When Wall Street Catches a Cold...
After five months of speculation, the news this morning suggests we are in or headed for a recession. Last week, in fact, Steven Cochrane, a senior managing director at Moody's Economy.com, noted that California, Michigan, and Florida already were in recession -- and the likelihood the rest of the country will soon join them is roiling financial markets from Wall Street to Hong Kong.
It would seem the only remaining question is how severe the recession will be. For U.S. foundations and nonprofit organizations, that question is far from academic.
Nonprofits could feel the impact in a variety of ways:
- Individual companies, especially in the financial sector, are already reporting major hits to their profits. When profits are down, corporate charitable giving declines.
- When markets decline, returns on foundation endowments -- and, eventually, grantmaking budgets -- follow suit.
- When unemployment and economic insecurity rise, individuals cut back on their charitable contributions.
- As economic activity slows and tax receipts fall, local and state governments are forced to cut social services and expenditures on health and education.
Stock market volatility is nothing new. Many of us recall October 19, 1987 -- "Black Monday" -- when the Dow Jones Industrial Average plunged 508 points, or 22.6 percent, in a single session.
Nonprofits are survivors, however. We're accustomed to wearing our belts snugly -- and tightening them when the economy takes a turn for the worse. During the early 1980s, many nonprofit organizations were forced to adjust to the Reagan administration's "trickle-down" approach to social problems. In fact, I wrote my book, Securing Your Organization's Future (first published by the Foundation Center in 1987), to help nonprofit organizations successfully navigate changes in the economic landscape that characterized those years.
What lessons can we learn from the recent past in dealing with economic downturns? In the '80s, many nonprofits jump-started new earned-income enterprises, even as they found additional ways to cut expenses. In addition, many professionals from the world of business -- so-called "sector-jumpers" — left the private sector (either by choice or involuntarily) to seek the rewards of nonprofit work and were able to adapt their skill sets to a nonprofit environment. Planned giving efforts also took on greater significance, as an increasing number of wary donors became drawn to that form of giving.
Is that a prescription for nonprofit survival in the current economic climate? Are we better situated to weather the turmoil this time around? We'd love to hear your thoughts about what nonprofits and funders alike can and should do to help the charitable sector ride out the gathering economic storm.
-- Michael Seltzer
