Sunday, January 27, 2008

First the Great Income Divide - Now A Charitable Divide

The Chronicle of Philanthropy

A Charitable Divide

As wealthy institutions report record fund-raising gains, social-service groups struggle to stay afloat

By Holly Hall

Editor's note: This article has been updated to clarify an inaccuracy about the Cincinnati Ballet that was included in the original edition.

Signs of a growing fund-raising divide between wealthy organizations and other charities are growing starker. Even as many big organizations like arts groups and universities are reporting record increases, other charities, especially local groups that provide direct services to poor people, are struggling to get donations and keep up with rapidly escalating demands for aid, The Chronicle found in interviews with nearly 70 nonprofit organizations.

Some veteran leaders of organizations that serve needy people say they have not faced such a tough time in their entire nonprofit careers.

'Really Good Giving'

Among the organizations that have fared well this year is the Cincinnati Ballet. In the five months ending in December, the ballet raised nearly $1.1-million, as much as it did in its entire previous fiscal year.

At the National Philanthropic Trust, an organization that sets up donor-advised funds, officials had projected a 15-percent increase in contributions this year, to $205-million, but expect that they will do even better, given a surge of year-end donations. "Money is pouring in so fast," says Eileen Heisman, the trust's president. "We're having a really good giving season."

And at the UJA-Federation of New York, which raised $151-million in its 2007 annual fund-raising campaign — $7-million more than the year before — wealthy investors donated $21.6-million in a single evening last month at the charity's Wall Street Dinner, and gifts are still rolling in.

"It amazed me, and I have been in this field for a long, long time," says Paul Kane, a senior vice president for financial-resources development, who started raising money for Jewish causes in 1974

But such fund-raising returns are in sharp contrast to the situation at other charities.

At Casa Familiar, in San Ysidro, Calif., close to the Mexican border, the annual fund-raising dinner generated $100,000, half of what it did in 2006, and the charity received only $800 in its holiday drive to raise $5,000 to buy toys for needy children. At Lighthouse Ministries, which serves needy people in Lakeland, Fla., giving in November and December declined by 15 percent from 2006 even as the number of families requesting Christmas food boxes, which provide a week's supply of meals for four or five people, increased from 312 in 2006 to 462 last month.

Amid the ballooning mortgage crisis, at Lutheran Social Service of Minnesota, in St. Paul, the number of families asking for help because they are in danger of losing their homes has tripled since 2004, to 10,000 households. The charity, which reports that donations have been flat at about $10-million for each of the past two years, cannot keep pace with requests for help with foreclosures and other problems.

"We've been bleeding to keep up with the demand," says Dan Williams, manager of financial services.

Even the biggest social-service organizations, which have more fund-raising clout than small, local charities, are having trouble keeping up with a rise in need. Catholic Charities USA projects that contributions are up 6 percent to 8 percent for 2007, but even so, the organization had to turn away 31,000 people from its shelters in 2006. The organization has not tallied final figures for 2007, but it expects that the number of people it couldn't help was even higher last year.

Unprecedented Demands

Charities that provide social services have traditionally lagged behind the fund-raising achievements of institutions like colleges, hospitals, arts organizations, and community foundations. What is different now is that so many of those organizations have obtained record increases in contributions at the same time that growing numbers of social-service organizations are facing flat or declining donations and unprecedented demands.

By contrast, during the economic downturn after 2000 and in the recession of the early 1990s, charities of all types had a hard time raising money.

The divide in fund raising mirrors a growing income divide in the United States. From 1979 to 2005, the average income of the top 10 percent of earners more than doubled after taking inflation into account, according to a Congressional Budget Office study of after-tax income. By contrast, people in the bottom 20 percent saw their net take-home pay increase by an average of just 6 percent during those years.

"There are two tiers of income, and donors are in one tier or the other," says Melissa Brown, associate director of research at the Center on Philanthropy at Indiana University. "Charities with donors in the top tier see big increases, and nonprofits whose donors are squeezed by lost income are feeling the pain."

Economists and fund-raising experts point to several other reasons for a growing economic divide among charities.

Colleges, hospitals, arts organizations, community foundations, and other wealthy institutions have in the past decade built their endowments and reserves to insulate themselves from economic fluctuations. In addition, such groups have been hiring many new fund raisers to focus exclusively on seeking big gifts from wealthy people.

Among the organizations that have benefited from reaching out to affluent Americans: the Schwab Charitable Fund, whose assets have increased to $2-billion since it was founded in 1999. The organization, which houses donor-advised funds — a sort of charity checking account — says that the median fund is created with $18,000 from donors whose annual income is at least $250,000.

From July 1 to the third week in December, the fund raised 44-percent more than it did during the same period in 2006.

At the University of Illinois system, contributions rose by more than 60 percent, to $366.6-million, last year, an increase fueled largely by two big donations totaling $122-million from wealthy individuals.

Affluent donors overwhelmingly prefer such institutions. according to a study released last month by the Institute for Jewish & Community Research, a San Francisco think tank that examined more than 8,000 gifts of $1-million or more to 4,000 nonprofit organizations.

The study found that the largest share of those dollars, 44 percent, went to colleges and universities, followed by hospitals and other medical institutions (16 percent), and arts and cultural organizations (12 percent). Social-service groups received just 5 percent of the dollars.

Meanwhile, it is people of moderate means who are the mainstay donors for many social-service organizations, including some of the most successful fund-raising organizations in the United States, like the Salvation Army and United Ways.

Research by Indiana University's Center on Philanthropy has found that households with annual incomes below $100,000 provide by far the largest percentage, 49 percent, of all contributions to organizations that provide food, shelter, and other basic necessities to needy people.

Since those households have not benefited from a significant rise in income — and have faced rising fuel prices and other cost squeezes in the past year — the sums they are giving are not rising nearly as fast as donations by the wealthiest Americans. As a result, total donations to some organizations, like United Ways and other social-service groups, have lagged behind or barely kept up with inflation in recent years, even as elite institutions like Stanford University and the Fidelity Charitable Gift Fund have seen double-digit percentage increases in annual giving.

The divide between wealthy donors and those of moderate incomes seems unlikely to change anytime soon, even with criticism of the giving patterns of the rich beginning to mount. The billionaire investor Bill Gross grew so frustrated with the philanthropy trends of his peers that last August, he wrote on the Web site of his investment company, Pimco, that with today's dire social needs, "it is hard to justify the umpteenth society gala held for the benefit of a performing-arts center or an arts museum."

Economic Troubles

While social-service groups are suffering nationwide, it is in states with troubled economies where the problem is most severe. Declining tax revenue in Arizona, Michigan, Minnesota, and other states have prompted government officials to cut grants that many social-service groups have relied on to provide services such as reduced-cost child care to working parents at or near the poverty line.

At the same time, as the cost of gas, food, and other necessities has steadily increased, more and more formerly middle-class families are seeking aid from charities to make ends meet.

"We are seeing demand for services go up, and not just in high-poverty neighborhoods," says John Ziraldo, chief executive of Lighthouse of Oakland County, a Pontiac, Mich., charity that provided emergency financial aid, transitional housing, and other services to 25,000 families last year. "More than a third of our clients this year had never come to us before. They tell us they've never had to ask for help before."

Unlike other parts of the country, Mr. Ziraldo notes, Michigan has never recovered from the economic recession after 2000 and has faced eight straight years of budget deficits. Meanwhile, in Michigan and other regions of the nation, manufacturing businesses are on the decline while hospitality and other service industries are on the rise. The new industries tend to hire large numbers of low-paid workers and often do not provide benefits like health insurance or paid leave.

In Auburn, Me., the Good Shepherd Food-Bank raised $2-million last year, about the same as it did in 2006.

But that wasn't enough to meet a 25-percent increase in requests for food by needy families, says JoAn Chartier, the charity's public-relations coordinator.

"Gas prices and heating oil are a factor. There are so many things people are up against that it is causing real hardship," she says. "Many more elderly are coming out to get help. They are swallowing their pride to do this."

The rapidly increasing number of mortgage foreclosures is also putting a strain on charities trying to help people facing severe housing and financial problems.

In Florida, Family Foundations, a Jacksonville social-service group, is struggling to cope with an increase of more than 30 percent in the number of calls it receives from families on the verge of losing their homes.

"We are having a foreclosure crisis here," says Martha Cox, vice president for resource development. "When a family is in a situation where they cannot meet their obligations, they are mortified and terrified."

Because Family Foundations cannot meet with all the people that need its help in a timely fashion, it started holding hourlong sessions once or twice a week for a dozen families or more. The goal is to educate clients about their options and tell them what paperwork they need to bring when they finally do get to meet with one of the charity's financial counselors.

'Dream Bigger'

As charities that serve the poor strive to meet growing demand, some veteran fund raisers urge them to think more ambitiously.

Dyan Sublett, executive vice president for financial development of the YMCA of Metropolitan Los Angeles, previously worked with wealthy donors as a fund raiser at two universities and two arts organizations. She says that she thinks her own charity and other small or regional charities serving the poor must "dream bigger" to survive and thrive.

At her organization, she says contributions grew 4 percent last year, from the $12.8-million raised in 2006. But, Ms. Sublett says, "we are not experiencing the growth we need to serve our underserved community."

Among the 25 local branches under her umbrella group, she notes, nine in the most impoverished areas of the city are struggling.

"What troubles me about the good work being done on the ground by small, local social-services groups is that they are not aligning themselves with one another to show their impact in solving social problems," she says.

Ms. Sublett adds that one of her greatest challenges during her first year on the job has been to get the local branches to think of themselves as one organization that helps prevent problems like obesity and juvenile delinquency.

Other experts agree that social-service groups need to collaborate more with one another and present solutions to donors, rather than stressing their needs.

"If they feed 300 people, they could collaborate with five other hunger groups to feed more people, and they could save money" by pooling administrative resources, says Bob Carter, a former fund-raising consultant who now advises wealthy families on their philanthropy.

"One of the difficulties is that there is very little planning for scaling up in the social-services arena," he says, "Getting this kind of thinking down the food chain to smaller organizations is hard to do."

In addition to pooling their resources, Ms. Sublett says, social-service charities should try to build ties to wealthy donors and private foundations by hiring additional fund raisers — even if the cost of doing so means a short-term cash crunch.

"They should cut back on some services and invest more in long-term development, because families will not be served if they have to close their doors," she says. "We are not paying enough attention to how we ensure service delivery."

Many social-service groups, however, seem too overwhelmed to take that advice.

Beyond Shelter, a Los Angeles charity that has focused on moving homeless families out of emergency shelters into permanent homes, is struggling to meet payroll this month while trying to help a homeless population that has exploded in the last two years, according to Tanya Tull, the charity's president.

Ms. Tull says she has watched government support decline, while foundations that provided grants in the past are making smaller and smaller awards to her charity because they are deluged with requests from other social-service groups.

As a result, the charity's annual budget has shrunk from $6.4-million two years ago to $4.2-million, and the group says it is hard pressed to meet growing need for its services.

"I am seeing families with children sleeping in their cars, riding the bus all night, sitting in fast-food restaurants, just to have a place to be," Ms. Tull says.

"This is a very, very sad thing to experience, after so many years when we thought we were getting a handle on the problem."

In her 25 years of working with homeless people, Ms. Tull says, "this is the worst I have ever seen in terms of the numbers of homeless families and the fact that the safety net is gone."

In years past, a family on welfare or earning minimum wage could afford a tiny apartment in a poor neighborhood, she says.

But now, that same family is getting a monthly welfare check of $524 and some food stamps, but the monthly rent is $950 for the worst apartment in a bad neighborhood.

Ms. Tull says that she finds it frustrating that Hurricane Katrina and other natural disasters prompt an outpouring of contributions, while donors seem blind to what she says is a crisis of homelessness and poverty reaching epic proportions.

"While they have been wonderful in responding to natural disasters, this invisible disaster has been unfolding," she says.

That frustration grows more palpable as she learns about elite nonprofit organizations getting huge multimillion-dollar gifts.

"Every day I open the paper and I see $60-million donated to the cancer institute and $10-million to the art museum," she says. "Can't they give just 10 percent of that to serve people in poverty?"

Elizabeth Schwinn contributed to this article.


Copyright © 2008 The Chronicle of Philanthropy

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