Winter 2009
With 2009 Outlook Down,
Grantmakers Explore New Strategies
By Crystal Colby
If you work in the nonprofit sector, the idea that the recession will be painful is not news to you. But just how painful? And are there any signs of hope?
Minnesota foundations and corporate giving programs project that giving in 2009 will be down about four percent overall, after years of increased giving. So says the Minnesota Council on Foundations' 2009 Outlook Report, which is based on a survey of grantmakers that represent 70 percent of the $1 billion in grants paid annually in the state.
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Kris Taylor |
But not all grantmakers are lowering giving that much. A few will even increase their grantmaking, and others are embracing new strategies in 2009 to ease the pain. "The economic situation doesn't have to be the end of the world," says Kris Taylor, vice president of the Ecolab Foundation. "In fact, the new environment can be a chance for everyone to gain a competitive advantage.
"In the business world," she adds, "we look at economic times like these as opportunities: How can we be more efficient? I think it's also a great opportunity for nonprofits to look at the work they do. Those who do will have a bigger opportunity to be sustainable than those who don't."
Collaboration may be another opportunity. "We put an emphasis on working within the community to try to solve problems and collaborate," notes Randi Ilyse Roth, executive director of the Otto Bremer Foundation. "In our convenings with nonprofits, we ask open-ended questions about how the community might address this. We try to be up-front: there will be some ways that our foundation can help, but it won't be big enough to solve all the problems. Working together is going to be the heart of opportunity."
How Bleak Are the Numbers?
First, let's take stock of the data. The 2009 Outlook Report, a snapshot of projected grantmaking taken during November 2008, shows that overall foundation and corporate giving is expected to drop about four percent in 2009 when compared to 2008.
Forty percent of the survey respondents stated they anticipate a decrease in giving. While one-fourth of those respondents are expecting to lower grantmaking by only 1 to 4 percent, 40 percent project a decrease of 5 to 14 percent, and another fourth predict even greater decreases.
On the other hand, 41 percent of the grantmakers expect their giving to remain about the same in 2009 as it was in 2008. One reason is that foundation payouts are typically based on trailing averages from previous years — meaning that grantmaking this year will be based on foundation assets from the past 12-36 months. Holding grants steady is also an intentional response by some grantmakers, even if that means paying more than the legally required minimum of 5 percent of assets.
About 15 percent of surveyed grantmakers plan to increase their giving in 2009. In contrast to the expected decreases, though, three-fourths of the projected increases are in a much smaller 1- to 4-percent range.
Just like individuals and other institutions, foundations are not immune to Wall Street troubles. More than half of survey respondents believe their asset base will decline in 2009, typically due to lower returns on investments.
Some of the drops in assets are shocking. In December 2008 The McKnight Foundation reported a $700-million drop in its endowment for the year. "It's devastating for all of us," says Sandra Vargas, president and chief executive officer of The Minneapolis Foundation. "I don't think anybody projected how bad this would be. It's a very serious situation."
Corporate Picture Slightly Different
According to the survey, corporate grantmakers are the most optimistic of all grantmaker types. Nearly 60 percent expect to hold their 2009 giving to the same levels as 2008, and less than 30 percent think their donations will decrease.
Not surprisingly, though, corporate giving is highly dependent on the performance of the company. "Businesses think of sustainability in three ways: economically, environmentally, socially," explains Taylor. "If we're not sound financially, we can't do the other two. Right now, everybody's going to focus 2009 on key business areas with the idea that as business turns around, there'll be more money to put back into the community."
"Realistically, our giving is a function of profit, so as our profit forecast looks to be lower, we will be down," reports Jeff Peterson, director of community relations at Best Buy. "But we're trying to not be down as directly proportionate as the numbers would suggest. We recognize that in times like these, with so many programs that we support nationally as well as locally, we can't cut the legs out from under these organizations."
Giving Varies by Foundation Size, Type
Giving estimates by community foundations almost exactly mirror the overall Minnesota foundation picture. Forty-two percent expect giving to be flat in 2009 compared to 2008, while 40 percent project a decrease.
"We've seen the same decrease in our endowment as everyone else," says Wendy Merrick, program director at West Central Initiative. "But we've been focused on what we provide grant funding for. We're well-positioned to continue to have available the same amount of grantmaking as we have in previous years."
Family and other private foundations anticipate the biggest declines. More than 50 percent of these respondents say they will decrease their grantmaking in 2009, while only one-fourth expect no changes.
The outlook for giving is also dependent on a grantmaker's size. More than half of those that give more than $5 million a year project giving to remain the same in 2009, and 30 percent expect decreases. In contrast, half of grantmakers that give between $1 million and $5 million believe they will decrease giving this year. The smallest foundations — those that grant less than $1 million per year — are most likely to expect increases (28 percent), although nearly 40 percent project decreases.
Temporary Shifts in Focus of Giving
Most foundations do not plan to permanently change the focus of their giving but will consider temporary changes — or additions — to respond to the crisis.
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Kerrie Blevins |
"We're going to shift our special projects giving to focus on basic needs," notes Kerrie Blevins, director of the Patrick and Aimee Butler Family Foundation. "That hasn't been a part of our giving in the past, but the board feels it's an appropriate way to focus. We will probably do no capital giving and instead focus on how we can support the nonprofits in need."
"We're going to stay with the grantmaking strategies we have, with an eye to proposals that also serve those who have been hit the hardest," reports Carleen Rhodes, president and CEO of The Saint Paul Foundation and the Minnesota Community Foundation. "That may mean more focused giving or smaller grants to a broader cross-section of grantees. We're open to exploring ideas that might allow us to be responsive to community needs as they evolve."
Will 2010 and Beyond Be Worse?
Seventy percent of the Outlook survey respondents cited a decline in foundation assets as the biggest reason for reduced grantmaking. Other grantmakers said declining company profits (13%) and fewer, or smaller, gifts received by the foundation (10%) are factors to blame.
Further compounding the situation for the future, more than half of survey respondents think their assets will decline even more in 2009. Of those who expect asset decreases, 22 percent think the base will shrink 10 to 14 percent, and a startling 56 percent expect even bigger drops.
Of course, that also means that giving in 2010 and beyond could be even more negative — if investment returns are lower on asset bases that have already shrunk.
"2008 is a pretty good year for nonprofits because giving lags," cautions Frank Forsberg, senior vice president of community impact at the Greater Twin Cities United Way. "2009 and 2010 are going to be very tough — tougher than anybody thought. Agencies should be looking, from a leadership perspective, to be ready to make decisions about the future of their organizations. They're not going to have a lot of flexibility once resources start reducing quickly."
Bigger Payouts an Option
Lower grantmaking is not a given for every grantmaker. Some foundations plan to go beyond the legally required 5-percent payout, and some corporate grantmakers will receive a bigger contribution from their company so they can at least maintain the same giving levels as last year.
The Duluth Superior Area Community Foundation is one such grantmaker, having decided to take advantage of new UPMIFA legislation. UPMIFA stands for the Uniform Prudent Management of Institutional Funds Act.
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Holly C. Sampson |
"In October, we convened a meeting with our board and investment committee to learn about UPMIFA, which became Minnesota state law in August 2008," reports Holly C. Sampson, Duluth Superior president. "The very significant change is that UPMIFA has eliminated the concept of historic dollar value, so institutions that manage endowments can spend from those funds even though they have gone below the endowed level."
She explains, "It was very important for our committee and board to fully understand that there's more flexibility in giving, given the economic downturn we're all facing. So after very long and careful discussion, we decided our spending from our endowed funds for 2009 will remain about the same as in 2008. We are grateful for UPMIFA, which provides us greater flexibility than in the past."
Nonprofits Stepping Up Requests
Nonprofits are already seeing the impact of a down economy on their funding. The Minnesota Council of Nonprofits reported in its December Nonprofit Current Conditions Report that more than half of nonprofit organizations in the state had already experienced a decline in revenue in 2008, with nearly the same amount noting increased expenses.
(More details from the report.)
"The world is so unpredictable right now that nonprofits just don't know what funding sources they're going to lose, so it's really hard to do planning," says Forsberg. "Everybody's going to ride this thing out and make changes to adapt to the environment as quickly as they can once funders make their decisions."
Foundations and giving programs are hearing from their existing grantees more often — as well as from groups who haven't received funding in the past.
"We've had more proposals for our committee to review than we've ever had in our foundation's 25 years," says Sampson.
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Sandra Vargas |
"There is absolutely an increase in the number of grant requests," agrees Vargas in Minneapolis. "If one of our program officers shows up at a meeting, they're getting deluged with questions and requests."
"There are definitely more requests coming in," echoes family foundation director Blevins. "One of the challenges is that people want to solidify their relationship with us. But as much as I would love to, I can't have coffee with 100 people to reassure them that it's going to be okay."
Community Foundations Challenged by Fundraising, Too
Grantmakers are, of course, sympathetic to the plight of nonprofits that depend on foundation and individual giving. They are also realistic about their own financial situations.
"Our approach is going to be to look at short-term urgent needs while also keeping an eye on the organizations that contribute to a stable quality of life in the community in other ways," says Rhodes. "We're committed to taking a long-term view, as an organization that collects assets over decades. We have multiple responsibilities in the short-, mid- and long-term."
A familiar saying in the nonprofit world is "if you've seen one foundation, you've seen one foundation." While there may be trends in grantmakers' coping strategies, there is not one clear-cut solution. Some foundations have decided to eliminate staff positions to save money, but community foundations may need to invest in fund development now more than ever.
"We have two staff involved in development here at WCI," says Merrick. "One position was open, and we decided that when times are tough, it's more important than ever to be filling those positions and doing strategic planning."
In contrast, Nancy Vyskocil, president of Northwest Minnesota Foundation, says her organization is taking a slightly different approach. "We decided to postpone adding development staff that we had budgeted for, and are bringing some functions back in-house to free up dollars," she explains. "We will still work hard on development, but we're aware that development dollars are scarce in this market."
She continues: "We're trying to do what we can administratively to keep dollars available for real need. In our rural area, we have high poverty and unemployment — and that's when the economy is good."
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Wendy Merrick |
Other administrative cost-saving strategies include reducing travel, slimming down benefit packages and postponing technology upgrades.
"We're looking at our decisions with a lens we hadn't before," adds Merrick. "We're being really specific about how much things cost and asking, ‘Is this the time to be investing in this, hiring a consultant, et cetera?' We're looking at events, even strategic planning, more carefully."
Flexible Funding and Emergency Grants
Other foundations and corporate giving programs are assessing how they can adjust their grant guidelines to better support nonprofits during lean times. Some are considering whether they should shift toward more general operating support and away from program grant restrictions. This strategy may allow nonprofits more flexibility to manage their organizations' finances.
"In terms of our commitment, our history has been general operating support," notes Blevins. "I feel this is a particular time when the least restrictive giving is important. So I feel good that that is Butler's history. Nonprofits need maximum flexibility to respond to challenges that come up. That's really important to the sector's health."
Several large foundations have designated funding for immediate needs or emergency grants. Otto Bremer Foundation responded quickly with such a program in the fall of 2008.
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Randi Ilyse Roth |
"The thinking was that individuals and families are in crisis, and the places they would traditionally go for help are stressed," says Bremer's Roth. "Being able to help people in this critical time could make all the difference. If you look at philanthropy as a spectrum — on one end is ‘plain' relief (to help people out of a jam) and on the other are the root causes of poverty and opportunities for healthy communities — this is a time when we need to stop and do a little more on the relief end."
The Minneapolis Foundation, The Saint Paul Foundation and the Greater Twin Cities United Way are among other grantmakers with dedicated emergency funding.
Community foundations can also encourage grants from donor-advised funds. "We are pleased in these tough times that some donors are asking, ‘Who's doing good work?' ‘Where can I make a difference?' ‘Who is stretched?' " describes Rhodes at The Saint Paul Foundation and Minnesota Community Foundation.
The Minneapolis Foundation is getting a similar response. "Our donor-advised funds have stepped up, haven't cut back," says Vargas. "They're holding steady, which means they are probably stretching a little bit to do that. That's the right thing to do. We don't think the philosophy of pulling back is right at this point. We all need to be prudent but also helpful and think about the value of the nonprofit community in a way that makes sense for the long-term."
Of course, there is no crystal ball to predict that long-term future.
"We're monitoring the situation and talking to others," says Rhodes. "We're waiting to see if the new administration has additional ideas for stimulating the economy that will help the nonprofit sector as well as the private sector come back."
The possibility of fewer financial resources to go around presents other challenges for grantmakers, too. "It's hard to sit in this office and know what's important," says Roth. "So many proposals that are really important pieces of work are going to have to get turned down, and it's going to be difficult to know what is most effective. We need to hear from nonprofits what is the most effective. We want to know from them the best way to target a limited amount of assistance."
Convening and Collaborating for Mutual Benefit
Minnesota grantmakers have a history of being collegial and supportive of each other. The down economy is causing them to think of even more ways to collaborate with each other, as well as with other sectors such as government and the nonprofits themselves.
"We're going to have to honestly assess together some opportunities where one foundation can take a lead, and the next time another does," notes Rhodes. "We may be following the lead of corporate foundations or joining new coalitions. Among all the possible choices to be engaged or helpful, it's going to be challenging for foundation leaders and boards to decide what is right.
"There will be lots of different views and ideas," she continues. "But we're all in this together, and we have to be strategic and creative in coming up with solutions to lift up those who are most challenged. What I am hearing is a call to be hopeful that we can find opportunities to strengthen the sector and its role in problem-solving. That may help us strengthen partnerships with others in the foundation, nonprofit and government sectors who share our concern."
With access to in-depth information about so many nonprofits, foundations can play a key role in finding synergy — or duplication — between organizations with similar missions.
"We would always tell a group about another group doing similar work, even if it's not in the same region," says Roth. "Maybe there's an organization in Minneapolis that's looking for help, and there's an organization in Fargo that's doing similar work. There could be learned lessons that they can share. It's a really stressful time for everyone, and the more we can benefit from each other's knowledge and resources, the better. There's no room for redundancy now."
Vyskocil offers several questions that nonprofits should ask themselves. "We want nonprofits to take a deep look: Where are you partnering? How can you better maximize your delivery and minimize administration? How can we help? Be realistic — all of us are
facing down resources and increased need. So what we're asking of our partners is to do some triage: what is most critical?"
"Nonprofit organizations have asked us if we could be a connector for them, and if we could help them identify organizations that may be doing similar work," says Sampson. "Another request is to identify for them any new funding streams that we're aware of. We're putting together an electronic newsletter for our nonprofit organizations to address these things."
Valuable Non-Financial Assistance
Another way foundations are helping nonprofits, during good economic times and bad, is through professional management classes and support of the local workforce. Minnesota Initiative Fund "sister organizations" Northwest Minnesota Foundation and West Central Initiative each offer such opportunities.
"We have a training program, Nonprofit Excellence, that helps nonprofits become more effective through exercises such as defining strengths and weaknesses," says Vyskocil at Northwest Minnesota Foundation. "That is more important now than ever."
"It's very important to fund leadership development and workforce development," agrees Merrick at WCI. "Our strategy of providing workforce training to lift people for higher wages is on-target with what's needed in this economy. It's always been important, and it's really important now."
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Jeff Peterson |
Peterson at Best Buy suggests other non-financial ways funders can help: "I believe that finding a focus is important for the nonprofit partners for their areas of expertise in serving the community, but it's also important for funders. Everyone's got cash, but not everyone has assets that business models provide. Our business model requires tons of labor — people who run the retail. That affords a great volunteer network for us.
"Smaller businesses still have cash but not an army of volunteers," Peterson continues. "Everyone has, in addition to money, unique sets of assets that they can be leaning on to support our community organizations. Cash is king, but when there's less to go around, those other values take on even more importance. It goes from ‘nice to have' to core."
The "M" Word
Funders and nonprofits alike are starting to talk about mergers — something that can cause apprehension under any circumstance. But Taylor at Ecolab says, "We'd be doing a disservice if we didn't talk about mergers and nonprofit transitions. In the big picture, this is the right time. The nonprofit community needs to be prepared for that. There are over 3,500 nonprofits in Minnesota; it would be naïve of us to think that all will make it in these tough times. In light of that reality, what services absolutely need to be in the community? How can we consolidate? For some nonprofits, it will be a great opportunity to take a look at how to consolidate administrative costs."
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Frank Forsberg |
Some grantmakers are stepping up to help with that transition. "I expect that we will increase our financial commitment to our funding pool that helps support mergers and realignments," reports Forsberg of United Way. "We want to be as flexible and supportive as possible of agencies and provide them with as many resources as we can to help them make good decisions about their future. If the world changes for them, I want to make sure they have the money and access and skills that they need.
"I'm hopeful we can also get other funders to increase their financial commitment to help agencies assess and make transitions — reorganize, restructure, merge, dissolve. We provide money and access to technical assistance.
MAP for Nonprofits is one of the great assets we have to help nonprofits with those decisions."
Rein In the "Mission Creep"
A common suggestion from nonprofit advisors is for organizations to carefully review their mission and consider eliminating activities that don't fit.
"Boards of directors of nonprofit organizations need to take time to think through the ways that they can be helpful to their organizations that they haven't done in the past," says Sampson in Duluth. "One of the things they'll look at is reviewing strategic plans and determining what is the core mission. If there has been drift from core mission, this is the time to refocus."
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Carleen Rhodes |
"It's a time to be very focused on core strengths and mission," adds Rhodes. "It may be a time for all of us to stop doing what's taking us off-mission and make sure we're focused on the most important work where we can make a difference. Our Management Improvement Fund helps nonprofits strengthen their operating model so that they can serve the community more effectively."
Being Realistic about the Future
Even with belt-tightening, collaborating and strategizing, the reality is that philanthropy alone will not solve the problems facing nonprofits.
And at the same time, there are fewer white knights — rescuers in the form of individual donors. Says Ecolab's Taylor, "There could be some angel who comes to save you, but there are a lot fewer of those. In the past, there were individuals who could have done that, but their net worth has also gone down with the stock market."
"This is going to be a really difficult period," adds Blevins. "There is, unfortunately, no rock to turn over to get us through it. We're all looking for creative models we haven't explored in the past."
Forget the old mantra to "do more with less." The new challenge — for everyone, foundations and nonprofits alike — is to "do less with less."
"Everybody generally thinks they stand a good chance to lose some funding this coming year — they just don't know which grants," says Forsberg.
"Almost every executive director has said, ‘If I lose a government contract, I'm going to have to eliminate the program almost immediately," he continues. "In the past, I think agencies were more willing to try to save the program by re-funding through other sources. But now, if they lose their core funding for a program, they'll look to phase it out as soon as they can because they don't have the cash reserves to carry it, and in this environment, they don't have a belief that they'd secure other funding."
"What we're hearing is that some organizations are looking at 2009 in a realistic way: they've made budget cuts, looked really hard at how to cut some programming. We applaud those organizations," says Taylor. "They're meeting this challenge head-on and figuring out how to make it through 2009 in a sustainable way. Other organizations are sitting back and waiting, and by the time they react, it will be too late to make adjustments that will be large enough to offset a negative budget for the year."
"In some cases, we can do a little to help — but in a lot of cases, we can't," adds The Minneapolis Foundation's Vargas. "We can use the expertise of Nonprofits Assistance Fund to answer some of the questions of the sustainability of these nonprofits. It's a great underutilized resource for nonprofits. How can you do it in a dignified way? How do we facilitate the process so there isn't as much pain or harm?"
Turn the Economic Reality into Opportunity
Foundation leaders as well as nonprofit observers wonder whether this crisis may have a positive effect in the long run.
"I want to be encouraging to the nonprofit sector," says Sampson. "We faced an economic downturn in 2001-02 with the tech bubble. We have made it through a downturn in foundation assets in the past, and we really do need to look at more creative solutions. Certainly, the nonprofit organizations we have met with have done an excellent job preparing for 2009. They all need to be working with their boards and staffs to prepare for 2010."
"We're hoping that the foundation community and the nonprofit community can learn from each other about what worked well," notes Vargas. "We won't be able to return to business-as-usual, so we all need to think deeply about what attributes are needed so that the future will look different. How can we prepare for an era that might not be as robust as this last one was? Some things are going to permanently be changed."
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Nancy Vyskocil |
"We're really encouraging people to not feel like the sky is falling," concludes Vyskocil. "As hard as this may be, some of the biggest advances come from crisis. Unless you're stretched and feel pushed, you don't always look for new opportunities and ways to do business. So just as steel is tempered by fire, the nonprofit community will come out of this.
"The benefit is that we can come out stronger by not going along in the business-as-usual way. What I tell people on a daily basis is that while we have to be realistic, we also have to remain positive. We can't afford to totally buy into the gloom because too many people are depending on us. Really look at ways to be creative today. The box isn't there anymore, so start thinking outside of it!"
Nonprofits: Doing Less with Less
In December, the Minnesota Council of Nonprofits (MCN) confirmed what many feared: nonprofit revenues are down and the demand for services is up.
In its Nonprofit Current Conditions Report, MCN shared results of its survey of 660 member organizations. Over half of the respondents had already experienced a decline in total revenue in 2008. Nearly half were seeing a reduction in individual contributions.
Organizations predicted that, compared to previous years, 2008 individual contributions would shrink both in the number of contributions and the average amount. At the same time, almost 50 percent of the survey respondents had seen an increase in expenses. In addition, they reported that more people are in need of and coming to them for services. Nonprofits working in food/housing, employment, and human services/youth development noted the greatest increases in demand.
Of those organizations who reported greater demand for their services, nearly half stated that they had already reduced their staff to cut expenses.
Every Revenue Source Down
MCN noted that in previous economic downturns, not all sources of revenue were affected simultaneously or with the same magnitude. In this recession, individual donations, foundation grants, and government grants and contracts are all diminishing.
Strategic Choices and Next Steps
MCN urged nonprofit organizations to make strategic choices about their operations — going beyond staff reductions in some cases and exploring mergers or even dissolution. The report noted that every strategy must be considered in order to minimize negative effects on people served. Other tips from MCN include:
- Frame your case for support in the context of essential community needs.
- Don't hold back on information about the real costs of your work and about the people who rely on your services.
- Advocate for your programs with legislators and other key influencers.
- Convene your board and leading supporters to share revenue and expense budgets; be prepared to act quickly.
- Use reserves strategically.
- Be open to ways to transform your organization's work.
The full Nonprofit Current Conditions Report, as well as the 2008 Minnesota Nonprofit Economy Report, can be found at www.mncn.org/outlook.htm.
© Copyright 2009 Minnesota Council on Foundations
Reproduction in any form without the written permission of the publisher
is prohibited.
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About The Outlook Report
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This report summarizes survey responses from a
wide range of types and sizes of grantmakers. Included are 44 private
foundations, 39 corporate foundations and giving programs, and 24 community
or public foundations for a total base of 107 grantmaking organizations.
The respondents represent 70 percent of all grant dollars paid in 2006 (the
latest year for which complete data are available). Of those grantmakers in
the sample with assets, the majority (66%) stated they have between $1
million and $50 million in assets. Nine percent of the respondents have
foundation assets under $1 million, and the remaining 24 percent have assets
greater than $50 million. Nine of the top 10 grantmakers in Minnesota
completed the survey.
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Read the report
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