Giving in a Down Economy

Giving in a Down Economy: What Do Hard Times Mean for Nonprofits?

illustration by Mariusz Stawarski

The financial crisis of the past year and a half landed iconic American companies in bankruptcy and forced countless people to grapple with home foreclosures and layoffs. And as we suffered through the worst economic crisis in the U.S. since the Depression, the rest of the world suffered with us. From billion-dollar government programs to the wages of factory workers here and abroad, nothing seemed immune to the cuts.

In the complex food chain that is the global economy, nonprofits claimed their place among the victims. New data show that donations dropped at their sharpest rates in half a century, and countless relief and development programs were in trouble just when they were needed most. But what is the extent of the damage? And in tough economic times, how can nonprofits hope to continue, even expand, their work?

In 2008, giving to charitable organizations plummeted by the largest percentage in five decades (5.7 percent, adjusted for inflation), said a report released in June 2009 by the Giving USA Foundation. Alarmingly, the decline most affected those charities providing basic human needs. Those organizations providing services like food and shelter were among the first to report declining contributions and suffered the steepest declines. Giving for these kinds of organizations was down 15.9 percent, adjusted for inflation. By comparison, donations to arts and culture organizations were down by about 10 percent.

This dramatic decrease in funding put enormous financial strain on charities already struggling. Nonprofits scrambling to carry out their missions now fear the long-term ramifications of the recession, according to a survey by the Nonprofit Finance Fund. In the survey of nearly a thousand nonprofit professionals, more than half said they expected the economic downturn to have a long-term or permanent negative effect on their work. Only 12 percent said they expected to break even in 2009, and just 16 percent believed they would be able to cover operating costs in both 2009 and 2010 without cutting programs, staff or both.

If history is any indication, such fears are warranted. Philanthropic giving historically declines during economic downturns, especially longer ones. Giving USA Foundation also noted that over the past 40 years, giving declined an average of 2.7 percent in recessions lasting eight months or more. And during the longest recession in the last half-century, from 1973 to 1975, giving fell 9.2 percent.

Many nonprofits pinned their hopes on the 2009 holiday season, hoping that recent signs of economic recovery would prompt donors to give generously and help them climb closer to operating at a pre-recession level.

Giving in a Down Economy

Compounding the problem is that as giving decreases, need is often increasing. The Giving USA report found that at the same time that 60 percent of human service organizations were cutting staff and services due to budget shortfalls, more than half reported that demand for their services -- such as food, shelter, and help with rent and hospital bills -- was increasing.

As the recession drove the unemployment rate skyward and more people faced foreclosure, homelessness among families was on the rise. While the number of homeless individuals in the U.S. remained basically the same from 2007 to 2008, the number of homeless families increased by 43,000, according to a recent report from the U.S. Department of Housing and Urban Development. Because families are much less likely to become homeless than individuals, HUD attributed this shift to the recent economic downturn, which left many families struggling with joblessness and foreclosures.

And more people were finding it difficult to feed their families. Feeding America, a network of food banks across the U.S., found that in 2008, all food banks surveyed fielded more requests for emergency food assistance. Three-quarters of the food banks reported more newly unemployed people using their services, and virtually all reported an increase in first-time users.

“There’s just greater need out there, from people who don’t have jobs to increased domestic violence,” said Todd Cohen, editor and publisher of Philanthropy Journal. Cohen called decreased donations, increasing need and more difficult financial conditions the “triple whammy” for charitable organizations. “It’s just really tough for nonprofits.”

Arli Klassen, director of the Mennonite Central Committee, knows how tough it can be. Her group, which does both relief work and long-term development work around the globe, saw donations dip significantly in the first months of 2009. As a result, after several years of expanding its budget, the nonprofit cut next year’s by 10 percent. Catholic Charities USA, a network of social service organizations, reported in fall 2008 that contributions to its agencies around the U.S. were down 55 percent. Meals on Wheels, the national nonprofit that delivers meals to the homebound, saw flagging donations in many chapters nationwide. This, coupled with cuts in state funding, forced chapter closings in four states and reductions in service across the country.

Complicating the picture is that far more people are looking to these organizations for help for the first time. John Turner is the general secretary for the Salvation Army’s eastern Michigan division, which includes the economically depressed city of Detroit. Unemployment in the city has been among the highest in the country. These days, said Turner, one of the Salvation Army’s biggest challenges is helping the newly unemployed, who are often emotionally devastated as well as unfamiliar with the resources that might help them.

The organization retrained staff to deal specifically with this population, people who are, as Turner said, “almost in a state of shock” when they come for help, “have exhausted every resource available to them,” and who need emotional support as well as extra help navigating the system. Sometimes, Turner said, these people have an unexpected connection to the charity: They are former donors. “People are coming in and saying, ‘Hi, I used to be a donor, and I just don’t even know where to turn to get help,’” he said.

And while Turner praised the philanthropic spirit in Detroit, saying that donations were down only slightly, he noted the importance of public contributions: “We live and die by our donations,” he said. The organization reallocated funds to try to address the increasing needs among the newly poor, a juggling act that is only becoming more difficult. “We’re walking a tightrope right now,” said Turner. “So far, we haven’t fallen.”

Giving in a Down Economy

If the current economic climate persists, what kind of nonprofit work will suffer the most? Some predict that in a financial crisis, donors would be more likely to support crisis-relief services like soup kitchens and homeless shelters rather than longer-term work, like helping communities in developing countries improve their homes and roads and send their children to school.

Said Todd Cohen, “The conventional wisdom, and the fear, on the part of many organizations, is that if people are going to give, they are going to give to the groups that are dealing with immediate needs and crises, [such as] human and social services.” In a poll of 100 fundraising directors at international nongovernmental organizations who were asked to predict which nonprofits would fare the worst in a faltering global economy, international development was high on the list, second only to arts heritage organizations.

But just as soup kitchens’ needs increase during tough times, so do the needs of long-term projects in developing countries. In March, World Bank Group President Robert B. Zoellick discussed the global effects of the downturn and emphasized that long-term foreign involvement can stabilize developing countries during crises. “We need investments in safety nets, infrastructure and small- and medium-sized companies to create jobs and to avoid social and political unrest,” he said.

FINDING OPPORTUNITIES IN THE DOWNTURN

Tough times offer an opportunity for nonprofits to strengthen and even expand their projects, whether short- or long-term. “Be proactive,” recommended fundraising consultants Ted Grossnickle and Derrick Feldmann in an article on “PhilanTopic,” a blog published by Philanthropy News Digest. “Use the inevitability of change,” they said, “to drive the change that you probably already suspected was needed.” For many nonprofits, this can mean taking a hard look at what they do—refining and focusing their mission, and determining which projects are, and aren’t, hewing to that mission.

“As a relief, development and peace organization, all parts of our programs are being affected,” said Klassen, the director of the Mennonite Central Committee. She said the nonprofit is working to adhere to the goals set in its long-term strategic plans. “Budget challenges,” she said, “are good opportunities for reconsidering how we live out our values and our priorities.”

Now, more than ever, the work of nonprofits as well as of the people who support them is to do the best they can with what they have. As Klassen said, “We pray for wisdom that the decisions we make with the resources entrusted to us will reflect well our values and the values of the partners with whom we work.”

Grossnickle and Feldmann also encourage nonprofits to partner with other organizations with similar goals and to strengthen relationships with donors, letting them know exactly how important their support is during lean times. “Most households continue to give during times of financial insecurity,” according to the Giving USA report, even if that giving declines. This means that often, the key factor in whether or not a nonprofit survives is not the nature of its work but the relationship it has with its donors. For development organizations, just as important as sustaining their projects is sustaining these relationships. They can do this by being effective and consistent with their work and by helping donors understand that while long-term projects may not offer the immediate satisfaction of relief efforts, over time they help build more resilient, self-sufficient communities better equipped to weather future economic storms.

If there is a silver lining to the crisis, it is that the scope and breadth of the economic crisis might swell the issues of poverty and need in the collective consciousness. The number of volunteers with Teach for America and the Peace Corps is on the rise, as those whose greatest resource is their time find a way to make a difference. The Salvation Army in Plymouth, near Detroit, saw an increase in volunteers as well, said Laurie Aren, the director of family ministries there. “There is a good side to come out of this,” she said, because the community really came together to make the most of its resources. “We are all learning to do more with less,” she said.

And sometimes, doing more means simply doing what we can. In western Michigan and northern Indiana (another area hard-hit by the recession), the Salvation Army found that while the amount of each donation decreased significantly over the last year, the number of donations overall is on the rise. People may have less to give, but more are giving.

Lauren Wilcox is a freelance journalist based in Jersey City, N.J. Her work has appeared in World Ark, Smithsonian Magazine and The Washington Post Magazine.