by Joseph Hyman
For the better part of four months, on nearly a daily basis, people have been asking me for my thoughts and insights into the state of Jewish philanthropy. In many cases, peers and friends simply wanted to voice their anxiety and in other cases philanthropists and heads of organizations were looking for practical advice.
And for the better part of four months I have remained by in large silent, unsure of what to say and what to advise. These are unprecedented times and while many are well intended in sharing their views and recommendations, how could anyone truly know what lies ahead?
But slowly, slowly, as I continued to work on a series of existing projects and some new ones… listening very carefully to the experiences of professionals who are “in the trenches,” foundation executives who are inundated with funding requests and philanthropists who are struggling to maintain generous commitments in the face of deep capital losses…I have developed two insights and four recommendations that may be helpful. I would also be very interested in your ideas and welcome your sending them to me.
Firstly, I have been truly humbled by the degree to which organizations have gone to minimize service cuts. Boards of Directors are constantly reviewing and analyzing their organization’s budgets to try and save every penny they can.
I know of executives who have taken substantial pay reductions to save their employees’ jobs, schools that are cutting out lunch programs so they can offer more scholarships and board members who are assuming responsibilities which were once reserved for paid professionals.
Let there be no doubt that many very good, efficient organizations are in a battle for their survival and are doing everything they humanly can to endure this once in a lifetime crash.
Let there be no doubt that the majority of organizations were prudent in their investment policies and don’t deserve blame for their financial troubles.
Secondly, many philanthropists and foundations are in fact rising to the occasion and attempting to fill the void. I know of at least six to eight funders who have each committed between $100,000 and $5 million to supplement operating and capital budgets that are threatened by the present financial crises… and I’m sure many of you know other funders who have acted similarly.
While almost every organization has undergone severe cutbacks, almost none have closed their doors. I attribute this to the concern and generosity of those funders who have stepped up and heeded the call, independent of the reality that they to have lost a considerable portion of their wealth. I ask those who can to join this growing number of funders who are making an extraordinary difference.
So what can we practically do to minimize the impact of the present financial crises on the not for profit sector?
Firstly, we should convert all challenge grants/ matching gift programs to outright grants for one year.
I probably as much as anyone in the field have championed the use of challenge grants and matching gifts as a tool for motivating new and increased giving. In normal times, I believe the economic incentive of leveraging ones contributions is a healthy and valuable part of Jewish philanthropy.
Unfortunately, these are not normal times and a tool whose goal is to generate new sources of funding has been rendered, by in large, ineffective. People are struggling mightily to maintain their core allocations to the organizations to which they are most loyal. Few today have the luxury of contemplating new giving to new causes or even increased giving to the ones they support.
Now more than ever organizations need cash flow and stability. I think now is a time to provide support with as few conditions and stipulations as possible. I also believe there will come a time, perhaps sooner than we fear, when such incentives will resume being effective.
Secondly, take advantage of the strong dollar (4.2 shekel to the dollar) and pay every Israel based commitment you can right now. You should even consider prepaying pledges that are not due until later this year. If you take advantage of the strong dollar you can help organizations offset a good portion of their fundraising losses.
Let me explain through the following example which is loosely based on a situation CEJP encountered earlier this year. In September of 2008, two U.S. philanthropists committed $2.5 million out of a $3 million project (10.2 million shekel based on the going rate of 3.4 shekel to the dollar) on the condition the organization raise the remaining $500,000 (1.7 million shekel). Unfortunately, the present economic environment prevented the institution from meeting its fundraising commitment. By making their payments today, the U.S. based philanthropists’ original commitment of $2.5 million is now actually worth nearly 10.1 million shekel (utilizing today’s rate of 4.2 shekel to the dollar) leaving the organization with only a 100,000 shekel deficit. The 20% increase in the dollar compensated for nearly 95% of the fundraising shortfall.
While this example may be a reflection of the best case scenario, almost every Israel based organization formulated their present budget on a weaker exchange rate (probably ranging from 3.5- 3.8). In almost all cases, the organizations you support will be able to offset some of their fundraising losses if you take advantage of the stronger dollar. This is true no matter how large your contribution.
Thirdly, don’t be afraid to utilize your capital to maintain your present level of giving.
Once again, let’s look at an example. Let’s say last year your foundation was worth $1.8 million and you gave away $90,000 (based on investment revenues of 5%). Today, your foundation is worth $1.1 million, leaving you with the ability to give away only $55,000. By dipping into your capital for the remaining $35,000 your base will be $1.065 million instead of $1.1 million.
I am not saying that you should spend down a large portion of your foundation. But granted today’s dire needs, you can afford to dip into your capital, as long as you do so prudently and for only 1-2 years. This approach works whether you have a foundation of $100,000 or $20 million. I am seeing more and more foundations following this trend and it’s very reasonable. (By the way, when investments do bounce your returns will more then make up for the lost capital.)
Similarly, organizations should consider dipping into their reserves and endowments to minimize service cuts. Today is the “rainy day” we feared might come and as long as one’s board acts prudently, it’s ok to dip into savings.
For those organizations in the United States, or Israel who have been impacted by the Madoff scandal, there are special loans available to ensure cash flow during these difficult times. For more information, you should contact the Jewish Funders Network or the FJC.
Finally, whenever possible (and here to you have to be careful) you may wish to consider converting designated gifts to unrestricted gifts in order to allow the charities you support to cover their core programs. In many cases and in better times, organizations accepted designated gifts for programs which are important, but secondary to their core mission. All of us need to work closely with our service partners to determine the best use of resources. Here too I recommend analyzing the situation every three to six months.
The Jewish charitable world is clearly reeling from the events of the past six months. These are extraordinary times that require a great deal of patience and faith.
But I believe we will eventually look back on these times as one of our finest moments. So many people are rising to the occasion and making the sacrifices necessary to help and support others. I know this to be true because every day I am inspired by the generosity of our philanthropists, the determination of our professionals, the commitment of our lay-leaders and the perseverance of our people.
Chazak Vematz….be strong and empowered.
Joseph Hyman is the President of The Center for Entrepreneurial Jewish Philanthropy a not for profit organization that advises and supports Jewish Philanthropists. CEJP’s services are provided free of charge thanks to the generosity of its sponsors. Please feel free to contact Mr. Hyman at CEJP@optonline or 914-654-0008.