Economic Crisis Update: The Foundation and Nonprofit Response

Nearly 540 people throughout the U.S. and beyond called in on Wednesday, July 22, to the teleconference Turning Crisis Into Opportunity: A Conversation with Two Nonprofit Sector Leaders, to hear Bradford Smith, president of the Foundation Center, and Robert Ottenhoff, president and CEO of GuideStar, discuss the foundation and nonprofit response to the economic crisis.

Smith and Ottenhoff shared their perspectives and presented data gathered through research and surveys that both organizations have conducted periodically since the crisis hit last year. The discussion was moderated by Katherina Rosqueta of the Center for High Impact Philanthropy at the University of Pennsylvania. A downloadable recording is now available. Below is a summary of the highlights of the conversation and new data about crisis-related funding.

A Lag Between the Onset of the Crisis and the Impact on the Field

The true impact of the economic crisis has not yet been fully felt by either sector.

  • Ottenhoff expressed surprise that the responses to GuideStar’s most recent survey were so optimistic in tone. He noted that one-third of nonprofits actually saw modest increases in their 2008-2009 budgets and only one-third said they had decreases. Ottenhoff said his team had expected to see more indications of budget decreases.
  • On the foundation side, Smith provided historical perspective by noting that philanthropy had seen enormous growth in the decade between 1997 and 2007. “Philanthropy was a train hurtling down the tracks, and someone hit the emergency brake,” he said. “That’s what happened in 2008 when the major stock market indices declined 34 to 37 percent.” The result is that foundation assets declined 22 percent in 2008, and grantmakers are now coping with the aftermath.

The Worst Is Yet to Come

According to Smith, the Foundation Center is projecting that 2009 foundation giving in America will decline by 9 to 13 percent, and that this decline will continue through 2010.

Behavior Change Among Both Grantmakers and Nonprofits

If there is a silver lining, it is that the economic crisis is forcing grantmakers and nonprofits alike to change their behavior and work in new ways.

For foundations, this may mean increasing transparency about their work by communicating more effectively with stakeholders; finding more creative ways to use assets and rethink their investment strategies; and becoming more nimble to deploy more philanthropic capital to areas of greatest need – for instance, in recent months, more foundation dollars are being directed towards foreclosure prevention and emergency food assistance. Other measures include staff and administrative cuts to ensure dollars are available for grantmaking, and some foundations are increasing their annual payout rates beyond the 5 percent required by the IRS to meet immediate needs.

Nonprofits may be under more pressure to demonstrate impact and show donors that they are using funds wisely. Other strategies include increasing operational efficiency through outsourcing, bartering, and tapping more volunteer skills, talent, and knowledge; and the formation of creative partnerships between nonprofits, government, and foundations to address complex social issues in a resource-constrained environment.

Crisis-related Funding Is Growing

According to the Foundation Center’s just-updated data on the crisis, in the new fact sheet The Foundation and Corporate Response to the Economic Crisis:

  • The amount of crisis-related grants and PRIs has nearly tripled since January 2009, rising to $322 million in 1,741 grants and PRIs from $117 million and 535 commitments.
  • The number of U.S. corporations and foundations providing crisis-related funding has risen from 50 in January to 139 in July.
  • Grants tracked by the Center range in size from $750 to $50 million, with a median value of $20,000; PRIs range from $250,000 to $50 million.

The podcast of Turning Crisis Into Opportunity and the fact sheet are both available. For more information about GuideStar, visit their Website.