Nonprofits Scramble for Funding

Faced with a wretched economy and donation shrinkage, nonprofit groups are finding creative ways to cut costs and lure contributors. They're shedding workers and cutting programs, but they're also sharing with other groups their workspaces, back-office operations, and employees, and looking to foundations for lines of credit rather than grants. "Some nonprofits are looking to foundations and other kinds of funders to get lines of credit to get through the tough times," says Melissa Berman, president and chief executive officer of Rockefeller Philanthropy Advisors, a philanthropic advisory firm. There is some risk for the foundations in using credit, she says, "but if you have an organization with a long track record of bouncing back, you can be more comfortable."

Instead of organizing glitzy fundraisers, groups are going online, holding virtual black-tie events on Facebook and other social-networking sites. They're organizing charity polar bear swims and asking people to spend a night in a box to raise awareness about homelessness. And they're drumming up emergency support by publicizing their financial troubles and the impact on their mission.

"Nonprofits are the keepers of the stories of the most marginalized and vulnerable in our midst, and they're able to use this in ways that command the public interest and generate support for their organizations," said Michael Seltzer, a former Ford Foundation program officer who advises foundations and nonprofits on survival strategies. "The sector has never lacked for creativity."

Tougher Times Ahead

Nonprofits have seen a sharp and pronounced drop in funding since last summer. Donors, now weakened by the financial crisis, have to prioritize. Some of them are keeping funds flowing to charities that work on basic human needs and delaying or even eliminating donations to arts and cultural groups. But even charities that haven't lost funding must raise more money than ever to keep up with the surging demand for their services.

The problems are only expected to get worse as donors make future allocation decisions. Foundation endowments have already lost 30% on average since the beginning of 2008 as stock markets tumbled, according to the Council on Foundations in Arlington, Va. Several foundations were hit hard by the Bernard Madoff scandal; a couple of them were so heavily invested with Madoff that they will be forced to close.

Unlike other recent recessions, the current downturn has forced government, corporations, foundations, and individual donors all to retrench. As a result, as tough as times may be now, the financial outlook could turn even bleaker, says Richard Marker, a principal at Marker Goldsmith Philanthropy Advisors in New York and a professor of philanthropy at New York University. "Philanthropy has taken a hit, but I think it will take an even bigger hit," Marker says. "When people see that they have less money, they have a tendency to contract the places they give money to."

Strategies for Survival

Some foundations are taking measures to cut costs and keep as much grant money available as possible. The Philadelphia Foundation, which funds charities in Pennsylvania, was able to save $100,000 last year by canceling its 90th anniversary celebration and by publishing its annual report online only.

Shakespeare Santa Cruz, a nonprofit theater company in residence at the University of California at Santa Cruz, discovered in December that the university, facing its own funding cuts, would no longer cover the group's deficits. The theater company announced on Dec. 12 that if it didn't raise $300,000 in 10 days, it would have to shut down. "Should [the campaign] not succeed, the organization will be required to go dark for 2009, and therefore permanently," the group wrote in a press release. It managed to raise $416,417 from more than 2,050 individual donors and will go forward with the 2009 season.

"The reality is that many small- and medium-size nonprofits are running their operation pretty hand-to-mouth," says James Farstad, board chairman of Intermedia Arts, a 35-year-old Minneapolis arts group with an emphasis on diversity that supports emerging arts. "When there is a shift of available funding or a delay, it can put people into a bit of a tailspin."

Intermedia Arts had completed a long-term plan to stabilize its finances when the economic crisis hit. Foundations and other donors began scaling back payments or delaying them and the group was suddenly forced to compress the implementation of a three-to-five-year financial plan into just three to five months. In mid-January, the group laid off all but one of its seven employees and began using contract workers. It eliminated programs that weren't fully funded and began exploring whether to rent portions of its building, a 20,000-square-foot converted auto repair shop.

Intermedia Arts drew hundreds to two community forums in late December to outline the severity of its problems, brainstorm on innovative survival strategies for nonprofit groups, and launch an emergency fundraiser. The group hopes to hire back employees as it rebuilds over the course of the year. "We need to communicate where we are and be clear with the community about what help we need," Farstad said. "It is incumbent on us to make sure we are structured as effectively as we can…And we have to be sure what we are doing is adding to the value of the community."

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