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JewishJournal.com

April 3, 2008

With economy faltering, nonprofits brace for recession

http://www.jewishjournal.com/nation/article/with_economy_faltering_nonprofits_brace_for_recession_20080404

A home on public auction in the city of Palmdale. Photo by Aurelia Ventura

A home on public auction in the city of Palmdale. Photo by Aurelia Ventura

Americans continue to default on their mortgages in numbers not seen since the Great Depression. Banks continue to become more reticent about lending money. The stock market continues a herky-jerky tumble downhill.

The finance industry is still roiling from last month's stunning collapse of Bear Stearns, Wall Street's fifth largest investment bank. The dollar continues to fall against other world currencies.

And the philanthropic world is becoming increasingly fearful about what seems to be a perfect storm brewing against the financial world.

While most philanthropy professionals feel some anxiety now, they are bracing for what could be a calamity in the world of charitable giving.

At its worst, they say, the stock and real estate markets could continue to slide and large foundations could be forced to cut their allocations significantly, smaller donations from the middle class could dry up and what has been a renaissance in Jewish programming over the past several years could come to a screeching halt. Also, the dollar's decline could continue to stretch the budgets of Israeli nonprofits.

At its best, the economy could stabilize and there could simply be a short-term slowing of philanthropic dollars -- a slowing that already has started.

"I think you will begin to see cutbacks now in terms of commitments for the future," said Richard Marker, an independent philanthropy adviser and a professor of philanthropy at New York University. "If you were to start a major campaign now and are asking people for lead gifts, I think you will begin to see an atmosphere of reservation.

"People are beginning to be nervous, especially in places where the economy is so based on banking and real estate. And I don't think that the Jewish community is going to be exempt. There is going to be tremendous pressure on both the philanthropists and the nonprofit world."

Some are comparing the economic situation brewing now to the recession that followed Sept. 11, 2001 and the bursting of the high-tech bubble.

Some are holding tight to the notion that the economy ebbs and flows, and after a period of unprecedented growth over the past several years the market is simply correcting itself. But those considering the philanthropic world believe they are peering over the edge of a cliff unsure about whether they are about to fall over or be mercifully yanked away from it.

Philanthropy typically follows the economy by two years -- if the economy falters, usually it takes two years for philanthropists to slow their giving. But Marker and others predict this downturn will have a much quicker effect.

"I think people are taking a deep breath," Marker said. "I don't think that people right now are looking to make major new commitments, whereas maybe a year ago, if a great new idea came along, someone might say, 'OK, lets take the risk.'"

Marker, who acts as an adviser to a number of foundations and philanthropists, said he has heard of one foundation that already has said it will not provide grants next year, but declined to name it.

At the annual conference of the Jewish Funders Network (JFN), which gathered some 350 of the world's wealthiest Jews and most prolific givers this week in Jerusalem, philanthropists and foundation professionals openly expressed concern that a philanthropic recession is on the way.

Yael Shalgi, the president of Israel Philanthropy Advisors, says she also knows of several foundations that already have cut their funding.

Even the behemoth of the Jewish philanthropic world, the Harry and Jeanette Weinberg Foundation, is nervous. The foundation, which last year was worth some $2.3 billion, gives out more than $100 million a year to charities, most of which are Jewish.

Foundations are required to give away 5 percent of their assets each year, which means they generally try to earn 7 percent annually on their investments to pay for their allotments and overhead.

But the Weinberg foundation, which has about two-thirds of its money invested in various markets and the rest in real estate, has lost 9 percent of the value on its invested assets since the beginning of the year, according to its treasurer, Barry Schloss.

Schloss said the impact on the foundation's giving will not be felt immediately, as its allocations for the last fiscal year, which for Weinberg ended Feb. 28, are already set.

"We're not cutting grants at the moment," Schloss said. But if the market continues to tumble, "the real effect will happen next year. We will probably have to make cuts. But we don't stop giving when we get to that point."

At the JFN conference, Schloss said that because of the falling dollar, some of the Israeli organizations funded by Weinberg will have to do less with their money than they expected. He noted a program that pays for dental care for needy children that will be able to help only 175 children with dental surgery rather than the intended 200.

The real crunch, though, may come not from major foundations but the middle class.

Givers tend to make charitable donations in accordance with how comfortable they feel financially. Thus, in this economy the middle class -- and therefore smaller donations -- could suffer tremendously.

"We are very concerned about the manner in which the volatility in the markets and the repercussions of the credit crunch will have [an effect] on fund raising in general and the abilities of the charities to function," said Sandy Cardin, the president of the Charles and Lynn Schusterman Family Foundation.

While he expects those charities that receive a significant portion of their budgets from foundations to be relatively secure, charities that depend on smaller donations from the public could be in trouble.

"Regarding the larger group of donations -- gifts from the general public -- it is unknown," Cardin said.

Charitable contributions are among the first cuts for Americans feeling insecure financially, say experts in the field. "Consumer confidence is at its lowest level in 30 years," said Gary Tobin, the president of the Institute for Jewish and Community Research. "Small donors are no different than mega-donors. If their retirement funds are down and unemployment touches them and they are behind in mortgages, then giving will suffer. No one knows how long this will last."

The effects of the economic downturn already have been felt on the ground.

In Sarasota, Fla., where the subprime mortgage crisis has hit as hard as anywhere in the country, the Jewish Family & Children's Service of Sarasota-Manatee has seen one-time donors who cleaned up in the real estate market become clients in need of help, said Rose Chapman, the organization's president and CEO.

In New York, where the recent collapse of Bear Stearns was felt hardest, nonprofits are bracing for the worst. Bear Stearns alone employs some 14,000 employees, and it is estimated that half or more will lose their jobs. Its collapse could have much broader implications in the financial services industry.

As the job market tightens around Bear Stearns and New Yorkers are faced with steep rises in rent and other expenses, the Metropolitan Council on Jewish Poverty is bracing for a huge influx of Jews near poverty, its executive director, William Rapfogel, said.

Rapfogel, whose agency serves some 225,000 needy New York Jews, is in the middle of an intense fundraising drive that has brought in $2 million over the past few weeks.

Still, he knows that won't be enough.

"What we are seeing is a virtual tsunami, a perfect storm," Rapfogel said. "We are not sure how that will affect our agency. The city is already talking about cutbacks in its budget. Many food pantries are bare, and at the same time we anticipate having an avalanche of more needy people."

Outside the United States, as the dollar continues to fall, nonprofit organizations that rely on dollars for their budgets but pay for their expenses in other currency are feeling intense budget crises.

According to Shalgi of the Israel Philanthropy Advisors, the dollar has fallen against the shekel by 25 percent over the past 18 months, providing a major challenge for the Israeli nonprofit sector. Approximately 12 percent of philanthropic dollars spent in Israel come from overseas, she said, and two-thirds of that -- an estimated $1.5 billion -- is collected in dollars.

The JFN held two sessions Tuesday to help philanthropists talk out the problem.

The Jewish Agency for Israel, for instance, faced with a $20 million deficit because of the falling dollar, is now considering serious structural changes to cope with the situation.

At home, there is also the question of how a drop in Jewish philanthropic dollars could affect what has been a stunning recent growth of dynamic, young Jewish endeavors pushed mainly by entrepreneurial philanthropy, where donors take chances on innovative yet untested programs.

The director of one such program is taking a wait-and-see approach.

Daniel Septimus is trying to triple the budget for his Web site, myjewishlearning.com, which offers a wealth of accessible, multidenominational information and thought pieces on Judaism. Though he is not terribly concerned yet for his endeavor because he primarily has been courting large foundations, Septimus hopes that the economic downturn does not stunt the growth of what he sees as an unprecedented time in Jewish innovation.

"There have been a lot of resources around the last few years, and I am sure a lot of us in this business have gotten used to at least the fact that there is money around, whether it is coming to us or not," he said.

Septimus says the problem hasn't been discussed as much in terms of the Jewish renaissance of the past few years.

"We haven't discussed the economics of that so much because a lot of it has been facilitated by a relatively strong market," he said. "But we are all of a sudden realizing that life over the past few years has been great. There have been great new programs created, but that was largely facilitated by there being a lot of money around.

"If anything, there is now the fear of it being harder to fundraise," Septimus said. "Even if it is just a fear."

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