Economic Crisis Affects Philanthropic and Charity Giving

February 2009

The economic crisis has taken a devastating toll on charities. Stock-market volatility and the credit crunch are hitting foundations and charities in myriad ways. Initially, the market's plunge primarily affected investment returns at the nation's biggest nonprofit endowments. Now the troubled economy is stymieing fund raising, hurting nonprofit groups that need to pay back loans for construction costs, and in some cases, imperiling organizations' ability to pay their employees. Further, foundations, corporations, and wealthy individuals are being forced to trim their giving budgets.

For example, the World Cares Center, in New York, a group that trains volunteers for disaster response and has in the past received substantial support from Wall Street investors, had its annual fund-raising dinner in November to bring in half the $125,000 it did last year. Many executives at nonprofits are taking pay cuts to help their organizations.

Despite the problems, some charity experts argue that a reduction in the number of nonprofit groups could be beneficial, while others emphasize that even during down times, Americans continue to give. Research shows that on average giving declines only 1% in recession years.

Aside from fund-raising concerns, the seize-up in the nation's credit markets is having other effects on nonprofit organizations. At major foundations, investment losses are sapping endowments. Some funds say they will be cutting their giving as a result, although other grant makers pledge to maintain or increase their giving to help struggling charities weather the crisis. Foundations are often prodded to do more during times of crisis — when the needs of charities and impoverished families are greater — even though their own endowments are also suffering.

The difficult markets have led investment committees on some charity and foundation boards to hold special meetings to evaluate the holdings in their endowments. Most endowments have reported losses for their 2008 fiscal years — and for some, a single-digit loss will be viewed as a relative success. Many hedge funds are having disappointing years as well, and some investors are withdrawing money from the funds, while at the same time the credit crunch is forcing hedge funds to reduce their leverage (the borrowed money that many hedge funds use to try to improve returns). Investment opportunities aside, the downturn in the stock market appears to be having a chilling effect on giving by individual donors. Considering the 30% loss the wealthiest households experienced, it is not hard to believe that their charitable giving would be down since the crisis. Most of America is tightening their belts, and charities will have to find creative ways to ride out the crisis.