Friday, October 17, 2008

Foreclosures, falling economies and the future of philanthropy

I'm going to start this post with two notes and build to a big finish....

  • Smartlink has new giving guides for donors concerned about communities and the mortgage crisis.
  • The John D. and Catherine T. MacArthur Foundation announced $68 million for mitigation and prevention of foreclosures in Chicago.
Those two notices made me think bigger. So I went looking for the trends. For data on foundation giving in economic downturns, I turn to the Foundation Center, which notes the following:

"Since the Foundation Center began collecting data on all grantmaking private and community foundations in 1975, the country has weathered several recessions. During each of these recessionary periods — 1980, 1981-82, 1990-91, and 2001 — U.S. foundation giving in inflation-adjusted dollars did not decline and, in fact, increased slightly."
The Foundation Center continues:
"Although the economic outlook has worsened over the course of 2008, these and other factors, along with a survey of the country's largest independent, corporate, and community foundations, led us to predict in Foundation Growth and Giving Estimates (released in May) that foundation giving will grow ahead of inflation this year."
Please note the Foundation Center is talking about foundation giving - which is a small percentage of the $300 billion in U.S charitable giving - and includes gifts to foundations themselves (charitable dollars put into foundation endowments).

So those new tools for giving, big new gifts, and trend predictions are all good. But I think the growth prediction for foundation giving is pointing in the opposite direction for charitable giving overall.

For reasons noted throughout this year on this blog, from recession trends to political giving to job losses to the my longstanding doubts about predictions for intergenerational wealth transfers to drops in retail spending to the end of entire industries (video) to decline in religious worship to generalized economic anxiety to big hits at hedge funds - I think we'll see a drop in charitable giving in 2008. I'm just wondering how far into 2009 or 2010 this will go...(see this prediction

I'm sorry to rain on anyone's parade and it is not that I'm a gloomy gus. I run a business (two of them, actually). I'm doing my 2009-2010 budgeting and forecasting just like Joe the Plumber and Sequoia Capital. I'm sticking my finger in the wind trying to guess where things are going just like the next person. I've managed and grown a company through a downturn and so I don't just think about this stuff so I can write snarky blog posts, I've got payroll to make.

I don't think a short-term drop in giving is all we're facing here. I think we're going to see new banking rules, new credit rules, new housing laws, new charitable giving laws, new philanthropic approaches, new tax structures, new public service demands and possibly programs, the heads and tails of important demographic and generational shifts, and lots of other things that will fundamentally restructure the business of giving as we've come to know it. And I think a drop in giving this year is just the beginning of it.

Come on - jump in and disagree with me! First of all, I would love to be wrong about the above. Second of all, I'd learn from some real discussion about why charitable giving won't change or drop in the short term and how philanthropy might continue to grow in the longer term.....after all, pretty much anyone who reads this blog should care about whether we're in an evolving business or a mature one, whether giving is growing or declining, whether its philanthropy or online giving or peer-to-peer lending or microfinance or impact investing or social enterprise or social capital markets..share your thoughts...Don't just sit there and shake your head, tell me what you think..


Lucy Bernholz said...

The Chronicle of Philanthropy picked up on this post - so you can comment here or there

Wendy said...

Jeff Berndt, Chief Development Officer at New Profit, Inc. made a great point on this subject. He said that individuals feel more connected to organizations that they care about during difficult economic times and they might be inclined to increase their support - the argument that emotion drives philanthropy more than financial capacity.

My concern is not necessarily that aggregate philanthropic dollars will fall, but that donations to specific groups - such as arts and culture or capacity building organizations will be severely cut.

Lucy Bernholz said...

Thanks Wendy. I would agree - never underestimate the power of emotion in philanthropy. I just finished a conversation with a friend who noted she'd already spent her charitable budget for the year, but was going to find $500 for a cause she cared about by cutting something else from her budget. How many of us can or will do that?

Anonymous said...

Having worked with a wide variety of NPOs, I know it's risky for any individual organization to try to guess what will happen to them by what is happening industry-wide. The "averages" and "trends" are simply collections of individual stories. For instance, I've already spoken with one fundraiser who has told me that his clients that rely on product sales to raise funds are hurting, while others are not, because people haven't yet stopped "giving," but many have stopped "buying."

We may see international poverty orgs. struggle as we have economic problems here at home, but domestic causes pull in more money. We may see "discretionary" causes such as the arts struggle, while other causes such as poverty don't.

It will also likely depend on the donor base for each organization. Orgs with older donor bases, with donors who weren't in the stock market and didn't lose a job, may be hurt less than orgs with younger donor bases who are struggling with mortgage issues, debt, job losses, and worry about the future.

Another factor will be each org's response to the crisis. Studies have shown in for-profit companies that in economic downturns, companies that maintain or even increase advertising, marketing, branding and marketing research budgets do much better (particularly emerging from the recession) than companies that cut spending in those areas.

In short, it's valuable to look at overall industry trends, but not to live or die by them in the area of strategic planning for an individual organization.

Lucy Bernholz said...

Ron - you are absolutely right about the need for individual organizations to assess their own situations. I've track this information for my own purposes in serving client foundations and in running my business - and we, of course, take into account the very kind of organization-specific information you describe.

If my observations are at all useful to other organizations out there it may be only as observations for part of a SWOT analysis or strategic plan or scenario planning - external forces and change drivers that no one organization has control over but that may be at play. Organizational capacity, specific dynamics, mission, relationships, etc. etc. - as you rightly point out - are not what I am offering via a blog post.

Anonymous said...

Oh, absolutely. Please don't take my comments as criticism of your post or your analysis. It's irresponsible for anyone in leadership (business, NPO, or government) to ignore the larger trends and how they might impact the specific group that's being run.

Anonymous said...

I applaud you for asking for an honest discussion for nonprofits about these questions. It's too easy to talk about surveys and theories when leaders of nonprofits need to know whether they need to take some action. I feel pretty hopeful that contributions from individuals and foundations will drop only a little, though corporate giving is likely to suffer for awhile. Keep in mind, though, that contributed income is only one component of most nonprofit's revenue. Government contracts and program service revenues are significant sources. Both of these will be battered by economic forces as well. Picking up on Ron's comments, each invidual nonprofit needs to analyze their own income mix and identify which of these sources of income are the drivers for their model and find ways to reach and connect to maintain what they already know. I also think it's time to be very conservative in budgets and growth plans.

Anonymous said...

Good post. I found this through my Filtrbox daily briefing and posted a note on the Huffingington site. I will repeat what I said there the I work with religious non profits primarily churches. Through my research I am forecasting a 10% decline over all in giving to churches. I think that we will see about the same in 2009. Anyways some good thoughts and I have added your blog to my charitable blogs I read. I use to read the sports page first every day. Now I read the Business section and blogs like yours!

abenamer said...

Interesting post, Lucy. Keep in mind my next comments have no data behind it -- just a lot of hunches.

My basic take is that direct service nonprofits will find themselves experiencing 1-2% growth at best and everyone else is going to have to drastically cut their budgets. I worked at a homelessness organization after 9/11 and that downturn and it was surprising how people were willing to pitch in. And yes, international sites are going to take a back seat to concerns in the domestic nonprofit marketplace.

Ultimately, this will accelerate the demise of direct mail as nonprofits try to maximize their fundraising dollars. I think nonprofits that don't adopt CRMs will have a tougher and tougher time getting their e-mail initiatives together.

However, an Obama Administration will probably result in greater domestic spending and increased flow of operating funds to nonprofits. If Dems get extra lucky in the election and get a filibuster-proof Senate majority, expect a flurry of domestic proposals that will ultimately trickle down to the social services side of the nonprofit sector.

Currently, shows a 30% chance of a filibuster-proof Democratic majority happening.