discussion that I hope that we're having as a sector, because we do need to consolidate, we do need to share resources. We need to share the level of responsibility in the community and not try to be everything to all people, but to tap the skills and the resources that are available in grassroots community, so that collectively the sector can respond to the needs of the American public.

RAY SUAREZ: Major Hood, Ms. Palmer, Mr. Taylor, thank you all.