altAs some readers will recall, “The Other America” was a study published in 1962 that was influential in informing social policy. It documented the extent of poverty in the United States – asserting that much of poverty was unacknowledged. Fast forward to 2011. Has a good part of philanthropy forgotten about poverty in this country right in the midst of the worst recession since the depression?

Last week the United Way of the Central Carolinas announced that it had withdrawn $2.5 million out of its $10 million in reserves to try to level fund community agencies struggling with increased need and reduced government contracts. Its fundraising had fallen $5 million short from the previous year.

Yet here comes the headline from this year’s Giving USA report on charitable giving: giving was up by 2.1 percent in 2010 over the previous year, indicating a rebound of charitable giving. We can either think of that United Way as a low performing anomaly or look deeper to understand why so many community organizations are still struggling.

Among fundraisers, there’s an ethic of not crying wolf, of seeing the positive even in the negatives, and assuming that the unending generosity of the American charitable donor will win out. But below the headline, the Giving USA numbers this year present an alarming picture for communities across the United States on any number of counts.

  1. What we see in the Giving USA numbers is a still-depressed domestic giving scene. The 2.1 percent increase logged for 2010 estimated giving is an increase based on numbers for the previous two years that have been adjusted down. The adjusted cumulative decline in Giving for 2008 and 2009 was 13 percent so the 2.1 percent estimated increase brings giving to an 11 percent decline from pre-recession highs.
  2. This decline, as we suggested last year, has not been evenly distributed. What is most obvious in this year’s numbers is a significant disinvestment in people in need on the domestic front. As we understand the numbers, the subsector that took the biggest hit in terms of decreased dollars was human services at a 5.6 percent decline in inflation adjusted numbers last year alone. While at first glance, the category appears to have remained stable, Patrick Rooney, of the Center on Philanthropy where the Giving USA number are crunched, says that 75 percent of the relief giving from this country to Haiti last year went as grants and contributions to domestic human service agencies. Backing that amount out results in the 5.6 percent drop.
  3. The giving that is documented is increasingly not in the form of immediately spendable dollars. It includes gifts to foundations that keep increasing even while foundation grantmaking remains distinctly pallid. Additionally, grantmaking from corporations, reported to be skyrocketing here, is increasingly in the form of in-kind products, particularly from pharmaceutical companies. Some link this largess to attempts to get rid of excess inventory but major corporate cash givers to human services such as the financial sector and retail have been declining.
  4. Much of the discussion of charitable giving now and going forward is predicated on a national economic recovery which is assumed to drag along charitable giving and philanthropic grantmaking. But we see plenty of indications of an attenuated, prolonged recovery, not only slow, as Federal Reserve chairman Ben Bernanke recently noted (here and here), but one that still leaves millions of Americans on the employment sidelines. How will this really affect charitable giving in the near future and why? Will this 2.1 percent estimated increase disappear as the IRS data comes in?

NPQ believes that the unevenness of the recovery, which is occurring on Wall Street but not yet on Main Street, is reflected in the charitable giving numbers. Major institutions are recovering while smaller organizations in troubled communities are still struggling with the equation of increased demand and decreased resources.

To demonstrate that giving hasn’t really rebounded, we have the Giving USA estimates themselves, which twice have had to be revised downward from the original 2010 report. Some will remember that last year’s Giving USA report initially indicated that individual charitable giving had risen in 2009 despite the rampaging recession. After two subsequent downward revisions, the real number was a decrease of 6.5 percent individual giving, much more in line with what nonprofits tell us they are experiencing. Will there be a need for additional downward revisions after this report? Maybe so.

The impact of the recession on charitable giving has been more devastating than people might have imagined. Let’s face it. This is a recession where long term unemployment and underemployment is beginning to resemble that of the Great Depression, cushioned by an array of social programs that didn’t exist 80 years ago, but undermined by an unwillingness of government to utilize its powers to create job-generating opportunities.

Taken at face value, the Giving USA report says that charitable giving climbed a modest amount in 2010. But within that tepid number, some sectors grew proportionally much more than others.

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The big winners in giving over the 2008 – 2010 period have been in international giving. The Giving USA numbers show that international giving has grown by 18.6 percent during that period. This realm of giving, which has traditionally been a relatively small slice of the giving pie, has according to Patrick Rooney, been pretty steadily on the increase since 9/11. This number would be even higher if the giving to Haiti that was recorded in the domestic human services category were added.

Rooney suggests that this giving is a response on the part of the American people to a growing understanding of our interdependence with the rest of our planet, but the ease with which contributions can be made after a natural disaster and the activities of mega funders such as Gates on the international front may figure in as well.

Giving to education — K-12 education and colleges — grew 5.2 percent, much of that increase occurring in late 2010. Giving to arts institutions also grew by 5.7 percent, despite persistent reports that the arts were taking a devastating hit in the recession. In a recent discussion with NPQ, Rooney suggested that the increase in these sectors may have everything to do with the fact that they contain large institutions, both with fundraising infrastructure capacity and personal connections to the affluent sectors of our economy. This served them well as the economy began to rebound at the top. Moreover, the segments of donors that grew substantially in 2009 included giving through charitable bequests — always a segment of giving that emphasizes the big institutions — grew by 18 percent in 2009. These are charitable dollars that are much more accessible to denizens of the club, not to grassroots groups on the street. Similarly, the charitable giving incentive du jour has been the IRA rollover, which enables wealthy people to take from their retirement plans to give to charity benefits, colleges, and arts institutions to a far greater extent than any other type of group.

Although Giving USA includes donor-advised funds (DAFs) as a charitable giving recipient, given their propensity for fast spending — three or four times as fast as 5 percent spending-bound private foundations — we view DAFs as charitable givers, and the donors who are establishing mini-foundations in the national charitable funds are also inclined toward institutional giving, especially since the only way to access DAFs is to have an ability to contact the investor. DAFs don’t make themselves available for unsolicited proposals, so unless you’re part of the club, unless you know the donor, it is virtually impossible for grassroots, human service nonprofits to access those dollars directly.

Even for foundations — the growing segment being family foundations — the trend is toward funding among the social classmates. Gifts to foundations grew faster than grants from foundations, according to Giving USA, but beyond that, foundations are increasingly resistant to unsolicited proposals. Whether increasing or decreasing, foundation dollars are more likely than ever to be restricted to members of the in-group, the social club, and inaccessible to the charities whose leaders don’t belong.

Brad Smith of the Foundation Center comments that there is “a trend among some foundations to design their own theories of change and strategies and then either implement programs themselves or select the organizations from which they are willing to entertain proposals. The actual design of these strategies frequently is done in collaboration with nonprofits and universities, so if you happen to be part of the process, you’ll most likely get a grant. If not, well, you’re just not part of the in-crowd.”

The numbers we see aren’t always real dollars when nonprofits are concerned. On the corporate side, the shift to in-kind giving, giving in product rather than in cash, has been pronounced for some time. In the past few years of Giving USA statistics, the dominance of pharmaceutical companies who subsidize purchases of prescription drugs for individuals and who donate product overseas and elsewhere, is a major part of the corporate giving picture. At the same time, giving by the financial sector, whose collapse precipitated the overall economic collapse, has been in short supply, not only cutting back in giving, but in some cases, major givers have simply disappeared. Strikingly, the financial sector was always a strong cash giver to charities and a major supporter of human services groups. The imbalance in charitable giving against the social safety net groups shows up even in the mix of corporate givers still in the game and corporate givers missing in action.

Throughout the Giving USA report are indications that some of the trends, now seen as inching upward, are keyed to expectations of trends from past recessions. But our suspicion is that this isn’t like past recessions. Official unemployment is back over 9 percent and moving upward. New job creation isn’t even keeping up with the expansion of the numbers in the workforce, much less generating enough jobs to start chipping away at the numbers of people without jobs. And none of that includes the proportions of the population working at part-time jobs because of the lack of full-time employment or the people working far below their job skills because of the lack of opportunities. With no appetite at the federal level for a job-creating stimulus, this doesn’t look like our parents’ recession, but rather a likely persistent or even double-dip downturn that won’t be headed back toward “normalcy” anytime soon. And normalcy hardly looks like the “acceptable” 5.5 percent unemployment of years past.

What the Giving USA numbers suggest is not only a crisis of declining charitable giving reaching human services or social safety net groups, but a class divide where the groups that do well in charitable solicitations are those with connections, with the social class interrelationships that give them automatic access. Meanwhile, charitable giving for human services is very much the province of the less moneyed donors, the payroll deduction donors, the people who volunteer at the shelter or food pantry or clinic because they know the tangible importance of those institutions to their communities.

NPQ believes that there is a class divide in our society, and it is reflected in a class divide in charitable giving and in the nonprofit sector. Just as corporate CEO compensation is now back at pre-recession levels even while joblessness persists, the needs of the poor and of the organizations that serve the poor have virtually disappeared from political discourse and from the priority lists of philanthropy. And the incentives — bequests, IRA rollovers, etc. — flow toward the institutions with the fundraising infrastructures and the social connections to major donors.

Is it time to rethink the incentives built into our charitable giving structure, where a donation to a sector or institution serving primarily the affluent, is treated identically to a donation meeting the safety net needs of the poor? If we do not rethink the current structures, the creeping and deepening class divide in our society and in the nonprofit sector will only persist.