Wealth of Spirit:

"Give it away, give it away, give it away, give it away now."

--Red Hot Chili Peppers



The September 11 attack produced plenty of collateral damage, but one largely unnoticed casualty is the impending harm to the nonprofit sector. The 1990s were boom years for the sector, in no small part because the value of the stock market quintupled. Now, however, foundation endowments--already reeling from a down stock market--are being hit even harder. That means reduced payouts. Direct-service organizations that provide aid to the chronically needy are suddenly competing for funds with the more dramatic need for post-attack relief. In the meantime, America's nonprofits--everything from reproductive-rights organizations to community-housing initiatives to liberal advocacy groups to magazines like this one--are nervously eyeing their nervous funders. A terrible triage could be coming.


Here's what people involved in charitable enterprises are seeing through their viewfinders: nonprofit donors pulverized by the stock market, while relief efforts in Manhattan are displacing funds from other causes. The crucial fundraising months of November and December are fast approaching. Meanwhile, American workers are being laid off in record numbers, with more than 300,000 job losses over the past five months. The new post-welfare system has never before been tested by a recession. But tens of thousands of welfare recipients will be ejected from the system in January as their five-year entitlement expires, just as the number of new enrollees begins to climb. And states are experiencing significant budget shortfalls.


There is no doubt that the blossoming of support in the wake of the terrorist attacks has temporarily united the nation and reaffirmed that Americans can be very generous people. But what is in doubt is whether the country's vital nonprofit sector--and the constituents it serves--can avoid becoming casualties of both attacks: the one of September 11 and the economic one that began a year ago.

Charitable organizations are, of course, as old as the country. In Democracy in America, Tocqueville expressed fascination with some of the hospitals and schools that were built in the early nineteenth century not by tax dollars but by citizens filling in the gaps created by the inattentiveness of government and the failures of the marketplace. Since Tocqueville's time, the nonprofit sector has become a staple of the economy, employing about 7 percent of the population and generating 5 percent of the nation's wealth.


Foundations, corporations, and individuals contributed $203 billion to nonprofits in 2000. Most of these contributors have been experiencing significant losses ever since the Nasdaq popped. Some foundations have watched half their endowments disappear. And because most of them give away a rigid 5 percent of their assets annually--the minimum required by the IRS--it's only sensible to expect that they'll prune their commitments. Corporations, hit hard by declining earnings, will most likely follow suit. Some individual donors have very deep pockets; but, in the words of Rick Cohen, president of the National Committee for Responsive Philanthropy, "individuals are just as recession sensitive as are corporations and foundations."


Then there's the problem of funds being diverted to post-attack relief efforts. Although crises do not typically create declines in giving, they do temporarily determine the types of causes that receive emergency support. At the time of this writing, an enormous $750 million in private donations has been raised. This sum is small compared with the total nonprofit sector's fundraising capacity but large measured against money that goes to direct charity. This outpouring of resources has drained other reservoirs and, in turn, has hurt the nation's food banks, shelters for the homeless, and social-service providers, some of which have either lost funds they were counting on or are having problems competing with the disaster's high-profile fundraising blitz. "People gave very generously but also very emotionally to the relief efforts, and now they're reassessing their ability to give," says Stacy Palmer, editor of The Chronicle of Philanthropy.


"Everybody's going to be thinking about this," says Alex Wilde, the Ford Foundation's vice president of communications. "Each of our program officers will be assessing what this means to their programs." Ford is among a group of foundations claiming that their contributions to the relief efforts won't draw money away from their existing programs. But then again, much of the foundation community overextended commitments to grantees during the years when foundation-endowment growth of 25 percent annually seemed a permanent trend.


The most serious casualty is likely to be the poor, who got only a modest lift from the boom years and were in deepening trouble before the attack. "The social and economic problems that preexisted 9-11 still exist and are now exacerbated," asserts Cohen.


So what should be done? Rally the giving community, say its leaders. Cohen points out that "this is an unprecedented challenge. This is not business as usual." His organization, which has long urged higher payout rates, is encouraging foundations to stretch--or at least maintain--their commitments. He says that the poster child for this effort should be the David and Lucile Packard Foundation, which has lost more than half its endowment in the past few years but is increasing its payout rate from 5 percent to 7 percent to hold its programs together.


As for recession-sensitive individual donors, there may be some good news. The feeling of national solidarity could translate to an enhanced sense of charity. Fundraising consultant Andy Robinson says that recent disaster-relief donations exceed what individual donors would give anyway and surmises that some of those giving to organizations like the United Way and the American Red Cross might be among the 30 percent of households that don't normally engage in philanthropy. "It's possible that we may be creating a new community of donors and philanthropists right now, and the challenge will be to keep them involved once this situation falls off the front page," he says. "People care about what people care about, and they're not going to stop caring about those things because of this tragedy. Charities will need to go back to their loyal donors this season and make strong and honest appeals to them."


What Cohen and his colleagues are essentially proposing is a different kind of stimulus package--not by the government but by millions of individual donors and foundations. The stock market is down, but national crises often stimulate a sense of national solidarity. As President Bush and business leaders call on Americans to return to their consumptive habits to prop up the economy, money spent in the nonprofit sector probably has a more positive, sustained effect on our communities than a shopping binge at the mall or a new car would.


As needs increase and resources dwindle, nonprofits will be stretched thin during this crisis. If the hundreds of thousands of organizations we all rely on to improve our society are to flourish in leaner times, their backers also must rise to the challenge. Whether they do so at a time of national unease and economic downturn will test the durability of the kind of wealth our country has been exhibiting in the past month: our wealth of spirit.

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