Published in the Spring 2009 issue of SSA Magazine

In this terrible economy, there's more need for help but less money to give. How will philanthropy react?

-Kathleen McGowan

As rickety investment banks and multinationals have been faltering, the nonprofit field has watched and wondered: What does this mean for funding? Foundations base their grantmaking on the value of their endowment, and endowments shrank by an average of 29 percent between 2007 and 2008, according to a recent Chronicle of Philanthropy survey of 57 foundations.

Given the size and scope of the economic downturn and the federal response, it's hard to predict trends in philanthropic funding during the next year, says Jennifer Mosley, an assistant professor at SSA who studies nonprofit organizations, including philanthropic foundations. Based on previous recessions, an educated guess would be that foundation-based grantmaking will almost certainly decline in 2010 if the stock market does not pick up soon. That said, some large foundations will find ways to maintain their giving in a time of need, and when the stock market rebounds, funding may also be quick to bounce back.

The severity of this recession is distorting typical responses to economic downturns. During previous recessions, overall grantmaking usually stabilized rather than shrinking outright. (The notable exception was 2001-2003, when inflation adjusted giving by U.S. foundations declined by 4.4 percent.) Of the 73 foundations that provided 2009 data in the Chronicle of Philanthropy survey, only 22 planned to stay the course; more than half anticipated giving less than in 2008.

Individual donors and association charities are already feeling the effect of the economy—and passing it on. A recent report from the Center on Philanthropy at Indiana University found a one-third decline in charitable gifts of $1 million or more by individuals in the second half of 2008. Some charitable associations have already cut back: the Juvenile Diabetes Research Foundation, for example, announced in late December that it was withdrawing funding opportunities for many fiscal year 2009 projects.

"Nonprofits haven't actually felt the full impact yet," Mosley says. "Large scale funding generally comes for a year or more at a time, so budgets remain stable at first." Regardless, nonprofits are anticipating the squeeze. More than 60 percent of nonprofits nationwide expected foundation funding to decrease, according to a survey by the Nonprofit Finance Fund this spring.

The enormous impact of this recession may also cause grantmakers to rethink their priorities. Brenda Nelms, senior director of foundation and corporate relations at the University of Chicago, points out that after Hurricane Katrina, many corporate donors and some foundations instituted a "temporary redirection" in grantmaking.

In this economy, donors may ramp up funding for emergency programs such as food assistance, heating aid, and homelessness prevention. As of January 2009, foundations and corporate donors had already committed more than $100 million toward economic relief. More than half of this cash is targeted toward housing. For example, the John D. and Catherine T. MacArthur Foundation pledged $68 million for foreclosure prevention, borrower counseling, and legal assistance for homeowners.

"Because this economic crisis seems bigger, there is a lot more concern about what the impact will be," notes Mosley. "A lot of foundations are saying this is exactly when we need to step up to the plate." The Ford Foundation has pledged to dip deeper into its endowment to increase its payout rate in 2009 and 2010, for instance, and 12 of the 57 foundations in the Chronicle survey said they planned to increase giving in 2009.

Donors may adopt a "back to the basics" approach, suggests Jean Quinlan, chief development officer at the University of Chicago Medical Center and an SSA graduate. In her contacts with individual donors she has found the downturn has "made people think more analytically about the impact of what they are doing philanthropically." For now, Quinlan says she is focused on relationships and on the horizon: Donors may not be able to make the gift they ultimately aspire to make today, but the picture will change in the future.

Historical experience suggests that philanthropy can recover quickly— well before the economy as a whole is back on its feet. In the spring of 2003 the stock market began to pick up, but unemployment was still high, so few realized that a recovery was underway. At the time, Mosley was meeting with nonprofit leaders in focus groups in California, many of whom reported they'd temporarily given up appealing to funders. Meanwhile, grantmakers said they now had plenty of money to give—but fewer applicants.

Predicting what will happen a year from now "is like reading a crystal ball," cautions Nelms. "It's a question of how long before there's a rebound." So far, the prospects for the near term aren't so bad; she anticipates that grantmaking to the University will flatten out rather than steeply decline. Says Nelms: "Everyone recognizes that you just have to run a little faster."