Eighty-one percent of foundations expect their grant making to be flat or to decline in 2019, according to a survey conducted earlier this year, a worrisome sign for nonprofits that are already feeling the pinch from a drop in individual giving.
Only 19 percent of foundations expect to increase grant making this year.
The figures, based on responses from 645 foundations, were provided by Candid (an organization created by the merger of the Foundation Center and GuideStar), which supplied foundation giving estimates for the annual “Giving USA” report.
Foundation grants increased nearly 5 percent last year, even as overall giving dropped, a gain experts say was the result of a strong stock-market in 2017.
The dour expectations for the current year are likely the result of a poor fourth quarter on Wall Street, says Lawrence McGill, vice president for knowledge services at Candid. Foundation grants, he says, “march in lockstep” with the stock market, which went wobbly late in 2018.
“There was a lot of turbulence at the end of the year,” he says. “Some foundations are hedging a little bit.”
The proportion of foundations that expect to trim grant-making budgets is greater than it has been for the past five years. However, pessimism hasn’t reached the level it did in 2008 during the recession, when 67 percent of foundations expected to make cuts.
Warning Messages
Last year’s market volatility should “ring bells” at nonprofits that rely on foundation grants, McGill says. Some foundations have sent warning messages. In August, for example, Hewlett Foundation President Larry Kramer suggested grant makers prepare for a stagnant economy by being open with grantees about their budgets and working to ensure that funds aren’t cut without warning. (The Hewlett Foundation is a financial supporter of the Chronicle of Philanthropy.)
Policy makers on Capitol Hill view the Candid survey as a warning about the ability of nonprofits to fulfill their missions, according to Kathleen Enright, president of the Council on Foundations. She has held conversations with staff from the House Ways and Means Committee, where tax legislation originates, about holding a hearing as soon this summer centered on the declining confidence evident in the Candid survey.
“That’s an early indicator that things are looking much different this year than they did last year,” she says, referring to the survey. “Folks are projecting a potential recession. Everyone’s worried about the health of the markets.”
The uptick in foundation giving in 2018 reported by “Giving USA” followed a full year of Wall Street gains. In 2017, many market indices produced double-digit returns, including the S&P 500 index, which climbed nearly 22 percent for the year. As a result, investment managers at many private foundations were able to notch gains in their portfolios. According to a study in August by the Commonfund Institute and the Council on Foundations, grant makers saw investment returns of 15 percent.
‘Giving USA’
Total giving by individuals, corporations, foundations, and bequests fell 1.7 percent in 2018, driven largely by a drop-off in giving by individuals, who gave $292.1 billion, a 3.4 percent decline from the previous year. Foundations, meanwhile, not only increased their giving to $75.8 billion but their proportion of overall giving was nearly 18 percent of the total — almost double their share 20 years ago.
Several of the nation’s largest foundations increased their grant making last year.
The MacArthur Foundation paid out $329 million in grants and impact investments in 2018, up from $256 in 2017. The Walton Family Foundation’s $596 million in grants last year represented an 11 percent increase over 2017. The Packard Foundation hasn’t posted official numbers yet, but a foundation official expects the final 2018 figure to come in at $348 million, a gain of about $13 million.
Several major grant makers began padding their grant-making budgets in 2017, following the 2016 elections. Candid’s McGill says it isn’t clear if foundation grants were boosted over all in 2018 because of continued granting activity in response to the election. The survey Candid sent out to gauge whether grant makers would increase or decrease giving in 2019 included a question about grant making in relation to the 2016 elections, but McGill said the results have not been finalized.
Tax Questions
The fact that foundation giving increased as overall giving fell is a sign that individual contributions may have been hurt by the tax law that went into effect last year. The standard deduction was doubled, giving most Americans little reason to separately itemize deductions. As a result, many nonprofit advocates like Enright believe tax payers lost an important incentive to give.
Whether the tax changes depressed individual giving is an open question, according to Nathan Dietz, senior researcher at the University of Maryland’s Do Good Institute. But, he says, it’s possible that foundations chipped in more, knowing that the tax law might have a negative effect and that nonprofits have a hard time with donor retention.
“Maybe they heard one too many SOS calls from their grantees,” he says.
The Candid numbers provided to “Giving USA” included independent, community, and operating foundations. Each type of foundation increased the flow of grants last year.
The increasing share of giving from foundations suggests that philanthropy is becoming more dominated by large grant makers with assets of more than $1 billion, Dietz says.
Dietz believes most foundations seek to do what’s right, but the accumulation of so much wealth in relatively few foundations should raise a red flag for people worried about the influx of “big money” into activities that are supposed to serve the public interest.
Says Dietz: “It becomes more important for big donors to really listen, pay close attention, and base their behaviors on the expressed needs of the public.”
Julian Wyllie contributed to this story.
