Giving USA and You – Cognitive Dissonance Anyone? Part I

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Last week I participated on a panel where the Giving USA 2009 numbers were explained by Indiana University’s Patrick Rooney. He did an admirable job of explaining not only the numbers themselves, which showed only a 3.6 percent drop in overall charitable giving, but of also showing Giving USA’s excellent track record in producing giving estimates that are within a few percentage points of being right on the money.

He may have seen this extra step as being necessary because the day before, the Chronicle of Philanthropy ran an article challenging the accuracy of Giving USA’s numbers and, in fact, the numbers just felt wrong to many who had experienced and saw peers experience a much more precipitous drop in philanthropic support.


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Adding to the sense of other-worldliness, Tom Pollock of the Urban Institute gave a presentation, the gist of which was that, according to their surveys, the rest of the money flowing into the sector did not see much of a decline either.

Alrighty.

$1.6 billion was donated by five major donors, most of it going directly into a few foundations. If you did not count that $1.6 billion, giving overall would have been down another one percent.

The thing is, I don’t think either of these two gentlemen were far off in their assessments, but I also know that practitioners are accurate in their experience. What happened?

We have to look a little more closely at the numbers to understand. First, some of the philanthropic dollars given in 2009 were given into foundations where they are unavailable for immediate distribution. Wendy McGrady, also on the panel representing Giving USA, said that $1.6 billion was donated by five major donors, most of it going directly into a few foundations. If you did not count that $1.6 billion, giving overall would have been down another one percent.

Also, many were surprised to see that corporate giving had gone up. No one much believed that but that number includes in-kind donations in two areas—pharmaceuticals and information technology.

Additionally, philanthropic dollars are hardly equitably distributed across fields or the country. While giving to “public society benefit organizations” (including the United Way and the various commercial gift funds such as Fidelity and Vanguard) was down only 2.6 percent over the past three years, giving to human services was down by 13.5 percent and to both arts and education by 11.9 percent. Focusing just for a moment on the human services field, we also know that many human service organizations were slammed with higher levels of need so that the revenue against need equation was even more radically changed than the revenue decline by itself would suggest.

But philanthropic dollars are not geographically equitable either. There are some areas that have been traditionally underserved by foundation philanthropy and when these were combined with areas in economic distress, it meant a cascade of revenue problems for nonprofits. For instance, some areas of the country whose economies were in decline saw their tax bases eroded. This was combined with a serious loss of corporate giving capacity and double-digit unemployment. This, in turn, caused declines in United Way campaign results, individual giving, and people’s abilities to pay fees out of pocket. The combination of all of the above in some areas of the country has been disastrous.

A cascade of revenue problems for nonprofits.

Not discussed much is clients’ inability to pay fees, which has hit some subsectors very hard in some areas of the country. A good example of a subsector that has been hard hit in some geographic areas is child care. Many child care facilities function on a combination of direct pay fees and subsidies. In locations where joblessness was high, enrollment in child care declined and the budgets of those facilities were eviscerated causing many closings. In Georgia alone over the course of 2009, six hundred child care facilities closed.

The reason why this particular story is so disturbing is that childcare is obviously necessary infrastructure for communities if they are to recover.

I think the thing that characterized the past year for me was the way money was distributed in fits and starts. The budget impasse in Philadelphia, which extended over 90 days, actually resulted in a number of closures of child care centers. The money was subsequently freed up but the damage had been done.

Stimulus money flowed into the sector in some volume in waves and in ways that were sometimes a mismatch for the comprehensive work of a community organization. Just looking at Community Health Centers, the money that was distributed came in a few waves and was for a combination of expanded immediate services, and capital improvements including new facilities, development, and electronic records systems. This was an awkward fit in a number of ways.

But now let’s talk about this year and next which promise to be as—or more—difficult for many state budgets.

First, the money for expanded services was not necessarily equal to increased need since the requests were made before it was clear how long the recession would last or how high the numbers of uninsured would soar. Second, just at the moment when need was highest, capital projects needed to be started, requiring community health centers to scramble to lay the right base for their response to health care reform. Third, the money was distributed in odd ways geographically; one wave missed the entire middle of the country while investing heavily in a few states like Massachusetts, arguably one of the better medically served areas in the country.  Fourth, in some states the investment of stimulus money resulted in the withdrawal of state money—a kind of shell game that left organizations reeling.

Other head fakes abounded. One youth organization told us that their cornerstone grant in a capital campaign to expand was withdrawn causing other investors to pull back and requiring the organization to informally redraft what had been a very expensive business plan. A senior services organization described being in the middle of building an assisted living center when the real estate market plummeted, exploding their business model. What to do with a half-built facility? These kinds of stories are ironic in the context of the constant patter about needing to promote entrepreneurism in the sector.

Cognitive dissonance can make us angry or guilty or hopeless. In an effort to avoid such a sectoral state of mind, I would like to assure our readers that they are not crazy or incompetent (which I am sure you already know). Long story short, if you feel like 2009 was a very bad year for giving, it was—and not just for you but for hundreds of thousands of your peer nonprofits, some of whom were in absolutely critical support roles in the most financially troubled areas of the country.

But now let’s talk about this year and next which promise to be as—or more—difficult for many state budgets. Things could get very, very bad, for instance, if the extension of increased Medicaid is not passed by the Senate. Many states have already written an expectation of this money into their budgets and its loss would remove another $89 billion from 30 state budgets. In Kentucky this would amount to a $480 million loss. I think we can assume some of those dollars will come out of absolutely critical services to communities provided by nonprofits. It might be worth mentioning in this context that Kentucky is ranked 49 in per capita Foundation giving, thus firmly falling in the realm of the philanthropically underserved.

Finally, while I know that foundations are a small part of the giving pie, most agree that they can be strategically very important. I think that the council of foundations should take a much stronger leadership position in ensuring that areas that are underserved philanthropically get an infusion of money and the attention of this nation’s foundations. Additionally, I agree with Pablo Eisenberg that the payout rate should be increased over the next few years to 6 percent. He estimates that this would add an additional $10 billion to the money available to nonprofits working in one of the most difficult environments we have ever seen.

Read Giving USA and You – Cognitive Dissonance Anyone? Part II. Ruth McCambridge was a panelist at this year’s Giving USA panel discussion at the Hudson Institute. Watch it here.

  • Gail Perry

    Way to go Margaret, for finally explaining what everybody has been wondering about – why the Giving USA numbers this year seem waaaay off.
    You’re exactly right – the funding crisis for nonprofits was a combination of falling endowment income, crunched state budgets, a severe drop in earned income, and unequal distribution of federal and foundation funds.

    It’s also significant that a whopping 1.6 billion came from 5 donors – and most of that wasn’t distributed in 09.

    I agree with you that the state budget crises will create disaster for many nonprofits. I’ll stand with you in asking the council on foundations to take a greater leadership role here and to increase the payout to 6%.

    Thanks again for your terrific analysis.

  • Nikki Kirk

    Thanks so much for shining the light on giving disparities in the South. Seems like the only time the rich folks want to see us us when they come here to retire because it’s so cheap to live here!

    Thank you for taking the time to acknowledge our struggles and the lack of giving to rural areas. I wish you would do a more indepth series on the matter.

  • Aaron Lester

    Ruth: Love this. Lots to think about. In the meantime (as if we didn

  • Andy Robinson

    Ruth, while I always appreciate your political perspective, I think you’re mixing apples and oranges this time — and maybe cherries, too.

    As you know, Giving USA covers only private philanthropy: foundations, corporations, individual donors. However, much of your analysis focuses on reduced or delayed government funding, with a bit thrown in about declines in earned income/fees for service — neither of which have ever been addressed in Giving USA.

    I’m not sure it’s fair to critique Giving USA’s numbers by comparing them to the experience of nonprofits that rely significantly on government funds, which have been a LOT harder to come by for all the reasons you describe.

    Finally, while acknowledging that last year was a tough year overall, I know several organizations that had their best fundraising results ever in 2009 — three come to mind in Montana, Vermont, and Georgia — in part because they used the recession as an opportunity to change their fundraising model and deepen outreach to individual donors.

  • Ruth McCambridge

    Andy: I think you misunderstood my article. It explicitly did not criticize Giving USA’s numbers. In fact I worked directly from them. That was where I derived the fact that giving to human service organizations for instance had declined more than 13% across the board and we all know that the distribution of that was wildly uneven. So, some organizations, in areas that were underserved philanthropically AND suffering from deeper economic woes will have been hit much harder than others. This left them experiencing reductions in giving that were fairly disastrous, especially combined with cuts in state contracts and increased levels of need.

    We all know that there have been some organizations which have done very well during this time but that does not negate the numbers which – again – indicate very clearly that many arts organizations, education organizations and human service organizations – especially in economically depressed and philanthropically underserved areas will have experienced a decline in giving that is much more serious than the overall aggregate numbers indicate.

    Finally, for many of us, apples, oranges and cherries all do mix it up in our budgets. It’s the complicated juggling act that many nonprofits do with this fruit that proves the skill of our readers.

  • Ken Knox

    Come on, Andy. Her point was that these additional factors are what made charities “feel” the pain more, not that they are part of the Giving USA analysis.

  • Hank Goldstein

    Hi

    In the wake of the recession do you have any thoughts about the Schervish-Haven wealth transfer model that was usch hot stuff until the economy tanked? Thanks.

  • Ruth McCambridge

    Dear Hank:

    We here at NPQ have always been a little skeptical of those projections, ourselves, even when times were relatively good. Here is what I can promise, we will place it near the top of our list of topics for our new philanthropy blog.

    Watch for it!

  • Mary Robinson

    Ruth, I really appreciated your article, but I am having trouble understanding your numbers. For example, Giving USA says that giving to education “declined an estimated 3.6 percent in 2009” yet you say it “was down…by 11.9%.” Can you help me understand the discrepancy? Thank you.

  • Ruth McCambridge

    Dear Mary:
    Thank goodness for careful readers! A few words had been omitted. The figures I cited in that section were 2007 – 2008 cumulative. We fixed it.

    Ruth

  • Patrick Rooney

    Ruth,

    Thank you for sharing with your readers the Giving USA findings and for helping to explain a complex situation that involves both declines in giving and declines in so many other revenue sources during a most difficult period for nonprofits.

  • Gordon McDonald

    Very nicely done Ruth.
    Remember that giving actually went up in 2001 – however, most charities experienced a decrease as the money flowed into the 9/11 orgs and away from others. Also with total giving at $300 billion +, I can’t make a 1.6 billion gift = 1%. It’s half of 1%.

    The Shervish-Haven $41 trillion wealth transfer is not even close and can never be realized. Credibility is a serious issue with the Boston College model.