While predictions of a long and deep recession have led to renewed concerns about the health of the nonprofit sector and of foundations that help support them, the behavior of institutions in previous economic downturns provides some perspective on how organizations may weather current challenges, according to Steven Lawrence, senior director of research at the Foundation Center.
In a recent research advisory, Lawrence noted that during each recessionary period since 1975, when the Center began collecting data on all U.S. grantmaking private and community foundations, foundation giving in inflation-adjusted dollars did not decline and, in fact, increased slightly. However, foundation giving did decline slightly, by 0.6 percent (4.4 percent after inflation), immediately after the most recent recession, though this marginal reduction in giving was modest compared to the inflation-adjusted 16 percent drop in foundation assets recorded between 2000 and 2002.
Several factors helped moderate the impact of reduced assets on overall foundation giving during the last economic downturn and will likely play a similar role during the current crisis. For instance, donors continued to establish new foundations and direct substantial gifts and bequests into the endowments of existing foundations, while foundations that determine their grantmaking budgets each year based on a rolling average of their asset values over the prior two-to-five years helped to ensure more stable levels of giving by foundations overall.
Foundation assets grew faster than inflation between 2003 and 2007, which enabled grantmakers to replenish their endowments after the downturn of the early 2000s. For foundations that determine their annual grants budgets based on a rolling average of their asset values, this growth could help mediate the impact of possible asset losses in 2008 on their giving in 2009. However, if the market fails to rebound from its current low or sinks further, the asset losses may be so pronounced and touch so many foundations that an overall decrease in funding becomes inevitable.
Nevertheless, "it is important to note that the experiences of the more than 72,000 grantmaking U.S. foundations and the organizations they support will vary markedly," said Lawrence. "The aggregate figures for the downturn during the early 2000s obscure the fact that some foundations had to make deep reductions in their funding. Nonprofit organizations that may be facing lower levels of grants support should remember that the Foundation Center can be of assistance in helping to weather the current crisis."