After 2008’s dramatic drop in foundation endowments, it’s no surprise that foundation boards in 2009 say they’re scrutinizing staff and operating expenses. Finance committees are reevaluating their investment policies and reviewing investment manager performance.
But it is surprising to hear that 38 percent of the 430 foundations that responded to a recent survey by the Council on Foundations say they are maintaining or even increasing their 2009 grantmaking to try to respond to the emergency social needs sparked by the recession.
Such philanthropic commitment is impressive in light of the fact that 47 percent of these foundations saw the value of their endowments plummet by at least 30 percent in 2008. And a full 60 percent of the 213 family and independent foundations surveyed saw their assets decline by at least 30 percent during that time, according to the report, "Foundations Respond to the Needs of Families Even as Their Assets Have Declined," published in May 2009.
A SEA CHANGE?
Based on investing and grant-making data collected in the dark month of March 2009, the Council on Foundations publication describes how foundations had begun to respond to diminished endowments and calls from the social service sector for increased support.
But it also invites larger questions, including: How will foundations continue to be effective with fewer dollars and even boldly commit to increased giving?
One reading of this report is that we’re witnessing a sea change in the way foundations do business. Regardless of when the market mends, the funders’ muscle memory of the recession will endure. Yet the need will remain intense because, as the report puts it, for "the millions of people whose lives have been upturned,” the recovery will be protracted.
Thus, three sections of the report are particularly thought provoking: “How Will Declines in Grantmaking be Managed?,” “Providing Operating Support in 2009,” and “Grantmaking to Assist Those Adversely Affected by the Economic Downturn.”
The majority of foundations in this survey, 62 percent, reported that their level of grantmaking will decline in 2009. For more than half of those foundations the decline will take the form of fewer grants, smaller grants and/or reduced multi-year commitments.
What do those decisions suggest for the future? Are smaller grants to become the cautious norm for those foundations? Or will foundation boards feel comfortable making multi-year commitments in the near future?
The report found that 13 percent are not accepting new applications and 14 percent are not designating any new grantees. How large a pop in their endowments will be necessary for these foundations to return to pre-recession funding?
Not all retrenching is a matter of cutting dollars or limiting access. Some retrenching takes the form of making different kinds of grants.
Thirty-seven percent of foundations that are reducing their levels of grantmaking say they are adding “capacity building” grants to shore up the management and fundraising infrastructure of their grantee organizations. Or they are offering challenge grants to the local United Way to help broaden the base of that organization’s support.
If those foundations continue capacity building and collaborative grantmaking, the philanthropic landscape can see significant change by way of enhanced organizational self-sufficiency and new partnerships.
Unrestricted operating support always has been the hardest money for charities to raise. Operating support funds “overhead”—an expense category that is easy to critique and difficult to monitor. With fewer dollars to give in 2009, it would have been understandable if foundations favored projects and programs with clear beginnings, middles and ends. But the foundations in this survey took a different tack.
A stunning 83 percent are providing grants for operating support in 2009. Family foundations and larger foundations are most likely to give operating support (possibly because they have close or long-term relationships with their grantees and, thus, trust in grantees’ missions and management).
Of foundations that are making grants for operating support, fewer than one in five will reduce their level of grantmaking in 2009. Those funders will, in fact, increase their giving overall. Increased grantmaking will give these foundations a stronger presence in the philanthropic marketplace and, as a corollary, could lend more credence to the concept of operating support.
Does unrestricted giving signal a loosening of donor control? Is it a sign that not-for-profits are making their cases for operating support more convincingly? If one drag on operating support has been the difficulty of measuring a gift’s impact, will foundations develop new metrics to evaluate unrestricted giving?
Increased operating support testifies to funders’ increased trust in grantees. Should that trust prove well-founded and their grantees survive the recession, “overhead” may no longer be a tainted word.
In addition to helping not-for-profits strengthen their infrastructure and broaden their base of support, many foundations are reaching out to organizations that assist families and individuals deepest affected by the economic downturn.
The report tells us that foundations are providing assistance in a broad range of services; the single largest is “food assistance” (66.5 percent). But that’s quickly followed by “emergency housing” (55.6 percent), “basic skills education or job readiness skills” (54 percent), and “job training or employment” (42 percent).
In 2009, 92 percent of foundations are making grants that will aid families directly or indirectly, provide human services, assist low-income populations, or support economic development in this country.
But isn’t this what we should expect? That social service organizations would enjoy widespread support during a time of widespread economic need?
Yes and no.
Historically, social service organizations have had less sophisticated fundraising operations—a reflection of their scale, more modest assets, and community-based roots. They have had largely local profiles.
How, then, did foundations find social service-oriented organizations to support once they ratcheted up giving by 31 percent in this sector? What were the foundations’ selection criteria? Did pre-2008 funders of social service agencies simply increase outreach to peer foundations? And will new donors build social service funding permanently into future funding? Will foundations formalize emergency giving by setting aside a percentage of funds annually for the likes of Hurricane Katrina or the tsunami in the South Pacific?
The need for the answers to such questions becomes more pressing as the global economy shifts and social services needs endure.
This Council on Foundations report, along with others being produced by the non-profit group, is providing invaluable snapshots of foundation philanthropy in a time of national distress. The information can inspire funders to reach out to one another, assess their own decisions in light of their peers, and plan proactively even in an uncertain world.