By MIKE SPECTOR and SHELLY BANJO, Wall Street Journal
The pipeline from corporate America to the nation’s charities is starting to dry up, as losses in the stock market mount and the U.S. recession deepens. With many large organizations depending on corporate largesse, their futures are suddenly uncertain.
Billionaires and large banks are pulling back on commitments or scaling back pledges. Some generous givers, such as Bear Stearns Cos., Lehman Brothers Holdings Inc. and Merrill Lynch & Co., have folded or been bought. The pain is spreading to other big institutional donors and trickling down to New York’s famously lavish charity-gala scene, which is suffering lower turnouts and fund-raising hauls.
On Monday, the Bill & Melinda Gates Foundation said it would slow the pace of grants next year — a sign that even the titans of philanthropy are rattled by current economic conditions. (See related article.)
Large donors signaling tighter times include David Koch, an executive vice president of Koch Industries Inc., an energy and manufacturing company and the largest private corporation in the U.S.; Sheldon Adelson, the Las Vegas casino mogul; and Maurice “Hank” Greenberg, the former chief executive of American International Group Inc., the large insurer.
The chilled giving atmosphere arrives just ahead of the holiday season, when charities tend to reap the most donations. Lower donation totals threaten a range of organizations, from antipoverty groups to community-based meal providers and major cultural institutions.
In the past, giving has tended to withstand economic turmoil, usually falling just 1%, adjusted for inflation, during recessionary months, said Patrick Rooney, interim director at the Center on Philanthropy at Indiana University. But this time, big market drops are happening at the same time that people typically start planning their end-of-year gifts, Mr. Rooney says.
Mr. Koch, the executive vice president at Koch Industries, of Wichita, Kan., just pledged $100 million to renovate the New York State Theater, which houses opera and ballet performances at Lincoln Center.
But Mr. Koch is turning away solicitations for new gifts. That’s because he expects earnings at his company to sink 50% this year amid falling oil prices. “I’m not making any new commitments,” says Mr. Koch, who uses dividends from company stock to make donations.
Mr. Greenberg, the former chief executive of AIG, which nearly collapsed before receiving government assistance, has watched assets in his two foundations plunge in recent months.
Anyone with a foundation whose endowment is heavily invested in AIG stock “is taking a bath,” says Mr. Greenberg, adding that he intends to fulfill current commitments but that gifts would inevitably be fewer and smaller in the months ahead. “You can’t give what you haven’t got.”
According to Mr. Greenberg’s associates, his family foundation is nearly wiped out, with assets declining to roughly $4 million in October from $47.7 million in February. His larger Starr Foundation has suffered a 50% decline, falling to $1.5 billion from about $3 billion over the past two years. Both foundations mainly focus their efforts on education and medical research.
Among the beneficiaries feeling the pinch are Harlem Children’s Zone Inc., to which Mr. Greenberg recently pledged $25 million. “I’m spending a lot of time now thinking about how we could replace the kind of support we’ve received from Wall Street,” says Geoffrey Canada, president of the organization, which provides parenting classes and charter schools for poor families. Mr. Canada says he is cutting 10% of his staff of 1,400.
The Starr Foundation will honor its final two $5 million payments to the charity, says Florence Davis, the foundation’s president. Still, the foundation is dipping into its endowment’s principal to ensure it meets commitments, she says.
Most large foundations say they, too, intend to fulfill pledges. But some are cutting budgets by up to 20% or borrowing from banks and other financial institutions to fulfill multi-year commitments, says Steve Gunderson, president and chief executive of the Council on Foundations, a Washington group that lobbies on behalf of foundations. Foundation endowments have lost about 30% in value, or $200 billion, since the stock market’s peak last October, he says.
Other institutional donors, including Wall Street banks, are pulling back, which could affect a slew of charities. Corporate donors gave about $15.7 billion last year to charity, and big banks trail only pharmaceutical companies in total giving, according to the Conference Board.
At a nonprofit conference in New York last week, charity leaders discussed strategies for coping. Among them: Share resources such as back-office space and computers.
But some of the U.S.’s more than one million charities will inevitably fail amid falling revenues, says Paul Light, a professor at New York University’s Wagner School of Public Service. “I think we’re going to see a substantial number go under,” he says. “There’s nobody on Capitol Hill who’s been talking about rescuing the nonprofit sector.”
Mr. Adelson, who supports an array of medical-research and Jewish initiatives, has lost roughly $30 billion in the past year amid a big stock-price drop in his Las Vegas Sands Corp. He recently announced significantly scaled-back gifts to the Birthright Israel Foundation, a group that pays for extended trips to Israel for young Jews.
Mr. Adelson had given $67 million to Birthright over the past two years. But his family foundation said it would only pledge $20 million next year and $10 million in 2010.
A September news release announcing the lower pledge said the gift was “structured to provide an opportunity and a challenge to other philanthropists … to play a more significant role in supporting Birthright Israel.” Mr. Adelson declined to comment through a spokesman.
Jay Golan, Birthright’s president, says Mr. Adelson never specifically promised the charity he would donate $30 million a year. “In our experience, the Adelsons make their commitments one at a time,” Mr. Golan says. “They’ve been absolutely faithful to the terms and conditions of each one.”
Not all giving has disappeared. Some donors, despite taking big investment hits, remain wealthy. Hedge-fund manager John Paulson, whose firm made more than $15 billion in gains last year betting on the housing market’s collapse, donated $15 million to the Center for Responsible Lending to fund legal assistance for families facing foreclosure.
Many donations are withering or going away entirely. Fannie Mae and Freddie Mac gave $47 million to nonprofits in 2007. But the mortgage giants were bailed out earlier this year by the government and charitable giving has been delayed “until further notice,” a spokeswoman says. The spokeswoman later said Fannie and Freddie will continue to make contributions but plans will be reviewed by the Federal Housing Finance Agency.
Hits to investment portfolios, balance sheets and hedge funds are also damping another fund-raising mainstay: the New York charitable gala. A Leg to Stand On, a New York charity supported by big banks and hedge funds that helps children with missing limbs in the developing countries, took in only $170,000 at its recent “Hedge Fund Rocktoberfest,” compared with $320,000 a year ago.
Project Sunshine, an international nonprofit that provides services for hospitalized children, canceled an annual fund-raising dinner that usually attracts about 500 hedge-fund managers amid fears of low turnout, says Joseph Weilgus, a hedge-fund manager and the group’s founder. Mr. Weilgus said his charity planned to focus on events with less fanfare. Despite a downturn in the sector, he still expects donations from his industry to remain steady.
Tomorrows Children’s Fund, which relies heavily on Wall Street donors to support children with cancer and serious blood disorders, canceled a November gala at New York’s Plaza hotel for the first time in its 25-year history, says Lynn Hoffman, the charity’s executive director. Gifts are down nearly $1 million from $1.8 million a year ago.
“It’s terrible,” she says. “I’ve never seen donations down this much before.”