Foundations cope with squeeze between falling asset value and higher demand.   9/22/2009 by Richard Thomas

(Graph: A survey by the Minnesota Council on Foundations found nearly half expect to maintain or increase their grant making despite the economy.)

When the stock market dropped 38.5 percent last fall, U.S. foundations lost nearly $200 billion, or 30 percent of their assets. Not only were their own investments affected, but giving from corporations and individuals also declined.

Meanwhile nonprofits that foundations support also were hard-hit by the recession, and grant requests increased.

In 2008 the value of assets at the Blandin Foundation, the region’s largest, plummeted more than $140 million. (By contrast, the asset base of the Northland Foundation, the region’s second largest, is about $50 million.)

“It’s not so easy to manage that kind of a drop, but we’re still here,” said Blandin president Jim Hoolihan.

The foundation still had $332 million in assets on Dec. 31, 2008, and is regaining some of that lost value as a result of the stock market turnaround that began in April, Hoolihan said.

The recession hasn’t changed the mission or investment strategy of the Grand Rapids-based foundation. It continues to honor its major commitments, but has sharpened the focus of its $12 million grant budget on its home base of Itasca County.

Hoolihan said the foundation has tightened its internal operations, citing staff furloughs and restricted travel. There’s also greater emphasis on programs “that don’t involved writing a check,” he said, such as leadership training.

Overall 2008 expenses (including administration and programs) were reduced from $22 million to $20 million. Its projected 2009 operating budget is $18 million.

Foundations generally cushion the market’s volatility by calculating budgets based on average earnings over three years, so a few bad quarters have less impact.

Though they make up only one percent of all grant makers nationwide, community foundations, which dedicate their efforts to specific regions, are better positioned to weather recession than others, and this sector is growing, according to a May 2009 report by the Foundation Center.

One possible reason: Recession may be discouraging philanthropists from setting up their own foundation endowments, and instead are creating donor-advised funds under the umbrella of established community foundations, the report stated.

“We work very hard to keep good relationships with our donor base,” said Holly Sampson, president of the Duluth Superior Area Community Foundation. “We have relationships with thousands of donors.”

The Duluth/Superior foundation’s assets slipped to $38 million last year from $53 million in 2007. Nevertheless, its grant-making held steady, declining only to $2 million from $2.1 million in 2007. Sampson said grants in 2009 will remain at about the year-earlier level.

During its semi-annual applications period in April, the foundation received a record number of requests for unrestricted grants (from funds not designated for a specific purpose), Sampson said. She expects the same response level in October.

In addition to a turnaround in its own investments, Sampson noted another promising sign of recovery: Donor gifts of stock, which dropped off in December, have started to pick up.

Meanwhile, the Duluth-based Zeppa Foundation, which stopped accepting new applications for grants earlier in 2009, is continuing to honor multi-year commitments. While grant making was impacted by the sour economy, it came as spending already was focused on construction of the foundation’s Zeitgeist Arts Building, at 220-222 E. Superior St., said Tony Cuneo, director of policy and planning. He expects the foundation will re-open its application process in 2010.

In Northwest Wisconsin, the University of Wisconsin-Superior Foundation manages several hundred donor-advised funds. About 30 went “underwater” during the stock market rout and were put on hold, meaning their asset values dropped below original gifts. Without reserves, money could not be withdrawn from them.

Fortunately, a good year of pledges and donations enabled the foundation to revive all but 10 of those funds. How long that will continue is uncertain.

“We can’t penalize students for the market,” said Joe Youngberg, the foundation’s chief financial officer. “We need to figure out a way to honor the commitments.”

“Things have improved since the start of the calendar year, but they’re still negative since the market declined a year ago,” said UW-Superior Foundation president Jill Schoer. “Everything we’ve read says the recovery will be slow.”

The St. Luke’s Foundation also lost investment value but donations are “holding steady,” said Catherine Carter Huber, executive director. “Our donors have been with us a long time.” Most of those donors are Twin Ports area residents.

On the other hand, the hospital and community are making more healthcare funding requests, she said. “There is more stress placed on philanthropy because more people are in need,” she said.

SMDC Foundation’s donations actually increased 6 percent in the fiscal year ending June 30, 2009 from the previous year. But the foundation had set a larger 20 percent campaign goal before the economy crashed, said Steve Johnston, executive director.

Still, he is pleased. “Our need goes way up when difficult economic times hit, but our income usually goes down. But the foundation has been very fortunate through this economic downturn because people are continuing to give,” he said.

Despite layoffs, (cutting the equivalent of nearly 300 full time jobs in the last two years) overall giving from SMDC employees increased, he said. “I’m extra grateful to have a job,” he said.

In the current 2010 fiscal year the foundation hopes to raise $9 million, and already has pledges totaling $6.7 million. Some projects in the current “Soul + Science” campaign are an easy sell, including the Newborn Intensive Care Unit (“Everyone loves children,” Johnston said) and an African hospital the foundation supports in Cameroon. “No matter what problems there are in the U.S. with medicine, it’s still eight million times better than in Cameroon,” Johnston said.

The foundation promotes its campaigns in newspapers and on billboards, but “we rarely get calls out of the blue,” Johnston said. The value of advertising is that when staff contacts individuals for donations, they’ve already heard of the campaign and are more predisposed to donate.

The foundation also has registered success with “cause marketing.” The annual Lake Superior Dragonboat Festival in late August raised $79,456 for breast cancer research, he said. And a “Pink the Rink” campaign, in which the UW-Superior hockey team wore pink jerseys that were auctioned off, raised $5,000.

The Miller-Dwan Foundation did not cut programs when the recession hit. Instead the staff took time cuts, giving up one day in every 10-day period. One position was eliminated, but no employees were laid off. “All are critical,” said president Patricia Burns.

Meanwhile the workload has increased. “It make us a little frantic,” Burns said. The foundation is preparing to launch its new “Turning Point” fundraising campaign for children’s mental health programs.

The Grand Rapids Area Community Foundation’s balance sheet actual shows an increase in assets and grants in 2008 over 2007. But that was due to a one-time $1.8 million gift that largely went to a new fund.

“It looks good on paper,” said president Wendy Roy. Otherwise the foundation’s assets dropped 20 percent drop in 2008, prompting an overhaul of its 2009 budget.

Just 15 years old, the foundation is relatively young. But the recession has encouraged it to concentrate more on “planned giving,” talking to donors about long-term gifts, for instance, through wills, Roy said.

Minnesota foundations are faring better than their national counterparts, according to a June survey by the Minnesota Council on Foundations. While 62 percent of foundations nationwide expect to reduce grants, only 52 percent in the state are cutting back, it concludes.

You can reach Richard Thomas at rthomas@businessnorth.com.

• Investment in colleges, universities totals $270 miliion since 2000 -8/25/2010
• Despite recession, Range Readiness Initiative continues -8/17/2010
• Wide Open Future -8/10/2010
• Highway design change sends customers elsewhere -8/3/2010
• Visitors make Bayfield a business destination -7/27/2010