Monday, December 15, 2008

Is Giving Recession Proof?

A couple of weeks back; I had my first taste of national TV on Fox News. After I had a ton of make-up placed on my face, they took me to a dark room to stare into a monitor. The topic was how charities are faring in the economic downturn. While I was humming along giving my answer to the reporter (Bill Hemmer - who I never saw in person, just his face on the monitor), explaining why it is and will be a "horror show", he cut in. He said, "I found this surprising though. Historically charitable giving is recession proof they say." He went on to describe research that shows that in four out of five past recessions, giving did not decline. I gave him a 20 second answer to why this is not true. Here I would like to explain a bit further, because I worry that such research can be quite misleading and will give some the false impression that all is well in the charitable sector.

The briefing Mr. Hemmer is referring to was put out by The Center on Philanthropy at Indiana University who in turn refer to Giving USA as their source. So I went and looked up the information. At the conclusion of the very first paragraph in the briefing summary it states that, "In general, during economic downturns, giving tends to decline, after adjusting for inflation." Later on in the briefing they note that, "most households continue to give during times of financial insecurity, although some give less". In reading on, I think the misunderstanding stems from the fact that the authors are trying to say that giving does not decline in lock step with economic downturn. People will give more than you would expect, even though their giving decreases. So in a sense, individual giving is recession resistant, but not recession proof. In the case of human services charities, private giving may even go up during a recession, however it still does not keep up with the increase in demand for their services. One of the authors of the briefing also warned that, historical research aside, "we may be entering uncharted territory" given the severity of the current economic crisis.

When we move out of the ivory tower and ask the charities themselves what is going on, the reality of this uncharted territory becomes all the more clear. A recent national survey completed by the Bridgespan group concludes that more than half of the charities they spoke to say the country's economic woes have already led to cuts in the money they receive from private and government sources. The survey authors noted in a recent interview that "It's being felt in a way that is different from previous downturns... many nonprofit groups appear unprepared to weather the troubling times." We at Charity Navigator are currently conducting our own survey on the subject. As of today, 720 charities have responded. On average, they tell us that they anticipate a decrease in funding this year-end giving season (as compared to the 2007 year-end giving season) of 15%.

Another fact that can get lost in the Indiana University briefing is that, when these researchers are talking about giving, they mean private contributions (individual, foundation and corporate giving). This is only 23% of the revenue that the charitable sector relies upon. The rest of charity revenue comes from government contracts, fees and other sources. All you have to do is read any paper today to see the widespread across the board cuts that government is having to make at all levels. Furthermore, fees (what a person must pay the charity for a service such as tuition or health care bills) are often not thought of as part of the charity pie. However, it is a massive part of the revenue of the sector and you can bet that as people cut back, they are dramatically impacting this source of funding. For example, people are likely to delay preventive health care if money is tight. Employers may cut back on or eliminate certain health benefits or tuition reimbursement. Students may delay entering higher education or opt for a less costly institution. Lastly, almost one dollar of every ten that charities get comes from the "other" category of revenue that includes investment income. Guess where that is going? Down the tubes! The implications of the decline in revenue from all these sources could be disastrous.

So, although I say it with regret, the answer to the question - Is Giving Recession Proof? - is a resounding, "NO WAY!" Furthermore, giving may be recession resistant but overall revenue to most charities is in serious trouble.

Note: After I wrote this I got called back in to FOX News again! The show will air this coming Thursday evening at around 7pm. It covers the same ground but hopefully the information will be more clear this time. The make-up however, was just as thick.


Alex said...

Great post - thank you for this important clarification!

celbridgespan said...

Just a quick note: Bridgespan recently updated the Tough Times survey results. As of May 2008, many nonprofit organizations who responded to the survey indicated that they were now resorting to tougher measures, such as dipping into reserve funds and using layoffs, to help weather the economic downturn.

For more details, you'll find the survey report here: