Smart Giving in a Troubled Climate

Assistant Dean for Institutional Advancement Julie Lucas in the New York Times, May 21, 2009

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In December, Joe and Nancy Briggs sat down in their home on Lake Canandaigua in western New York to take a hard look at their donations to charity. Their investments, like those of almost everyone else, were shrinking just as the pile of requests from charities was expanding.

“When things go down, no matter how much you have, you think you are poorer and therefore your tendency is to withdraw completely,” said Mr. Briggs, a retired legal-publishing executive. “The problem is that this is the time when you can do the most good, when you really need to give.”

So the Briggses changed their giving priorities, at least until the economy recovers. What they devised was a strategy to fit the needs of the times. “We cut back a little on some agencies, like art galleries,” Mr. Briggs said. “I sent a note with each check saying we were cutting them back so we could give more for things like food banks, where they really need the money right now.”

Over all, the worst economy since the 1930s has halved many stock portfolios. Bailouts have put bonds at risk of inflation. And even the best jobs no longer seem secure. On top of this, many prosperous Americans find themselves helping grown children and other relatives who are out of work through no fault of their own. A third of the jobless do not qualify for unemployment benefits.

Many charities face not just tough times, but disaster. At some organizations, volunteer trustees, especially those on the finance committee, have grown accustomed to monthly projections of income and expenses that are soaked in ever more red ink.

Nationwide, charities are reporting that donations are flat to down sharply, especially for organizations that rely on gifts of appreciated stock. This year, Americans are likely to harvest $426 billion in capital gains, less than half of the nearly $875 billion harvested in 2007, according to Citizens for Tax Justice, which calculated its own figures after the Congressional Budget Office decided in January not to issue its annual estimate.

Universities and community foundations have seen their endowments ravaged, meaning they have less to give. The United Way, whose network of local organizations raises money mostly for social services, youth and health, has seen drops in donations across the country.

WITH tax revenues falling, governments are tightening up on contracts with nonprofits and delaying or canceling new grants even though pleas for help are rising among social service agencies.

In this environment, your past generosity makes you appealing to many organizations, regardless of what your investment statement says this month. As requests pour in, the combination of shrinking net worth and job uncertainty can be immobilizing.

What’s a donor to do?

For starters, think like Joe and Nancy Briggs. Instead of reacting, they acted, focusing on how to do the most good given the economy.

Peter Frumkin, a sociologist at the Lyndon B. Johnson School of Public Affairs at the University of Texas, says donors operate from either of two “master theories of giving.”

“One theory is direct service to individuals; the other is change through advocacy and public education,” said Professor Frumkin, the author of “Strategic Giving.”

“In tough times,” he said, “people tend to gravitate toward direct service because they want something concrete from their giving.”

Direct service, he added, “is like buying bonds, and advocacy like growth stocks, and so in tough times donors rebalance their giving portfolios into safer investments.”

Assuming you still have the capacity to give, three techniques you can consider are conversion, deferral and triage.

Conversion is a strategy for those who have a multiyear pledge to an endowment of a charity that needs operating cash now. Endowments are intended to build long-term stability, but without money now an organization or other agency could be forced to curtail operations sharply or to close.

In a conversion, you propose that this year’s endowment gift go all or in part to operating funds the charity can spend immediately. Because pledges can be enforceable promises, make sure that you get a written agreement that you are either reducing your commitment to the endowment or are extending the payment period.

If the market has done more than just batter your portfolio, or job, you may need to delay your gift.

David A. Handler, a trusts and estates lawyer with Kirkland & Ellis in Chicago, said that “a lot of nonprofits are used to hearing at this point” from donors who need some forbearance.

The way to raise the issue, Mr. Handler said, is by noting that “my commitment to you remains intact, but I don’t have liquidity right now; when we have it my gifts will resume.”

Some fund-raising executives may press for a more specific timetable. How long it will take for the stock market to recover is speculation, but Allen Sinai, chief economist at Decision Economics Inc., told clients that he thought the market had begun to recover. He cautioned, however, that “our expectation is for a very muted bull market because the U.S. will not produce much in the way of capital gains realizations,” in part because investors have so many losses they can use for tax purposes to offset future gains.

Julie A. Lucas, an assistant dean who raises money for Fordham Law School in New York, said that “people are really thinking more carefully about what they will support, and while they may have supported a broad range of causes before, many are now giving less to each or giving to fewer organizations.”

Proposing to extend a three- or five-year pledge to seven years, Miss Lucas said, “can bring this sigh of relief, and they say, ‘That would be fantastic,’ because 9 out of 10 expect the economy to come back and they just need some extra time.”

The third technique is triage: separating out charities that will not survive without your support, and trying to assess whether they are worth saving. Letting some nonprofits go out of business troubles many donors, yet it clears out duplication and inefficiency, as well as organizations whose time has passed.

AS executive director of the Community Resource Exchange, which provides management and technical advice to nonprofits in New York City, Fran Barrett acknowledges that she has seen “quite a few” nonprofits that are “badly managed, not current, or offer mediocre services.” But these, she said, are far fewer than those that “are really providing excellent service, at very low costs.”

Focusing on larger agencies, she said, “is like saying you only eat Italian food at Olive Garden. On that approach the local chef with his own place and passion for Northern Italian cooking would not survive.”

She added, “Donors need to think carefully about scale because the larger-is-better model isn’t always the best.”

Professor Frumkin, the sociologist, said few donors would openly risk letting a smaller nonprofit fail by withdrawing support. Instead, he said, they tend to change larger gifts into what he calls “nuisance grants.”

“Individuals donors have a harder time turning off the spigot,” he said, “so they will send a small check, $100 instead of $1,000, rather than say no.”

In a way, that sort of cutback is what the Briggses did. They cut back on organizations they thought would survive without their help or fail even with it, and focused on organizations they were concerned would be overwhelmed with need, like food banks.

“This is the time people need the money, now when things are so bad,” Mr. Briggs said, “and whether you are feeling poorer yourself doesn’t matter so much as when money was really needed you were there to help.”