Nonprofits Already Feeling The Squeeze

Leaders of Jewish foundations and nonprofits are bracing for slashes in available funding this week as global and domestic markets tumble and fears of a recession loom. And some are already starting to feel the pinch as anxiety mounts among philanthropists and leaders of the groups they fund.
On Tuesday, the development director for an Israeli nonprofit with solid roots among American donors said two of his organization’s funders had just informed him that money they committed to give in the first quarter of the year would be pushed back to the fourth quarter.
And in another example of the pullback, a foundation that an adviser to philanthropists described as a major player but declined to name last week decided it would not give any new gifts this year.
"I know of some projects that had been cultivated by this foundation for months and were led to believe they would get significant funding but now will not," said Richard Marker, a senior fellow at New York University’s Center for Philanthropy who, as a partner in Marker Goldsmith Advisors, counsels philanthropists.
"In one case it will probably lead to several people losing their jobs and a number of new people not being hired. The project’s major expansion and some key components will collapse," according to Marker. Though "the funder spent months cultivating this project, it has now told the people involved ‘too bad.’"
"My guess is that it’s happening in lots of places," Marker said. "Lots of people are starting to press the panic button. It’s going to be a difficult time for the entire nonprofit sector."
To be sure, while everyone is worried, the impact from the subprime mortgage meltdown and fears of a recession has not yet been felt in many nonprofit quarters. The duration of any downturn is crucial, experts say.
"Six months is one thing, but a year or two is another," said Elisa Spungen Bildner, co-chair of the board of trustees of the Foundation for Jewish Camping, who is on the board of several other Jewish nonprofits. "I worry about it as I go out and try to raise money, and introduce people to these organizations."
Changing Strategy For A Downturn
Some groups, mindful of the economic jitters that have been destabilizing the national economy for several months, have been tweaking their development strategy.
American Jewish World Service, a global relief organization based in Manhattan, has experienced huge growth over the past four years. In 2004 it had a budget of $7 million. This year, its budget is $35 million, up from $31 million last year, and its staff has grown in four years from 30 to 100 people. While much of the growth came out of work it did in the aftermath of the Southeast Asian tsunami of 2004 and in the Darfur region of Sudan in recent years, it is working to position itself as a presence for the long-term.
"We are obviously concerned about what may be in 2008," said Phyllis Teicher Goldman, AJWS’ vice president for development and communications. "We need to diversify the sources of our revenue. We rely predominantly on individual major donors and are looking to expand our funding from the big institutional foundations in anticipation of what may happen to individual giving."
Though she doesn’t expect a recession to impact Jewish foundations more than the rest of the funding world, Teicher Goldman says that as part of its diversification strategy, "we do get funding from non-Jewish foundations now and will look to expand that."
Organizations that depend on annual campaigns, like Jewish federations, are most vulnerable to temporary economic downturns, some say.
"Those are annual decisions that people make based on their liquidity," said Gerrald Silverman, president of the Foundation for Jewish Camping, which this year has budgeted $16 million, up from $11.2 million last year. "Institutions dependent on that will face more challenges."
The world of Jewish federations seems not to be too unsettled, at least yet, by the economic climate.
Paul Kane, senior vice president for financial resource development at UJA-Federation of New York, said the organization is in the middle of its fiscal year, and annual campaign pledges are up $5 million over where they were a year ago, said Kane. "Can we maintain it? It depends on how hard the economy’s hit. Right now we’re doing extremely well."
Only the Wall Street Division’s income — which in the last few years has accounted for 26 percent of the annual campaign — is flat compared to last year.
"We know that some of our major donors got 50 percent less in bonuses this year. Some have delayed giving and we don’t know how much impact that will have," Kane said. "It’s really an unknown right now."
"I’m hopeful if you tell the story, that those who are the most vulnerable need it most, that people would be encouraged to give at least what they did in the past."
On the national Jewish federation stage, Howard Rieger, president and CEO of United Jewish Communities, the umbrella organization for North America’s Jewish federations, is taking the long view.
Federations have not been discussing budget cuts, he said. But "at this stage everybody’s got their antennae up. This is never good news, not good for business or the philanthropic world. But this won’t be the first time we’ve seen a downturn."
The Jewish federation system raised $2.4 billion last year, $900 million of it through annual campaigns.
"Federations today are better prepared than in the past" for a weak economy, Rieger said. Building endowments has been a recent focus, and collectively they have $13 billion in assets. "Endowments are a bit of a savings account for times when you have to find other resources," he said.
Focusing on endowments and special campaigns "will come into play even more during a time like this," he said.
New Innovators Face Greatest Threat
The many creative, innovative Jewish nonprofits that have sprung up in the last decade or so face a different picture. They have small staffs, small budgets, no endowment and little ability to invest in the kind of long-term planning that can help non-profits ride out turbulent times.
"In an economic downturn, innovation is the first thing to go. Tried and true will edge their way up," said Aliza Mazor, program director for Bikkurim, an incubator for creative new groups.
But, she said, those that are already established will probably ride out the storm. "Those that are up and running may have to retool but probably not a lot would go out of business," she said.
The ones most at risk are in the start-up phase. "It may be an inhospitable market for that. Nobody will take a risk on funding them, and they may go out of business," Mazor said. "Starting in an economic downturn is not good for an unproven young enterprise."
Even in the best of times, the financial life of one of these creative, small groups "is always a rollercoaster," said Amichai Lau-Lavie, the founder and executive director of Storahtelling, a group which brings Torah to life through music and drama.
He is very worried about the turn in the economy and has already experienced its impact.
"Arts, culture and education are usually the first to go in budget cuts," he said.
Storahtelling has already noticed a change in its bookings. Synagogues that would not have hesitated in earlier years to book the entire troupe are hesitating to spend the money. As a result, the organization has developed smaller-scale presentations, which cost less to hire.
Lau-Lavie has also seen less response from individual funders than he used to. "People who have given generously in the past are saying I’m going to have to cut back a little bit. It has been a little more challenging than it used to be."
As a result, the organization has shrunk its budget from $1 million last year to $750,000 this year, and cut some staff.
Nigel Savage is executive director of the environmental organization Hazon, whose programs are expanding, and has budgeted this year $2.2 million, up from $1.4 million last year.
"I’m nervous in the short term" about the impact the economy will have on his group, he said. "All of the legacy Jewish organizations have substantial reserves and endowments, and none of the new Jewish nonprofits do. It is incredibly vital that people who have been funding the young nonprofits continue to do so over the next few months. Whereas the mature organization can go into deficit when current donations drop, young nonprofits don’t have that luxury."
Diana Aviv is executive director of Independent Sector, an organization that represents about 600 foundations, public charities and corporate giving programs.
The corporate programs, which rely for funding on the profits of their parent businesses, have all cut back their giving by about half for 2008.
"It could be a harbinger of things to come," she said. In the recession that began after Sept. 11, 2001, social service and healthcare charities had a nearly 20 percent drop in donations, for example.
But it’s too soon to tell exactly how broad the impact of the current economic dive will be, she said.