October 23, 2008

The global financial crisis and philanthropy: altering course in a perfect storm

The roots of the global financial crisis, and the paths out of it, are matters for debate. But what no one disputes is that the landscape in which foundations like Atlantic are working has been dramatically altered, and likely will be for some time to come. Here are some elements that we can reasonably predict at this writing:

  • Virtually every foundation endowment, including Atlantic’s, stands at less value today than it did only a few weeks ago, and some considerably so. While no one planned for the magnitude of the stock market meltdown, Atlantic seems to be doing relatively better than many others, and since we are spending down our assets over the next ten years, not paying out grants on a fixed percentage formula like most foundations, we are not forced to cut spending as many other funders might be. In any event, like virtually all foundations, we will meet the commitments we have previously made, and probably be somewhat more conservative, for the coming period, about big new commitments. For many foundations, though, there may be dramatically less new money to give out in the next few years.
  • Non-profits fortunate enough to have endowments are also hurting. I just ran into a friend, the leader of one such organisation, who has carefully built a reserve fund in the last several years only to see it drop by 30 per cent in the flash of an eye. Such stories will be standard fare in the weeks and months to come, and of course the vast majority of non-profits and non-governmental organisations have no cushion to fall back on, and will soon be facing the need to cut programmes and services. Fran Barrett, the Executive Director of Community Resource Exchange, an Atlantic grantee, told The New York Times that approximately 85 per cent of New York City’s non-profits have annual budgets under $3 million “and most of them don’t have endowments or cash reserves…some smaller organisations will have to shut their doors.”
  • Corporate philanthropy will be dramatically reduced, and among those in the financial services industries who have kept their jobs – or, indeed, in some cases, their firms – most will be much less generous in their personal giving. In the U.S., the number of donors already fell a median 3.8 per cent in the first half of 2008 from a year earlier. According to Forbes Magazine, when the private wealth-research firm Prince & Associates polled 439 high net-worth families late last year, 73 per cent of respondents said they felt a significant adverse impact from the current economic environment. When asked about their anticipated giving in 2008, 51 per cent planned to give less. These numbers are from well before the height of the market crisis. And as Council on Foundations President Steve Gunderson and Board Chair Ralph Smith wrote in a letter to the field last week, we need to pay “special attention to those situations where the loss of philanthropic resources could be the unintended consequences of mergers and consolidations that are the inevitable products of economic restructuring.” The U.S. takeovers of Fannie Mae and Freddie Mac, for example, could result in up to $47 million less in philanthropic support for child welfare, hunger and homelessness.
  • Government revenues and social spending will continue to shrink – in the U.S., the Center on Budget and Policy Priorities just looked at the budget gaps of 15 states, from California to Rhode Island, reeling from the credit crunch, and found six whose deficits are ten per cent or more of the total budget. As Frederick Lane of New York City’s Baruch College Center for Non-Profit Strategy and Management wrote in the Chronicle of Philanthropy, “the effects can be long-lasting, since government finances don’t bounce back as quickly as the economy as a whole.” Judith Rodin, President of the Rockefeller Foundation, said the U.S. financial crisis will affect not only the economies of countries that American philanthropists are working to develop but also the capacity of foreign governments such as Great Britain's to assist. “Philanthropy's value is quite significant at these moments," Rodin said, "not because we can replace the aid dollars that governments give, but because philanthropy tends to be more risk-taking, more innovative."

All this will have a sharp effect on the funding and programmes of civil society organisations, and in what kind of social climate? One in which human need – foreclosure, unemployment, greater health problems, even less covered by insurance, hunger, homelessness, crime and violence – grows ever more acute.

What we are facing, then, is a kind of perfect storm.

Looking more closely at one country in which Atlantic works – the Republic of Ireland, where I am spending this week – helps to develop a clearer picture of the challenges ahead. Ireland has in the last decade or so made enormous strides from a country with significant unemployment and heavy outward migration to a vibrant economy in which a growing percentage of the population, and particularly the working population, are foreign-born. Yet at a time of economic success in traditional terms, the gap between rich and poor has widened. (The same is true for the United States, Bermuda, and South Africa, among other countries where Atlantic works.)

Now, according to Pat McArdle, chief economist of Ulster Bank, last year the Irish economy grew approximately five per cent, but this year, it is expected to contract by about two per cent, a turnaround of seven percentage points – the biggest adjustment in the developed world. Ireland was the first country in the European Union to officially confirm that it is in a recession, and the first in Europe to undertake a state guarantee of deposits in its entire banking system.

The Irish government’s response has been to cut social spending. One of the most controversial elements of the budget was the decision to abolish the automatic entitlement to a medical card for people over 70, which represents free access to medical care and medicines. For an older person with a chronic condition such as angina, requiring regular general practitioner and consultant visits and ongoing medication, monthly medical costs could far exceed their pension entitlements. Following massive objections from the public, including civil society organisations like Atlantic grantee Age Action, and the opposition parties and the Government’s own parliamentary party, the Minister was forced earlier this week to revise this measure.

The abolition of grants for school books for children in poverty and of library grants will have a huge impact on children in areas of disadvantage, where very serious literacy problems are faced by as many as 1 in 3 children, and the increase of fees for school transport is yet another burden for families to shoulder, particularly for children in rural Ireland. Budget measures relating to health costs will also put further pressures on low income families, especially the increase in Accident & Emergency charges from €66 to €100 could see vulnerable families not seeking or delaying medical treatment for fear of the costs involved. This has potentially serious consequences for families on low incomes who do not qualify for the medical card.

Funding for the Equality Authority has been cut by 43 per cent, while the budget for the Human Rights Commission has been reduced by 24 per cent. As jobs become scarcer, it is a safe bet that Ireland’s vaunted tolerance for immigrants, which is often contrasted with the attitudes and approach of other European nations, will be sorely strained, and these rights-protecting bodies will be weakened at a time when they are most needed.

In each country in which Atlantic works, we need to be prepared for the waves from the storm. For example, while South African financial institutions have been relatively insulated from the financial crisis because the South Africa banking has been strongly regulated for the last 15 years, the country’s poor will however be affected by rising prices and falling economic growth, which will mean less employment; the kinds of tensions manifested in the xenophobic violence this spring may well be exacerbated by greater competition for resources that a recession will entail.

Since no one can predict the path of the economic crisis and its full impact on either philanthropic and governmental resources or on the “real” economy, Atlantic needs to stay alert and flexible about it. We will continue to be in close touch with our grantees around the world about their needs at this time, recognising that we can’t replace the gaps in government or other foundation funding, but we can continue to support advocacy efforts to make certain that those least well off don’t bear the brunt of the cost. The pushback in Ireland this week on medical card benefits for pensioners is an important sign that advocates for older adults, for children, for immigrants and other groups at the core of Atlantic’s mission may be ready to stand up for their rights and their needs as the full picture of the crisis emerges. We need to stand with them.

Gara LaMarche
gara@atlanticphilanthropies.org

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