 Them That Has, Keep It: Philanthropy Watching Out for Itself
By Rick Cohen
If there were a case in point that foundations don’t grasp what ought to be expected of them during times of societal turmoil, it’s the “open letter” on October 10 from the Council on Foundations to its members (http://pndblog.typepad.com/pndblog/2008/10/open-letter-to.html). The good people at the Council could have given a challenge to the sector, a chance to rise to meet needs that only the capital assets of institutional philanthropy could have addressed.
But the Council swallowed, punted and issued a weak-kneed statement that doesn’t merit the computer bytes of space it consumed.
We all know that we’re in the midst of a massive economic slowdown. Even with occasional spurts in the Dow or S&P, for nonprofits, these are unbelievably hard times, with most already implementing the first phase of multi-step cost- and program-cutting retrenchments. Major corporate grantmakers such as Fannie Mae, Wachovia, Lehman Brothers, Bear Stearns, Washington Mutual, and others are out of the game because in most cases, they no longer even exist. Many of the corporations that absorbed them (plus corporate toxicity like Countrywide) are highly unlikely to have much if any discretionary cash to deploy for philanthropy as they find themselves compelled to take financial haircuts of all sorts.
For foundations, even if the market stabilizes, the Dow is well below the October 9, 2007 closing of 14,164. Some 12 months to the day later, the Dow was 8,579 (it would drop even lower after that), a loss of 39.4 percent. Everyone knows by now what that means for foundation grantmaking: they “spend” (not necessarily grant out) a minimum of 5 percent of their assets annually. As usually calculated on a rolling average, the excruciating pain in foundations’ grantmaking budgets should not necessarily be felt in extremis until 2009. But, don’t bet on it. Nonprofits are already reporting on foundations husbanding their resources, cutting back on multi-year grants, or simply cutting overall.
After September 11, 2001, which launched the nation into its last significant multi-year stock market downturn, some foundations figured out ways of softening the blow on their grant recipients such, as averaging their endowments over a two-year period to stave off grant portfolio reductions. Some private foundations were courageous enough on their own volition to raise their grantmaking despite the market slippage and even dip into their corpus. But many grantees heard from their program officers -- long before they should have -- that their foundations were cutting back on their grantmaking, cancelling multi-year grants, rethinking their future grantmaking portfolios in light of new market “realities.”
Perhaps in its October 10th open letter, the Council on Foundations could have said something to its members like, this is the time to increase grantmaking to the advocacy organizations fighting to make sure that national and international responses to the global economy help regular people in addition to investment bankers. Maybe the Council on Foundations could have instructed its membership that the 5 percent mandatory spending requirement should be seen as the absolute minimum that foundations can and should do in these times, that in such economic straits, foundations should be increasing their grantmaking. Because of lower endowment values due to the market, that means raising actual payouts way above 5 percent, grants payouts reaching 6, 7, 8, or 9 percent.
No, the trade association of institutional philanthropy in the U.S. said no such thing. Speaking for and to the tax exempt institutions sitting on $700 billion in endowments, the foundation trade association encouraged its members to play “convening” roles, encouraging dialogue, taking advantage of foundations’ non-financial roles. The Council cited the examples of community foundations and regional associations of grantmakers doing what they always do, “build(ing) the ‘big tent’ under which diverse stakeholders can gather to create shared understanding and to search for common sense solutions.”
If that doesn’t say it all in a nutshell, what does? A sector of institutions whose primary role is as a capital market for third sector institutions chose to encourage its members to sponsor and encourage convenings, but just about nothing about the sector’s core capital access functions.
The letter did add that foundations’ “non-profit partners will bear the brunt of shrinking resources and growing need” and suggested that foundations might “actively look for creative ways to assist the sector in weathering this storm.” And the Council called on the federal government to keep up the philanthropic activities of Fannie Mae and Freddie Mac, both in a form of federally-run receivership that could well eliminate their previously sizable philanthropic operations, especially to help metro Washington D.C.-based nonprofits who will be devastating by the absence of the two GSEs’ grantmaking (discussed in the NPT web exclusive http://www.nptimes.com/webex/08oct/c3-10-1-08.html in October).
The Council letter did not take the leadership position a leadership organization should take. It didn’t tell its members that in this distinctive, destructive global economic calamity, this is the time for countercyclical grantmaking by foundations. At an absolute minimum, in disastrous economic times like these, there should be much higher spending by foundations, significant commitments to countercyclical spending by foundations targeting resources to the social problems that destabilize societies -- and ultimately foundations as well as societies.
The sector has to be prepared when called on to disgorge its gilded protection of the corpus and realize that in times of critical need, social and economic problems need to take priority over the protection and growth of the corpus.
With the bailout, the foundation sector did get a desired tax provision attached to the “Christmas tree” of special interest benefits that helped the $700 billion package pass Congress the second time around. It might have been the result of solid Council on Foundations-lobbying or simply a Congressional free-for-all of velcroing anything and everything they could to the bailout package to win over recalcitrant lawmakers, but the foundations were able to celebrate a desired ornament: the extension of the expiring IRA charitable rollover through 2009.
As worthwhile as the IRA rollover might be, don’t mistake the primary beneficiaries of the more than $140 million in new giving spurred by this incentive. According to the most recent survey on IRA rollovers by the National Committee on Planned Giving, 59.9 percent of the recipient organizations appear to be public and private universities, 4.2 percent hospitals and health care organizations, 4.4 percent museums, symphonies, and other cultural/arts organizations, and 3.2 percent community foundations (http://www.ncpg.org/gov_relations/NCPG%20IRA%20survey--general%20results%20(3-24-08).pdf). Most Americans don’t see themselves as being primary beneficiaries of the bailout bill; most small and medium-sized nonprofits won’t see themselves as getting much benefit from the IRA rollover provisions of the bailout bill.
In published reports, the Council’s leadership hinted that future missives might actually address additional issues. But to lead with no more than a suggestion of creative thinking for the financial implosion facing nonprofits, that’s a “me first” -- or “us first” -- message to philanthropy from its national spokesentity. It says, we care more for the preservation and growth of our endowments than for mobilizing our capital at this crucial point.
No doubt some members of the foundation sector are embarrassed if not horrified by what emerged as the final version of the open letter after editorial suggestions from insiders in the sector. Rather than elevate the vision and potential of foundations in this economy, the Council on Foundations chose the lowest common denominator of agreement, the foundation role as convenors -- as though there isn’t a ton of convening going on at this very moment.
As some have cogently pointed out, this is “not your father’s economic crisis” (http://donttellthedonor.blogspot.com/2008/09/not-your-fathers-economic-crisis.html). Traditional fundraising bromides won’t work for nonprofits wracked by slashed funding and layoffs. We need courage and foresight from foundations, not tired and banal rehashing of sacred cows.
The next year, the year after and the year after that cannot be opportunities for foundations to cut down on their grantmaking, even if it means cutting into the foundations’ investment corpus.
This is a long term challenge, because the experts increasingly warn that this will not be an issue of short term up and down undulations in the market, but a longer term bottoming out, lasting some years, exacerbated by a wholly new wave of pending mortgage foreclosures (the “option ARM” or “Alt-A” mortgages as opposed to the 2/28 ARMs that causes the current tidal wave of foreclosures). According to one observer, this time around, the market’s troughs will look more like the long flat bottom of an “L” than a low points of a “W,” no pun intended, probably.
Financial crises among the remaining banks and investment houses are cascading throughout the economy, among Detroit car makers, in retail trade cutbacks, in state and local government revenue shortfalls, in the collapses of the economies and currencies of other countries. Instead of a recession, the normally staid if not typically leaning-bullish Institutional Investor magazine has said that we are entering a “contained depression” (click here), yes the “D” word.
U.S. Treasury Secretary Hank Paulson and Federal Reserve Fund leader Ben Bernacke are fashioning and refashioning bailout packages nearly by the day. The original $700 billion bailout package now seems like it was passed years ago, the market having given the package and its authors a stunning vote of no confidence. No wonder, when former Fed Board chair Alan Greenspan shows up on Capitol Hill scratching his head admitting he was surprised by the economic downturn and perhaps he should have thought about some regulatory actions.
This is a time for foundations to take heroic steps, starting with calls to action by the sector’s leadership organizations. They cannot sidestep the core function of foundations -- providing nonprofits capital, even as some foundation executives broadly hint that inside the halls of foundations, there is increasingly little preference for nonprofits as their preferred delivery vehicles. Convenings only go so far. The Council on Foundations ought to do better.
***
Rick Cohen is the former executive director of the National Committee For Responsive Philanthropy in Washington, D.C. His email address is cohenreport@npqmag.org and the Web site for the Cohen Report e-newsletter is http://www.nonprofitquarterly.org/cohenreport/
|
