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Good News or Bad News to Follow?

What do you make of the news from Giving USA about the drop in revenues for the nonprofit sector for 2008? Sean Stannard-Stockton in his blog, Tactical Philanthropy, asks whether we should call the glass half full or half empty: “Charitable Giving Exceeds $300 Billion. Second Highest Level of Giving Ever!” or “Charitable Giving Falls Dramatically. Largest Percentage Drop on Record!”

My personal take is that the 2008 results are not surprising, but that they do not bode well for 2009.

Here’s what I think happened. Although charitable giving slowed through the first nine months of 2008 (see the results of our 2008 nonprofit economic survey, which covered January-September), it looked as if we were on our way to another year-to-year increase, just as philanthropic giving has done almost every year over the last 50 years or so. When the financial crisis hit in the fall, many donors continued to do what they had already planned for the year (particularly large foundations). Other donors, concerned about the increase in demand for social services and the plight of nonprofits, dug a little deeper and either matched their previous contributions or gave a little more. Some foundations even went above their 5 percent payouts. As a result, 2008 didn’t turn out so bad. A little less than the previous year, but by no means a disaster. It was, after all, only the second year in history that charitable giving exceeded $300 billion, which is an extraordinary confirmation of the generosity of Americans.

I think, however, that these results mean 2009 will be even tougher. The “uniqueness” of the economic crisis is beyond us. We’ve come to the realization that it is here to stay and that it will be long and difficult. Foundation endowments are down 20 to 40 percent, and it will take a long time to rebuild them, certainly not in a single year. As a result, foundations are hunkering down, cutting both payouts and expenses. There will be less willingness to break the “5 percent ceiling” this year. Many individuals are concerned about their personal situations, with compensation flat to declining, the job picture uncertain, and retirement plans in shambles. The stock market—generally one of the most important indicators of giving—is still sputtering. All of this means that charitable giving will take a major hit in 2009, probably the worst we have ever seen.

Here’s one way to think about it: total giving to charity has been remarkably consistent over the years, hovering slightly above 2 percent of GDP. (It declined from 2.3 in 2007 to 2.2 in 2008.). Predictions for GDP in 2009 are currently ranging from a decline of 2 percent to over 6 percent for the year. I checked with Patrick Rooney, recently appointed (congratulations Patrick!) as the new executive director of the Center on Philanthropy at Indiana University, about this back-of-the-envelope predictor of giving. Patrick told me it is in the ballpark, but cautioned that “GDP … and the sources of giving … [are] a function of many variables and sometimes they all move in same direction but usually not.”

From another perspective, Susan Raymond, writing on onPhilanthropy, argues that “when unemployment goes up, individual giving goes down. When unemployment goes down, individual giving goes up. Unemployment is now at about 9.5%, and 25% of the unemployed have been without jobs for at least 27 months.”

Any way you look at it, all of us in the nonprofit sector need to prepare ourselves for a year with no increases in revenue and most likely a decline in total giving. It will be an environment that requires us to be smarter, more efficient, and more focused on what really matters. We’re currently conducting a mid-year nonprofit economic survey; we’ll be releasing the results in July. Stay tuned.

Topics: Economy