News and analysis
March 18, 2012

Big Grant Makers Don’t Expect to Increase Giving in 2012

The Virginia G. Piper Charitable Trust is expanding its literacy program and will pay for a state-government post focusing on the cause.

Most of the nation’s biggest foundations aren’t increasing their grant making in 2012, a new Chronicle study finds. That’s tough news for grant seekers since most foundations didn’t expand their giving in 2011, either. Of the 96 foundations in the survey that offered grant-making projections for 2012, 68 said they plan to give the same amount this year or less than in 2011.

The flat grant-making budgets are a direct result of the slow recovery of foundation assets from the stock market crash that caused steep losses in 2008.

After modest increases in 2009 and 2010, assets slipped last year and have yet to recover to pre-recession levels. For the 100 foundations that reported asset figures for 2010 and 2011, endowments dropped 3.5 percent. Those foundations represent about 30 percent of the nation’s foundation wealth.

In perhaps a more telling sign of how much grant makers are still smarting from the 2008 crisis, the assets of the 10 richest foundations dropped by more than $25-billion from 2007 to 2011 after inflation, or about $1 in $4 of their holdings that has yet to be recovered.

At the Commonfund, which manages nonprofit and foundation endowments, officials predict that it could be at least three years before assets of all foundations return to where they were in 2007.

The ups and downs of the stock market, where many endowment assets are invested, is one source of trouble for grant-making finances.

But William Jarvis, Commonfund’s managing director, says another impediment to the recovery is the fact that by law, foundations must distribute 5 percent of their assets, on average, every year—which can include administrative costs.

“It is a real challenge,” Mr. Jarvis says. “The 5-percent spending rule exacts a terrible toll over time and poses a real challenge to private foundations to maintain purchasing power.”

Flawed Predictions

Grant makers are struggling so much to predict how their assets will fare that they aren’t able to forecast reliably how their giving will change. In 2011, grant making did not recover nearly as swiftly as foundations in The Chronicle’s survey had forecast.

A year ago, 40 big foundations told the newspaper they would increase their grant making in 2011; however, only 25 of those organizations said they gave more than in 2010. Of 34 grant makers that predicted their giving would remain flat last year, 10 decreased their giving.

But, the survey results also included some bright spots:

  • Twenty-three foundations reported that their grant-making budgets expanded in 2011.
  • Fifteen foundations started new grant-making efforts in the past year.
  • Seventy-five grant makers—83 percent of those answering The Chronicle’s question on this topic—said they make grants to charities to cover operating costs. Those foundations gave a median of 27 percent of their grant-making budgets for that purpose.
  • Fifteen grant makers said they gave additional help to communities hit hard by the tough economy in the past 12 months.

 Doing Much With Less

While sluggish asset growth is the main reason foundations aren’t expanding their budgets, some are simply pulling back after making big increases in the share of assets they distributed during the downturn.

Among those foundations is the Virginia G. Piper Charitable Trust, in Phoenix, which gave 6.4 percent of its assets in 2009, when the economy was at a low point, 5.6 percent of its assets in 2010, and just over 5.2 percent of its assets last year.

Yet even with the smaller share of assets distributed, the trust has managed in the last year to expand an existing literacy program and support several related new efforts.

Piper announced in February that as part of its Read On program, it will pay for a state-government official to oversee work to improve the reading skills of young children.

The foundation will direct about $200,000 a year over the next three years to pay the salary of the new director to help state agencies and nonprofits work toward getting every public-school student in Arizona to read at grade level by the third grade. In addition to covering the salary, the money will pay for other efforts the director needs to succeed.

After the foundation money runs out, the state—which faces a tight budget this year—will support the director’s salary, says Judy Jolley Mohraz, Piper’s chief executive. In addition, the foundation is providing money to several Arizona nonprofits so they can start other literacy programs for young children.

Piper’s decision to sponsor a government post was unusual but necessary, Ms. Mohraz says.

“We’ve always been clear that we cannot replace public dollars, which is a message that legislators needed to hear as they slashed education and public-service budgets here in the state,” she says. “However, in this instance, all the players were eager to have someone coordinate their work.”

Filling Gaps

While Piper’s support of a government position is rare in the foundation world, Antony Bugg-Levine, chief executive of the Nonprofit Finance Fund, said he has noticed that several foundations have been stepping in either to support a portion of what a charity lost after government cuts or to tide a charity over as government payments are increasingly delayed.

Yet foundation support is no panacea, he says, because grant makers don’t have nearly enough money to make up for the sums state and federal governments are withdrawing.

Instead, he says, grant makers need to devise creative ways to help nonprofits that face a cash crunch.

“There are some very interesting options for private philanthropy to step in by providing lines of credit to nonprofits and supporting their ability to function while awaiting government payments,” he says, “rather than just thinking the only obligation they have is to step in and replace government funding entirely.”

Mr. Bugg-Levine, who was previously a top official at the Rockefeller Foundation, also says grant makers should consider supporting charities’ operating reserves as a way to shore up a nonprofit’s financial health during tough times.

And, he suggests, instead of paying for new programs, they should help charities extend existing ones.

Luz Vega-Marquis, head of the Marguerite Casey Foundation, says her colleagues need to focus not so much on the question of how to replace government but on serving as an alternative.

“What foundations can do that governments can’t is take risks,” says Ms. Vega-Marquis. “We can fund innovative, untested programs to improve service, activism and advocacy, and organizations working toward long-term, systematic change to improve the economic well-being of their communities.”

Even so, supporting such programs means foundations must be able to plan their grant budgets, and with a rocky economy, that is often challenging.

Her foundation gave $25.4-million in 2011 and plans to give the same this year, but its assets dropped by about $485,000 from 2010 to 2011.

“The volatility of the market has been a killer,” she says. “When I think we are going to make it and we inch forward a little bit, then we inch back.”

A Slow Rebound

Foundation leaders and other experts caution that while a foundation’s assets are obviously important, in tough times, the size of its assets shouldn’t be the sole focus.

Aaron Dorfman, executive director of the National Committee for Responsive Philanthropy, says that too often foundations take a “default position of needing to protect or grow the [endowment] without regard to any other factors.”

Mr. Dorfman says foundations need to decide first what they are trying to accomplish before they make any decision about how much of their assets to give in times of economic uncertainty.

New Sources of Support

For grant seekers, one thing is quite certain: Foundation giving is unlikely to rebound anytime soon.

“We’re not expecting giving by foundations to get back to pre-recession levels for another few years,” said Mr. Dorfman. “We’ll see individual giving rebound quicker than we’ll see foundation giving rebound. Foundation giving is behind individual giving by 12 to 36 months in terms of rebounding.”

The most important steps charities seeking foundation money can take right now, grant makers say, is to be able to articulate to program officers and others exactly why their work matters—and not to rely too heavily on the same old sources of money.

“We’re moving in the right direction, but it’s going to be a much slower journey than I think Americans are accustomed to,” said Ms. Mohraz. “We are going to have to learn a different rhythm to economic recovery.”

Marisa López-Rivera and Peter Bolton contributed to this article.