Billions of dollars continue to evaporate as the stock market grows more anxious about the sweeping impact of the coronavirus. Even so, some grant makers have moved swiftly to send money early to nonprofit response efforts, such as a $75 million fund in New York City created by 18 grant makers and wealthy donors. More than 165 emergency funds had been created by late March, according to research by the National Center for Family Philanthropy.
But history suggests grant makers will pull back over the long haul, and it could take many years for giving to return to previous levels.
Still, the immediate effect should not be as profound as it might seem. The reason: Foundations tend to determine their annual payouts based on a percentage of the average size of their assets over the previous three years. Because the stock market had been on an extended bull run ahead of Covid-19, that means the average will continue to be relatively high over the next two years. “That’s the genius of payout: It smooths out giving,” says Bradford Smith, president of Candid, an independent organization that collects data on grant making. “The ups and downs are less dramatic than the market.”
What that meant during the Great Recession is that even though assets took a 21 percent hit, foundation giving was reduced by around half that amount in 2009, the deepest year of the trough. But it took until 2013 for domestic grant making at the biggest 1,000 foundations to return to prerecession levels, according to a study of Candid data by the National Committee for Responsive Philanthropy. Corporate giving returned to life much faster. The median sum given by companies dropped in 2009 and 2010 before rebounding, according Chief Executives for Corporate Purpose, a group that tracks giving by Fortune 500 companies.
Economic downturns expose one of philanthropy’s basic fault lines. On one side are foundations that have been chartered to exist in perpetuity. Investment professionals at those grant makers jealously protect their endowments so the foundation can maintain or increase giving rates well into the future.
On the other side are foundation and nonprofit leaders who say that when times are tough, foundations should do more — and that the current crisis is one of those times.
For instance, in an opinion piece on the Chronicle’s website, Ellen Dorsey, executive director of the Wallace Global Fund, and Aaron Dorfman, chief executive of the National Committee for Responsive Philanthropy, wrote: “As markets collapse and nonprofits face drastic drops in government and private support, it is no time for philanthropy to think about cutting back. Instead, we must give more.”
Whether foundations heed those calls will depend a lot on their outlook and their financial position.
“Each foundation has its own approach,” says Gwen Walden, senior managing director at Arabella Advisors. “There are some foundations that really look to tighten their belts. They’ll look for ways to tighten staffing, postpone or cancel projects. Other foundations find ways to step into the breach and be more generous.”
Grant Makers Pledge to Lift Restrictions
Already, foundations are responding to calls to change how they operate. More than 300 grant makers joined together less than a week after President Trump declared a national emergency to announce that they had signed a pledge to eliminate restrictions on current grants, loosen rules on reporting, and not punish anyone who can’t hold a promised event. What’s more, they vowed to support more advocacy work and to listen to the people too often overlooked by philanthropy and government.
Adopting the practices outlined in the pledge would be wise for foundations to do all the time, said Kathleen Enright, president of the Council on Foundations. But, she added. “At this point, I don’t think it’s hyperbolic to say they can save lives.”
The response from some of the nation’s most venerable grant makers will be based on decades of experience with crises. For some, the vantage point is even longer and includes the worst economic crisis in America’s history. At the Rockefeller Foundation, which was founded in 1913, officials have protected its endowment through the Great Depression, the rampant inflation of the 1970s, and other financial downturns.
Shortly after the Great Recession hit, Ellen Taus was new on the job as the foundation’s chief financial officer. She started in April 2008. By the end of December, Rockefeller’s unrestricted net assets dropped $1.2 billion, to close the year at $2.9 billion.
Rockefeller increased the share of assets that it distributed. But because its endowment was so much smaller, the increased payout still resulted in a 5.5 percent drop in funding, which was minor compared with the steep decline in its investments.
Taus says the foundation saved money by keeping open vacant jobs and forgoing salary increases for its staff members. She said it also helped that the foundation was in the midst of a strategic overhaul so it had few multiyear commitments in place.
Taus recalls that when she met with officials of other foundations, they were wringing their hands because their multiyear commitments were eating into their endowments, leaving little ability to make new grants in response to emergency needs. While she didn’t have that problem at the time, Rockefeller’s bylaws require it to operate in perpetuity. Its founder, John D. Rockefeller, wanted the foundation to always be available whenever future crises erupt.
Taus says she understands the desire to send money to groups dealing with a crisis like the coronavirus even though they aren’t now on a foundation’s roster. But she said foundations need to realize that their grant portfolio supports a network of groups that depend on the grant maker. Pulling support to aid a new crisis probably isn’t a good idea, she says. “Keep it as steady as possible,” she adds. “If it was a worthy cause before, it probably still is. It’s not a good time to do a U-turn.”
