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Are We There Yet?

October 17, 2008

Crystal_ballCiting the research note issued earlier this week by our own Steven Lawrence (the center's senior director of research), Lucy Bernholz questions whether foundation giving will hold up as well in this economic downturn as it has in past downturns. Lucy thinks not:

I don't think a short-term drop is all we're facing here. I think we're going to see new banking rules, new credit rules, new housing laws, new charitable giving laws, new philanthropic approaches, new tax structures, new public service demands and possibly programs, the heads and tails of important demographic and generational shifts, and lots of other things that will fundamentally resturcture the business if giving as we've come to know it. And I think a drop in giving this year is just the beginning of it....

She may be right. But this is getting into crystal-ball territory, and I'm of the school that believes all we really know is what we know (e.g., giving patterns in the past). Things could get much worse from here -- or the Dow and S&P could jump 25 percent from these levels by year's end, turning a generational crisis into a bad year.

I don't know what's going to happen in the equity or credit markets over the next six to twelve months, and I think many of the things Lucy points to -- new rules and regulations, revisions to the tax code, etc. -- will take much longer than that to play out. By the time they do (if they do), I suspect this crisis will be behind us and our attention will be focused on something else.

What about you? Are things going to get worse before they get better? Or is the worst behind us? Weigh in below -- and feel free to cross-post your comments to Lucy's blog. She's looking for people to disagree with her!

-- Mitch Nauffts

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Thanks for picking up on this - I'm talking about ALL giving, not just foundation giving. And precisely BECAUSE the shifts in policy (tax, banking, credit, etc) that I mention take a long time to play out is why I think we we may be at the beginning of a game-shift in philanthropy as we have known it. As for 2008, here's some more thoughts on the short-term

http://philanthropy.blogspot.com/2008/10/charitable-and-political-giving.html

Foundations are just one source of charitable giving, and they cannot lift the overall bottom line in 2008 if individuals and corporations feel compelled to make deep reductions in their support. We’ll have to wait and see.

But I think the comments addressing how possible reductions in funding may play out across areas of nonprofit activity are well taken. We’ve heard similar questions in prior downturns: Will foundations cut their giving for the arts to provide more human services support? Will grants for international activities go down as the domestic demand for charitable resources rises? We at the Foundation Center would be interested in knowing what other areas of activity nonprofit organizations are particularly concerned about.

In the meantime, we’re going to delve back into our historical data and work on providing perspective on how giving for particular areas (as well as types of support) were—and, in many cases, were not—disproportionately affected during the last economic downturn. Stay tuned.

The Foundation Center's data is the best we have and the historical trends are critical. Truth be told, however, if this economic moment is a true "resetting" of the economy, the data don't go back far enough - we'd need to know what happened in the 1930s.

I just read here (http://tinyurl.com/65zq7n) that John Havens thinks we won't see foundation spending start to slow till a year from now. That makes sense to me and would follow previous patterns, given how payout requirements are calculated. AND, if that does happen and IF individual, corporate giving slows now and IF public budget shrink now (as they already are) - we're looking at at least a year of "cutting back" in the major sources of nonprofit revenue.

Hi, Lucy, thanks for the comment. I just posted a couple of charts put together by the folks at Alexander Haas Martin & Partners, an Atlanta-based fundraising shop, which show that total charitable giving does not necessarily follow the Dow and S&P down when those two indices fall; in fact, giving tends to rise, albeit more slowly, during mild recessions and remain flat during more serious downturns.

That said, I do think giving will be down in 2008 -- with most of the decline occurring in the second half of the year -- and is likely to fall further in 2009. At the same time, I think analogies to the Great Depression are a little overstated. Today's economy (in this country, at any rate) bears no resemblance to the economy of the '30s. In general, people are much wealthier and much more savvy about pocketbook issues; the charitable sector, which was still in its infancy in the '30s, is much more robust and adaptable than it was seventy years ago; and government is much more willing to step in and rescue the economy than it was in 1929-32. As Fareed Zakaria writes in this week's Newsweek: "I'm betting that, in the end, the world's governments will win this battle against fear. They have potentially unlimited tools at their disposal, especially if they act in concert. They can nationalize firms, call bank holidays, suspend trading for weeks, buy up debt and equity, and renegotiate home mortgages. Most importantly, the American government can print money...."

I think Zakaria is right: The feds will stop at nothing to calm the turmoil in the markets and make sure this slowdown does not turn into a deep and prolonged recession. And I think the 4 percent gain in the Dow last week, narrowing credit spreads, and the early action are Wall Street's way of saying "We agree." Hope I'm right.

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