Charities Find Donors Scarce as Market Losses Compound
The New York Times
July 30, 2002
By Stephanie Strom
Ashoka, a nonprofit organization that helps develop social service agencies around the globe, sent an S.O.S. last month to potential contributors. ''Three of our top seven donors lost 90 percent of their wealth last year,'' the letter said, explaining Ashoka's straits.
Many other businesses that usually contribute heavily to charity have suffered financial setbacks too, said Bill Drayton, the former McKinsey & Company consultant who founded Ashoka and is its chief executive. ''We don't know the exact numbers, but they're selling things that make one believe they're in some difficulty,'' Mr. Drayton said.
So charities keep adding holes to the belts they had tightened as the economy soured and then cinched again after Sept. 11. Measures being taken include postponing new programs and increasing solicitations.
''Charities everywhere are struggling even more than they were at the end of last year,'' said Trent Stamp, the executive director of Charity Navigator, an online charity watchdog organization. ''Everyone knows foundation endowments are down, and donors are getting hit by the stock market.''
Ashoka, the charity of choice for many entrepreneurs, described the solicitation as ''an unusual appeal for help,'' but such appeals are all too familiar to donors these days.
''We're getting all sorts of earnest pleas from organizations saying collections are down and programs are threatened,'' said Daniel J. Rose, the real estate developer whose family is among New York's most philanthropic. ''This has been a year of great stringency for charities.''
Mr. Rose has an unusual perspective. He also founded the Harlem Educational Activities Fund, or HEAF, a small nonprofit organization that provides enrichment programs to urban students with the goal of getting them into New York's elite public high schools.
Contributions to the fund have dropped significantly over the last year, so its staff has been making what Mr. Rose called herculean efforts to attract new donors and re-enlist dormant donors. But HEAF is also making contingency plans.
''I think every charity today is hoping life will get better but uncomfortably preparing to adjust if it doesn't,'' Mr. Rose said, ''which means eating into reserves, deferring programs you wanted to start and retrenching.''
Mr. Stamp, whose Charity Navigator service analyzes tax returns of some 1,200 charities and rates them, said many have stopped hiring and reduced or eliminated programs.
But the pain has not been equally spread among organizations, Mr. Stamp said. The charities he said would weather the donor drought best were service providers like food banks and homeless shelters, whose effectiveness can be measured easily, and community trusts, which have expertise in giving.
''Dollars are scarce, so donors are even more concerned that their giving is not wasted,'' he said.
The breaking of a major pledge in the New York area last became public in the late 1980's, when Ivan F. Boesky, the arbitrageur who was convicted of insider trading, failed to make good on commitments to Princeton University and the Jewish Theological Seminary.
But rumors about major donors reneging on pledges now abound. Cultural institutions have spread whispers about various Wall Street figures who are in arrears, but no officials will make those charges on the record, because embarrassing donors is taboo in the charity world.
To maintain commitments while dealing with the realities of the economy, several major donors have said they are extending the time over which they will be paying off pledges. Ted Turner told The Wall Street Journal his stake in AOL Time Warner Inc. had lost so much value he planned to stretch a five-year, $250 million pledge to the Nuclear Threat Initiative, which works to abolish nuclear weapons, over seven years.
At Ashoka, Vinette Brown, the associate director of development (charity's word for fund-raising), said she has seen some donors who were unable to pay off pledges. For instance, Ashoka has received $2 million of a five-year, $5 million pledge but does not expect to receive the remaining $3 million, Ms. Brown said. A $1 million oral pledge has evaporated, she said.
''It's not the person's fault,'' Ms. Brown said. ''His stock is at 1 percent of its peak level.''
Luckily for Ashoka, only 10 percent of its endowment is exposed to the fluctuations of stocks, so it has not suffered as badly as many charities, including the David and Lucile Packard Foundation, whose endowment is down more than 50 percent; the Lilly Endowment, which is down more than 40 percent; and the Ford Foundation, down 30 percent.
Ashoka has made up some of the contribution deficit by finding new donors, like the American Indian Association, which gave $500,000, and the Hilti Corporation, which is underwriting a program in Egypt. Still, it has cut $3 million from its budget, and Mr. Drayton was not optimistic.
When the impact of the oil crisis struck foundations in 1975, their giving dropped 28 percent and did not recover for 10 years, according to The Chronicle of Philanthropy.
''This looks worse than it did then,'' Mr. Drayton said last week when the stock market was dropping. ''This bubble is worse than anything we've ever seen in the entire financial history of the United States, and that is not encouraging.''
Correction: August 1, 2002, Thursday An article on Monday about the finances of charities affected by the decline in the stock market misidentified a donor found by one nonprofit organization, Ashoka, to make up part of its deficit. The donor is the American India Foundation, not the American Indian Association.
Copyright 2002 The New York Times Company