The economic downturn has begun to take a toll on local non-profit groups, which have seen their budgets trimmed as hard-hit corporate donors pare philanthropic giving.
And many non-profits say they’re bracing for larger cuts in funding in the next few months. Many companies say they would rather eliminate the gifts than lay off employees, while others are looking for ways to cut expenses across the board.
“I think there’s real concern when you hear about the number of layoffs and the weakening of the economy,” said Jim Kales, a Chicago-based spokesman for the United Way.
“The reality is that as people are struggling to make ends meet themselves, they’re less likely to feel they can make contributions,” added Diane Doherty, executive director of the Illinois Hunger Coalition.
Among the businesses that have made sharp cuts in their budgets for charitable giving in the Midwest is troubled Lucent Technologies Inc. Overall, Lucent slashed its contributions by about 20 percent for the fiscal year ending in September; in the Midwest, where Lucent has a big presence, the cut was 40 percent.
Throughout the central region, “some organizations that we have supported in the past, we very likely may not support this year,” said Bob Jerich, Midwest director for philanthropy for Lucent. “There’ll be some casualties, no doubt about it.”
Lucent has made contributions to the Illinois Mathematics and Science Academy, the Golden Apple Foundation, the DuPage Children’s Museum in Naperville and the SciTech museum in Aurora. Jerich said decisions about specific cuts likely won’t be made until early summer.
3Com Corp., which recently has announced thousands of layoffs, including several hundred in the Chicago area, is another company that may be cutting back on donations. Its contributions in the Chicago area include products and services for Chicago-based Lawrence Hall Youth Services and the Rolling Meadows Metropolitan Area Network.
“Part of our community investment budget is tied to our profitability. As we struggle to regain our profitability, we need to adjust our community budget to conform to the revenues coming in,” said Mark Levine, 3Com director of employee communications.
Lucent and 3Com are not alone. A survey conducted in January by Donors Forum of Chicagoof 131 metropolitan Chicago corporate grantmakers showed that 21 percent expected giving to decrease, up from 15 percent in 2000.
Reasons to give
To be sure, some companies making broad budget reductions choose not to cut back their charitable contributions, especially when they have separate foundations. Their ties to the community and the publicity they gain from sponsoring non-profit activities are seen as a factor in bouncing back from a down period.
“The value of this activity is … increasing the bottom line of the corporation,” whether the bottom line is financial performance, corporate relations or morale, said Dwight Burlingame, associate executive director of the Center on Philanthropy at Indiana University. “It’s being tied to factors that help the company do better.”
Motorola Inc., which since December has announced plans to cut 26,000 employees, would not specify any changes in charitable contributions but said it is continuing to fund educational programs through its Motorola Foundation. The foundation in February, for example, donated $1 million to the State of Illinois for the new Abraham Lincoln Presidential Library and Museum, scheduled to be completed in 2003.
But non-profits do report a drop in charitable activity recently. The SciTech museum, for instance, has seen an ebb in corporate donations over the last six to eight months. “It’s just been small amounts here and there,” said Libbie Randels, associate director of SciTech.
Historically, bad economic times have hurt business philanthropy. “Corporate giving was really the growth engine of philanthropy in the 1980s,” said Loren Renz, vice president for research at the Foundation Center, a clearinghouse for U.S. philanthropy. Then, “through the last recession, corporate giving was flat,” he said.
Other factors, such as mergers and acquisitions , already have cut into the budgets of local non-profits. Corporations moving away from the Chicago area further reduce donations to local charities.
More needing help
Meanwhile, the need for the services of some non-profits has increased. Although the Illinois Hunger Coalition has less to work with, the demand for its services has risen as more people are laid off. Unemployment in the state hit 5.3 percent in March, up from 4.9 percent. The coalition’s hunger hotline has seen an increase in the number of people laid off or whose escalating energy bills made it harder to buy food.
The hunger coalition had to make its own cutbacks late last year with the temporary closure of its Springfield office. Three employees were temporarily laid off after the non-profit lost a grant from the Illinois Department of Public Aid for a children’s health program.
The perception of economic tightening has affected giving in general, experts say. The Philanthropic Giving Index issued by the Center on Philanthropy showed that giving in the last six months of 2000 dropped 2.6 percent. The center pointed to softening of the economy and drops in the stock market as the forces behind this decline.
A study by the Foundation Center showed that the growth in giving by corporate foundations has slowed due to “shrinking profits, stock market reversals and a general slowing in the economy.” After an 18.4 percent increase in 1998 and a 15 percent increase in ’99, giving by the 2,019 corporate foundations in the nation grew by 9 percent last year as the economy began to slow.
That trend could continue, said Foundation Center President Sara Engelhardt.
“We think that it is the beginning of the downward trend that we will see accelerating, because by the end of 2000 corporations hadn’t begun to see the full effect of the downturn of the economy,” Engelhardt said.
Where’s the money going
Some companies are being more discerning in investigating where their charitable dollars will go. Just as venture capitalists were doling out money with reckless abandon in the late 1990s but have recently become much more selective with their funding, corporations have started to look more closely at what kind of work a charity does, how it connects to the company mission and its ties to the community before handing out donations.
Bank of America in Chicago, for one, had donations flatten out in the past couple of years compared with a more steady increase in giving in years past and has narrowed its focus in giving to a few specific initiatives, said Diane Wagner, vice president of corporate affairs.
“I think all companies are getting much more specific about the types of programs they’re giving to. They want more proof of numbers you’re going to serve, of outcomes. There’s more call for accountability,” said Elaine Schuster, chief executive of the Golden Apple Foundation, which has seen some decline in giving. Randels said SciTech has had to work harder to secure grants because of that.
“What the downfall in the market has made all organizations like us do is be more creative,” Randels said.
“It’s just not a set thing that we go to one of the big corporations and say, `Hi, we’re SciTech. We want $50 million,’ and they give it to us.”
