Individuals and foundations can have an impact disproportionate to their resources during a recession by offering a philanthropic lifeline to organizations providing vital community services.
Yes, foundation endowments recently have been hard hit and individuals who traditionally give to charity have suffered financial reversals. But many nonprofits in their communities are in truly desperate straits. They have endured a triple whammy on the revenue side—donations, grants, and government support are all down—while community needs and demands for services have skyrocketed during the current economic crisis.
More people and more communities are hurting than in many years. Most state and local governments lack the resources to meet community service needs and federal stimulus packages have largely targeted businesses.
Nonprofits—the primary safety net for many Americans—need infusions of operating funds to keep food, shelter, health, and education programs going. They need low- or no-interest bridge loans so they can keep operating even when governments can’t reimburse them for services fully or swiftly.
Wise investments now can stem job losses in nonprofits and sustain services to those in need—a double dividend. Philanthropy can seed and reap significant long-term benefits for our communities by acting now.
- Elizabeth Boris, Director, Center on Nonprofits and Philanthropy
Carol DeVita, Senior Research Associate
The economic downturn has decreased funding for the nonprofit sector and increased demand for services. According to Giving USA, charitable giving dropped by 5.7 percent between 2007 and 2008, after adjusting for inflation. Meanwhile, the Johns Hopkins Listening Post reports that three in four nonprofits maintained or increased the number of people served.
While all executive directors of nonprofit organizations are wrestling with the recession’s toll, directors of color are more likely than their white (non-Hispanic) counterparts to be leading beleaguered organizations. An Urban Institute study recently found that 70 percent of such nonprofits in California reported funding drops while half reported higher demand. The corresponding shares for organizations headed by non-Hispanic whites are 63 and 42 percent.
One reason for these differences may be that comparatively more organizations led by executive directors of color provide human services and a greater number rely more heavily on government support. With state budgets squeezed, many such nonprofits are scrambling for funding. Consequently, individuals and foundations need to step up their support for nonprofits that serve low-income and minority communities so the most vulnerable Americans can better cope in a recession.
Thomas Pollak, Senior Research Associate
Amid a recession, nonprofits working at the community level need to be joining forces. The emerging consensus is that community-level action is where efforts to beat back poverty, improve education, and reach our potential as a nation will make the most difference. President Obama has spoken of a "new era of responsibility" and "remaking this nation … block by block." Conservative commentators such as William Schambra have echoed the need to "revitalize the family, churches, neighborhood organizations, and voluntary associations."
Nonprofit organizations dedicated to providing public or community benefits are the local key players, especially as large federal and state budget deficits, high unemployment, and major market failures combine to highlight the limitations of government and business. But nonprofits’ ability to strengthen their communities is limited too—for different but ultimately surmountable reasons. The economic downturn has decimated funding for nonprofits, but not the underlying networks and goodwill that bode well for their long-term success.
Foundations can help. De-emphasizing breakthroughs and "genius awards"—fine and good in boom times when community needs are less pressing—foundations can build models for low-cost sustainable networks of nonprofits that are part of the warp and woof of their communities and that can team up with government, ordinary citizens, and local businesses to capitalize on the relative strengths of all the partners.
Eugene C. Steuerle, Institute Fellow
Over many years, I have been involved—through government, think tanks, and foundations—in many policy turns in society, only to often find absent those foundations keenly interested in public policy. Important exceptions aside, a realistic look at foundation investments would likely reveal mostly small, project-oriented tasks far removed from the larger, more fundamental issues driving policy.
Why? Colleagues in foundations and in the policy community offer these reasons: project-oriented funding rather than lasting support for a long-term agenda, a fear of being perceived as lobbying, an inability to support work outside a particular research field, a misapplication of performance measurement, and the tendency to fight yesterday’s battles. Foundations may also struggle with understanding and explaining complex issues and solutions, and yet they may believe—particularly regarding social policy—that they already have the answers and don’t need to rely on a funded researcher to make project decisions.
These reasons imply that foundations interested in public policy need to fund for the long-term, keep organization simple to encourage cross-cutting work, know what performance measurement can and cannot do, embrace complexity, trust their grantees to develop agendas, and continually assess whether they are spending where future action is needed.
Roberton Williams, Senior Fellow
Over the past decade, the federal estate tax has phased down to a shadow of its former self but, under current law, will return in all its glory in 2011 with a $1 million exemption and a 55 percent tax rate. As Congress debates what to do about the tax, one important concern is how changes would affect giving. Because charitable donations are exempt from the estate tax, people give more in their lifetime and in their wills.
The logic is straightforward: if you reduce your tax bill when you give money or assets away, the after-tax cost is less and you give away more. In 2009, a large estate will pay tax equal to 45 percent of its value over the exemption. Give $1 million to charity and the estate tax drops by $450,000. The net cost to one's heirs is just $550,000, the amount they wouldn’t get out of the million. At the economist's margin, the lower price induces people to give more. And because gifts are also exempt from income tax, there’s even more incentive to give while you’re alive.
Uncertainty complicates the issue until Congress settles on a permanent tax. Until they know what to expect, people may delay decisions about charitable gifts—both while they’re alive and in their wills—and donations will suffer.
In any case, the bottom line is simple: take away the tax and people will give less. That's one more reason to retain the estate tax.
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