The Chronicle of Philanthropy
February 6, 2003, Cover Story

Clouds on the Horizon
Donations held up in 2002, but charities worry about this year

By Nicole Lewis


Susan M. Tellem, executive director of American Tortoise Rescue, in Malibu, Calif., plans to send 10 fund-raising

appeals this year, twice the usual number. She figures that it will take twice as many solicitations to guarantee that she will raise at least the $16,000 that donors have contributed in each of the past two years to support her volunteer-run organization, which helps lost, abandoned, and injured turtles.

"I'm pessimistic," says Ms. Tellem, as she worries that donors will curtail their giving amid uncertainty caused by the weak economy and possible war. But she isn't giving up hope, even in the face of those challenges. "I'm also an eternal optimist," she says.

Many fund raisers across the country share such conflicting emotions. A sputtering stock market, ballooning state-budget deficits, rising unemployment, and the threat of war in Iraq have many worried about a slowdown in charitable giving that could last until early 2004.

Interviews with more than 70 charity officials, as well as consultants, found that while donations over all have not yet slipped significantly for most organizations, signs of trouble ahead abound -- particularly for groups that count on corporate, foundation, or government support. Social-service groups are especially worried about fund-raising prospects at a time when government cutbacks and job layoffs are likely to cause requests for help to increase. Some charities have already been forced to shut down after losing state funds.

Still, many fund raisers believe that plenty of affluent and loyal donors can still be counted on for assistance. While a few charities have abandoned capital campaigns or reduced their fund-raising goals, most are proceeding, albeit more slowly, with efforts to raise money for ambitious new buildings and programs.

The majority of charity officials say their organizations ended 2002 in better shape than expected, thanks in large part to strong giving by individuals at year's end and foundations that kept giving at least some support, delaying bigger cuts until this year or next. Charities that have been hit hardest are those that rely heavily on a single source of income. But even leaders of charities that draw money from many sources say they will feel lucky if donations remain flat in 2003, and don't drop.

"The uncertainty of the economy and the high unemployment rate do not put people in a giving mood," says Audrey R. Alvarado, executive director of the National Council of Nonprofit Associations, in Washington. "Many of us that are in this line of work are basically suggesting that we brace ourselves for a really tough year."


Indications of widespread concern were evident in the results of the most recent survey, published in December, by the Indiana University Center on Philanthropy. Compared with previous surveys, conducted semiannually, development officials in all parts of the nonprofit world expressed less confidence about the charitable-giving environment than at any other time in the five years that the study has been conducted.


Triple Threat


Many charity officials are most anxious about the triple threat of decreased grants from governments, foundations, and corporations. Peter B. Goldberg, chief executive officer of the Alliance for Children and Families, in Milwaukee, has long counseled his members to diversify sources of revenue. But with those sources all poised to give less to charities in 2003 than they have in recent years, he expects some of the 350 social-service groups his organization represents to collapse. Already several of those groups are laying off staff members and cutting programs, he says. "You will see a point where the strong will get stronger and the weak won't survive," he says. "There's a natural winnowing that is bound to happen under these circumstances."

Some nonprofit leaders say it might be beneficial if some charities fold, given the proliferation of organizations in recent years. But many of them also worry that charity closings won't happen strategically.

"The field itself hasn't prepared itself to maybe do what's necessary from a business sense, to merge, to consolidate resources," says Doug Sauer, executive director of the Council of Community Services of New York State, which represents 935 nonprofit groups. "It's not the time to do it when you are in a crisis. It's always better to reorganize when you have some assets and when you are doing it for opportunity rather than from necessity, because it takes resources."

Mr. Sauer says organizations with weak fund-raising skills will be the ones to lose out: "Unfortunately, it probably has less to do with the value of a particular service or the value of a nonprofit than with what access and influence groups have and whether they can pay for the fund-development people who can have the relationships with big givers to generate dollars."


Implications of War


The growing likelihood of war with Iraq has implications for all nonprofit groups, but especially for international relief and development charities. For most other charities, "war affects fund raising only in that it further destalibilizes confidence and predictability, on the major-gifts side especially," says Robert M. Moore, president of Lipman Hearne, a Chicago marketing and communications company that works with charities.

One of the biggest clouds hanging over many charities this year is the anticipated cuts in state budgets. In a November survey by the National Conference of State Legislatures, in Denver, states reported a collective budget shortfall of $17.5-billion for this fiscal year. Since many states are required to balance their budgets, and some states already dipped into so-called rainy-day funds last year, charity leaders are anticipating steep reductions in many state programs.

The news is especially worrisome for groups that have already lost government aid. State funds for the Massachusetts Cultural Council, in Boston, were cut by 62 percent, from $19.1-million to $7.3-million, for fiscal 2003. The council, which distributes money to arts groups, has laid off 11 of its 40 staff members and slashed its grants. At least one group supported by the arts council, the feminist magazine Sojourner: The Women's Forum, has closed after 27 years of publication, says Laura Soul Brown, president of the board of the magazine's parent organization, Sojourner Feminist Institute, which also had to shut down, because of a drop in donations from private sources.

John Michael Kennedy, communications director at the Massachusetts Cultural Council, sees the possibility of more cuts looming as Massachusetts faces a $650-million shortfall. "If we get level funding from this year to the next year, that will be a victory," he says.

Virginia Cares, a Portsmouth charity that helps people on parole find employment and housing, plans to close in June, because its state contract has not been renewed, says Ann Fisher, assistant to the executive director. The group received its entire budget, $943,000 last year, from the state.

But some charities in other states have seen big gains in state money. Family Service of Greater New Orleans received the largest government grant in its history, $500,000, to help establish a drug-rehabilitation program for offenders, says Robert R. Quintana Jr., executive director. Helping former prisoners rejoin society has become a priority in many states because a large number of inmates are scheduled to be released from jails during the next several years. Also, Louisiana's budget situation, an $18.6-million projected deficit, is not as dire as in many other states.


Foundation Grants 'Slip'


Reduced support from foundations, whose endowments have sunk along with the stock market, is another worry for fund raisers this year.

"We have already seen foundation funding slip, and I'm expecting that it will be even worse in 2003-2004," says Michael Osso, director of development and marketing at the Mark Morris Dance Group, in Brooklyn, N.Y. "This is the first year that we are frightened in a serious way that we might not reach our fund-raising goals and we could conceivably run a deficit."

The 22-year-old group depends on foundation grants for half of its $1.3-million budget. One foundation that gave $15,000 in 2002 does not plan to make a grant this year, while another foundation that had given $8,000 in each of the past three years plans to cut its grant to $6,000 this year, he says. In response, the company has frozen salaries, reduced the number of rehearsal weeks for its dancers, made special appeals to its board members for money, and mailed a fund-raising appeal to 18,000 donors and performance ticket buyers that includes very specific details on the need for support.

At the National Fish and Wildlife Foundation, in Washington, foundation giving is also down. The charity raises about 20 percent of its $8-million operating budget from foundations. One West Coast foundation that typically gives $200,000 asked to take a year off. Another foundation reduced its annual grant from $100,000 to $35,000, says Gary W. Guinn, director of development. (Mr. Guinn wouldn't name those foundations.) However, he expects to meet his fund-raising goal this year, in part from rising corporate contributions. Anheuser-Busch Companies, in St. Louis, doubled its support for a conservation-scholarship program, to $200,000, and the organization received a new contribution of $300,000 from Southern Company, an energy company in Atlanta.

Other charities haven't been as fortunate with corporate dollars.

The Mental Health Association of Collier County, in Naples, Fla., has not been able to attract as many corporate sponsors for its February "Wine and Wickets" fund-raising event as it did last year, says Petra M. Jones, the group's executive director. Although the group started courting sponsors in June, only five companies have signed on, less than half the number that did so last year. Banks and other financial institutions have been particularly unresponsive, she says. As a result, the charity, which has seen a 25-percent increase in referrals, plans to downgrade its goal for the event, from $45,000 to $35,000. "Hopefully we can do it," says Ms. Jones. "The need for services is on the rise and the money for services is not there."


Most fund raisers say the most reliable sources of support in a tough year are individuals -- although some say donors are making smaller gifts than they did in the past, and it often takes longer for them to materialize.

At Associated Catholic Charities of the Diocese of Galveston-Houston, donors who responded to a Christmas appeal kept the charity in the black last year, says Julie C. Platek, vice president of fund development and marketing. While local foundations and corporations had decreased their support for the social-service group, the charity's last solicitation for 2002 reaped $140,000, or 60 percent more than in 2001.

Ms. Platek says last year the charity mailed the appeal to 50 percent more people than it did in 2001. It also changed the letter's content, mentioning the economic downturn and the uncertainty created by the fight against terrorism.

"We're very pleasantly surprised we're going to finish a little ahead of last year," she says. "It all balanced out."

The Alabama Shakespeare Festival, in Montgomery, met last year's $3.4-million goal by the "skin of our teeth," says Eve B. Loeb, the development director. The organization was in trouble because several hoped-for new gifts of $25,000 or more did not materialize.

"We could definitely sense that donors were more cautious about giving," she says. "They reduced what they might have given, and some of them asked us to come back to them in a year."

Still, the theater has upgraded its fund-raising goal for 2003 by $125,000, and Ms. Loeb hopes to meet it by adding a special fund-raising event and, in the long term, cultivating a group of young donors who will eventually replace some of the lost major donors. But Ms. Loeb is worried: "This year reaching our goal seems like the longest shot in a decade. We are more leery and concerned than we have ever been."

Fund raisers at the Chestnut Hill Academy, a private school in Philadelphia, think the school will end its current fiscal year in June slightly ahead thanks to strong donations from individuals: Fund raisers expect donations to the annual fund, which are still coming in, to exceed the year's $475,000 goal by $25,000 to $50,000.

Officials at Syracuse University, in New York, say charities have to work harder than in the past to win gifts. John Sellars, vice president for institutional advancement, recalls the boom times of the 1990s, when people he'd meet for the first time would "have a check waiting for me for $10,000. Now we have to explain what is it that we really need or why a donation is important," he says.


Difficult Campaigns


Charities that have recently completed major campaigns or fund-raising projects say they are thankful not to be starting them this year.

Two high-profile museum campaigns -- $950-million to build a branch of the Solomon R. Guggenheim Museum, in downtown Manhattan, and $200-million for a new building and endowment money for the Los Angeles County Museum of Art -- have been put on hold.

Fund-raising troubles prompted the Neurosciences Institute, in La Jolla, Calif., to reduce its campaign goal from $100-million to $35-million six months ago. David L. Mitchell, the group's senior fund raiser, visited 15 to 20 foundations and individuals last year asking for seven- and eight-figure gifts.

"In all but maybe one case, they have said the market has really impeded their ability to give at the levels they had hoped, or originally intended," says Mr. Mitchell, who has been a fund raiser for more than 30 years. "I have never seen a year this bad, not even close."

Yet many major fund-raising campaigns are advancing, if at a slower pace. "What a lot of people are reporting to us is that they are experiencing a postponement of commitments, an extension of pledges, and people are giving smaller amounts in campaigns, and saying, 'Come back to me in a year,'" says Eugene R. Tempel, executive director of the Center on Philanthropy at Indiana University, in Indianapolis. "People in fact are not being as generous."

Fund raisers at the Rochester Philharmonic Orchestra, in Rochester, N.Y., had hoped to announce its $10-million endowment campaign during celebrations for the orchestra's 80th anniversary this year. But stock-market losses caused some people who had planned to make big gifts to put their contributions on hold, says Nicole Kagan, vice president of development.

"We are waiting a lot longer on some decisions than we thought we would need to," she says. "People haven't realized the gains they had hoped for in their portfolios."

While the orchestra has no plans to scrap the campaign, she says, the delayed gifts from wealthy people made Ms. Kagan unsure about how much money she could expect from less-affluent people.

She has decided to wait until 90 percent of the campaign's goal is reached before making a public announcement, to ensure the remainder can be raised from smaller gifts.

Ultimately, most fund raisers believe they will be able to weather the turbulence in the philanthropic climate.

"People are still there to support the causes that are really important," says Kim Burkland, development manager at Ecotrust, a nonprofit environmental organization in Portland, Ore. "It's going to be tough, but not insurmountable."

Ms. Tellem at American Tortoise Rescue says she will keep her charity open, even if she and her husband have to use their personal incomes to make up for any declines in donations. The 100 or so turtles currently housed at the organization's shelter need continued care, she says. "Who is going to save them if we don't?"


Ian Wilhelm and Grant Williams contributed to this article.
 

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