Despite Asset Gains, Most Grant Makers Will Keep Purse Strings Tight in 2010

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The assets of most of the nation’s big foundations grew modestly last year, a welcome sign of recovery after the nation’s financial collapse eroded the wealth of most philanthropies by as much as a third, a new Chronicle survey finds.

But despite the gains, foundation officials remain wary about the future, and most plan either to decrease giving or to keep it flat in 2010.

Foundation assets rose a median 7.4 percent at the 80 large private grant makers that provided data to The Chronicle, meaning half the assets grew by more and half declined, were flat, or grew by smaller percentages.

Total assets for the foundations in the survey increased from $146.6-billion to $153.8-billion.

While the 80 foundations are a small number of the estimated 75,000 grant makers in the United States, they represent 20 percent of the foundation world’s wealth and are indicators of major trends in giving.

The positive investment performance was a welcome contrast from 2008 but will probably not translate immediately into larger grant-making budgets.

One reason: Foundations often develop their giving plans based on previous years’ earnings, so it will take some time for their donations to recover from the 2008 stock-market debacle.

Of the foundations that provided estimates about giving in their 2010 fiscal year, 25 said donations would decline. Twenty-seven said they would give about the same as in 2009, while 21 reported that giving would increase.

The findings are similar to other surveys. For example, a February poll of 45 foundations by the Colorado Association of Funders showed that 17 grant makers plan to decrease their giving, 16 expect to keep it flat, and the rest will increase it.

Caution Ahead

For the foundation world, the key word for 2010 is caution.

“Given the long shadow of this recession, I don’t think it would be prudent to be banking on stability or that slow growth,” said Sterling K. Speirn, chief executive of the W.K. Kellogg Foundation, where assets have been on a wild ride the past two years.

At the end of August 2008, they were above $8-billion, tumbled to below $6-billion in 2009, and today hover around $7.5-billion. With such ups and downs, the Battle Creek, Mich., fund will keep its grant making fairly steady this year.

The assets of the Daniels Fund, in Denver, rose by about 12 percent, but the foundation expects to keep its grants budget roughly the same as last year and make fewer multiyear commitments due to the economic uncertainty, said its chief executive, Linda Childears.

Despite the tough times, some foundations are increasing their giving.

The Ford Family Foundation, for example, plans to increase its charitable efforts this year, thanks to a $100-million bequest it received in 2008 from one of its co-founders, Hallie E. Ford. Ms. Ford died in 2007 at the age of 102.

Last year the Roseburg, Ore., organization suspended some of its grant-making programs and hired consultants to craft a long-term plan for how to use the windfall.

The grant maker, which awards money in Oregon and Northern California, has sharpened its focus, says Norman J. Smith, the organization’s president. For instance, while it has a history of helping young people, it will now concentrate its giving on projects that teach values to youngsters, like the Boy Scouts.

“We were nervous about the markets, but we think we will be more effective with our philanthropic dollars,” he said about the review.

‘Culture of Scarcity’

But the Ford Family Foundation and a dozen other philanthropies that reported changes in their grant-making programs last year are outliers in the philanthropy world.

Joel Orosz, a professor of philanthropic studies at Grand Valley State University, in Allendale, Mich., and a former Kellogg foundation official, said the “culture of scarcity” at most foundations will lead them to avoid “big risks” and instead support well-established charities that have been long-term grantees.

“It’s good news for the universities, it’s good news for hospitals, it’s good news for the very large nonprofits,” he said. “It’s bad news for community-based organizations and a lot of ethnic organizations that tend to be very small.”

• The amount foundations paid out in grants last year decreased about 5 percent. But as a further sign they are hedging their bets slightly, The Chronicle’s data shows that the amount of money in grants that foundations approved to be paid out in 2009 or later fell almost 30 percent.
• Big foundations continue to respond to the economic downturn. Twenty-eight percent said they were offering more assistance to cash-strapped charities and hard-hit communities. Others report they have changed the parameters of grants they made in the past by, for instance, allowing money meant for charitable programs to be used instead for overhead costs.
• The Bill & Melinda Gates Foundation, in Seattle, remains the wealthiest grant maker in America, with $33.9-billion in assets, a 13-percent increase. Despite the growth, it remains below its high-water mark for assets at the end of 2007, when it had almost $39-billion.

Spurred in part by the bad economy, the Gates foundation committed $400-million last year for new financial approaches to further its charitable goals.

They include loans to nonprofit organizations and helping charter schools with the financing to sell bonds to build new facilities.

With the economic downturn hampering traditional grant making, some foundation officials are hoping that more grant makers will use such financial tools to help charities.

Harvey P. Dale, professor of philanthropy and the law at New York University, said large foundations should offer more loans, known as program-related investments, and overall should be “thinking in a more flexible and creative way” with their assets.

In an opinion article this month in The Financial Times, Alexander S. Friedman, the former chief financial officer at Gates and the person who developed its $400-million program, made a similar pitch, even saying that governments should provide tax incentives to grant makers and others to make “high-quality social investments.”

Working Together

There are signs that some foundations are listening.

The Annie E. Casey Foundation, for example, this month said it would invest $25-million in commercial efforts that further its goals to relieve poverty and help children.

The allocation raises the total amount of its “social investments” to $125-million, said Ralph Smith, executive vice president of the Baltimore grant maker.

Mr. Smith said the funds will be used to spur job creation and affordable-housing projects in its hometown, Atlanta, and New Haven, Conn. While Casey’s social investments outperformed stocks and other assets in its portfolio last year, he said the decision was not driven by the economy.

“It really was done more with a view to emerging opportunities than a reaction to the economy,” he said. “We want to use these dollars to make markets work.”

According to The Chronicle’s survey, however, foundations appear not to be embracing these financial tools, like program-related investments.

In 2008 the median amount for program-related investments equaled $898,000. Last year it was $479,000.

Another way foundation leaders say they are seeking to achieve more impact on society with fewer resources is by collaborating with other grant makers and entering public-policy debates.

The Northwest Area Foundation, in St. Paul, last year teamed up with the Bush Foundation, the Minneapolis Foundation, and others to develop ideas for ways that Minnesota could solve its growing budget problems.

Kevin F. Walker, president of Northwest Area Foundation, said the effort has not gained much political traction—no lawmakers have adopted the proposals, and the state still faces a $3.4-billion deficit.

But the coalition was an example of how grant makers must work within today’s financial constraints.

“We need to think together, act together, be aware of one another’s priorities, be aware of one another’s findings.” he said.

Mr. Walker added, “It’s just not a time when we can afford to be duplicating efforts or reinventing the wheel or studying things that in fact have already been studied.”

Fewer Employees

One reason collaboration may be at a premium is that some foundations have fewer employees to oversee their operations.

Sixty percent of the foundations in the Chronicle survey said they had trimmed administrative costs or reduced their number of employees through layoffs, voluntary buyouts, or attrition.

Observers are mixed about what the staff losses may mean for grant makers.

Mr. Orosz of Grand Valley State University said that some funds have “got institutional history walking out the door,” while others welcomed the possibility that younger people may now be promoted into more senior roles.

At the Kellogg foundation, Mr. Speirn said he still has a good balance between younger and older workers, even though several high-level executives at the foundation departed last year.

The fund lost 30 employees when it offered voluntary buyouts. Today it has 126 employees, but Mr. Speirn said that number may grow slightly as Kellogg hires a few new people.

Even so, Mr. Speirn wants to keep administrative costs low. “Now that we’ve tightened our belt and gotten within a lean staffing model, it would be prudent to stay within that and be prepared for more uncertainty,” he said.

Others echo Mr. Speirn’s sentiment.

Joel L. Fleishman, a former foundation official who is now a professor at Duke University, said he is optimistic that the American economy will recover in the years ahead.

But he emphasized that grant makers—and the charities that depend on their support—need to prepare for continued hard times. “It’s going to be a couple years before we return to what we consider normal,” he said. “We should all be prepared for it to get a little bit worse before it gets better.”

Emma L. Carew and Alissa Moen contributed to this article.