Foundations: Expect Short-term Reductions But Long-term Growth

We predict that donor-involved giving is going to increase in the long-term as Baby Boomers enter retirement, the time at which people tend to grow more philanthropic

We predict that donor-involved giving is going to increase in the long-term as Baby Boomers enter retirement, the time at which people tend to grow more philanthropic. Boomers will embrace giving with a vengeance, as they have every other phase of life. The robber barons among them, suffering guilt over the current Wall St. debacle, will try to give back. And all Boomers will be facing increased tax rates, always a prompt to search for charitable deductions.1

But this massive giving won't happen just yet. Instead, this year probably will see a sharp, sudden downturn. Just listen to what foundations are saying about their intentions: Public pronouncements about their 2009 grantmaking reflect the fact that foundations have been hard hit by the stock market's recent plunge.

On March 4, 2009, the Foundation Center, a New York-based authority on organized philanthropy, issued a research advisory, “Grantmakers Describe the Impact of the Economic Crisis on Their Giving.” We may have anticipated the message, but it's still deeply sobering.

After years of double-digit increases in grantmaking, foundations are joining U.S. citizens and corporations in belt-tightening. Of the 100 largest foundations ranked by total giving, the Foundation Center identified only two that have announced intentions to increase funding in 2009: The Bill & Melinda Gates Foundation; and the John D. and Catherine T. MacArthur Foundation.

The advisory, which can be found on the web at http://foundationcenter.org/gainknowledge/research/econ_outlook4.html [6] looks at public statements made by more than one-third of the 100 largest U.S. foundations by giving as well as 35 other foundations and corporate funders that have described their plans for 2009, ranging from raising payout rates to reducing administrative costs to cutting programs altogether. The advisory is based on information available to date on the Foundation Center's new online compilation of news and announcements about foundations' response to the economic downturn, “In Their Own Words: 2009 Foundation Giving Forecast” (available at http://foundationcenter.org/focus/economy/forecast.html [7]).

Two Increase Support

In the current economic crisis, very few foundations appear to be in a position to increase their giving for this year. Indeed, only the Gates Foundation appears to guarantee that its funding will increase. Although the foundation's assets declined by 20 percent in 2008, Bill Gates said in his 2009 annual letter that the foundation is choosing to increase its spending in 2009. To do this, the foundation will increase its payout rate (the percentage of a foundation's assets distributed each year for charitable purposes). By comparison, the MacArthur Foundation simply says that it expects to “maintain or increase” its grantmaking in 2009.

Ten Hold Steady

Even the foundations that hope to hold their giving levels steady in 2009 probably will have to increase their payout rates to achieve this goal because of recent market declines. Ten of the nation's 100 largest foundations — including the Robert Wood Johnson Foundation, based in Princeton, NJ; Andrew W. Mellon Foundation based in New York; and the Silicon Valley Community Foundation out of Mountain View, Calif. — have decided to do just that. To keep giving levels on par with 2008, many of these foundations have indicated that they're cost cutting.

The Silicon Valley Community Foundation, for example, announced in early February that it's freezing salaries, putting a hold on open positions, reducing retirement benefits by 50 percent, and asking staff to absorb increases in medical insurance costs. It also has laid off 14 staff members — 14 percent of its workforce. By taking these actions, the foundation expects to be able to maintain its giving level at roughly $8 million in 2009.

And that is where the “good” news in foundation giving looks like it's going to end this year. The rest is bad.

Six Reduce Support

Six of the largest 100 foundations already have announced plans to reduce their giving: The Anschutz Family Foundation (Denver), Daniels Fund (Denver), David and Lucile Packard Foundation (Los Altos, Calif.), McKnight Foundation (Minneapolis), Starr Foundation (New York), and The William and Flora Hewlett Foundation (Menlo Park, Calif.)

Although the Packard and Hewlett foundations plan to reduce giving, they've also announced plans to increase their payout rates to limit reductions. Packard, which paid out at a rate of 6 percent in 2008, will raise its payout rate to about 7 percent, allowing it to set a grant award level of $276 million in 2009. Nonetheless, the foundation expects its giving to be about 18 percent less than in 2008.

The Hewlett foundation will increase its 2009 payout rate to 7 percent from 5 percent in 2008.

Nine Wait and See

Nine of the largest 100 foundations have issued statements that do not specifically project anticipated giving for 2009, including the Carnegie Corporation of New York (New York), Ford Foundation (New York), John S. and James L. Knight Foundation (Miami) and the John Templeton Foundation (West Conshohocken, Penn.)

The Ford Foundation has said it plans to increase its payout rate so that it can “continue to honor all outstanding grants, and going forward, safeguard our core grantmaking budget.” It also points out that its investment strategies in recent years have put it in a comparably favorable position to maintain its grant-making budget. In a December 2008 message posted on its website, Ford's president Luis Ubinas, states that “entering the economic downturn, our portfolio was highly liquid, ensuring that we have the capacity to continue making grants without disruption.” But whether this means that 2009 giving will equal 2008 giving was not made explicit.

The John S. and James L. Knight Foundation also notes that it “foresees no liquidity issues for the foundation,” which will allow it to “honor all existing pledges and grants.” But, like Ford, it makes no predictions about its total giving in 2009.

Not a Pretty Picture

What are the plans of all the other, smaller foundations around the country? A number have said they'll be reducing their giving. A few are even closing their doors. Among those shutting down — all victims of convicted Ponzi schemer Bernard Madoff — are the JEHT Foundation (New York City), the Chais Family Foundation (Beverly Hills, Calif.), the Robert I. Lappin Charitable Foundation (Salem, Mass.), and the Picower Foundation (New York.).

The generally negative tone of the Foundation Center advisory for giving in 2009, is in stark contrast to another report released by the Foundation Center on Feb. 5, 2009, Foundation Giving Trends (2009 edition). That report was filled with good news about giving in 2007. It offered a comprehensive analysis of all of the grants of $10,000 or more awarded by 1,300 of the largest private and community foundations in the United States in 2007.

Overall, grant dollars awarded by the sampled foundations rose 13.2 percent between 2006 and 2007 and seven of the 10 major fields of funding posted double-digit gains in support. These fields included education, the environment and animals, health, human services, public affairs/society benefit, science and technology, and the social sciences. The number of grants awarded by the sampled foundations increased 7.1 percent, from 140,484 in 2006 to 150,392 in 2007.

Among the 10 major funding areas, the environment and animals, human services, science and technology, and public affairs/society benefit experienced the fastest growth in support between 2006 and 2007. In contrast, modest reductions in grant dollars were recorded for arts and culture, international affairs, development, and peace. Yet, despite the decrease in support for international affairs, overall funding for international activities (which cuts across the other nine subject areas and includes U.S.-based international programs and overseas recipients) reached a record 23.4 percent of foundation grant dollars in 2007.

We expect that when the U.S. economy regains its footing, so too will the full force of donors' philanthropy.


  1. Editor's Note: For Daniel L. Daniels' and David T. Leibell's report on how charitable deductions were threatened, and saved, in the 2009 budget, go to www.trustsandestates.com [8], Wealth Watch e-letter, March 25, 2009.


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