The following is an examination of plans for foundation and corporate support in response
to the current economic crisis. It is part of an ongoing Foundation Center research series
intended to shed light on the impact of the economic downturn on the nonprofit sector.
Grantmakers Describe the
Impact of the Economic Crisis
on Their Giving
March 2009
By Lawrence T. McGill, Senior Vice President, and Steven Lawrence, Senior Director of Research
As the economic crisis persists, fears grow about the impact it will have on foundation
giving in 2009. To alleviate some of this uncertainty, more than one-third of the
100 largest U.S foundations have issued statements describing how they are being
affected by the current crisis and the ways they will be responding—from raising
their payout rates to reducing administrative costs to cutting some programs. These
leading funders are not alone. The Foundation Center has so far tracked an additional
35 foundation and corporate funders of all sizes that have chosen to publicly describe
their response to the ongoing economic challenges. This information is compiled and
regularly updated in an online chart, “In Their Own Words: 2009 Giving Forecast”
(see below).
In Their Own Words
The Foundation Center has created an online
collection of the statements issued by
foundations and corporations regarding their
anticipated giving in 2009. This resource
includes summaries of their responses, links
to foundation and corporate press releases,
other public statements, related news articles,
and notations indicating how each institution’s
giving will fare in the current year. The list
of grantmakers is being updated continually.
Funders who would like to be included
should contact Ellen Smith at
ecs@foundationcenter.org. To access
this information at no charge, visit
foundationcenter.org
/focus/economy/forecast.html.
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Grantmakers React
to the Crisis
Increasing Support in 2009
Very few foundations are in a position
to increase their giving in the wake
of the economic crisis. Of the largest
100 foundations ranked by total giving,
the Foundation Center has so far
tracked only two with announced
intentions to grow their funding in
2009–the Bill & Melinda Gates
Foundation (WA) and the John D. and
Catherine T. MacArthur Foundation
(IL). Yet only the Gates Foundation
appears to guarantee that its funding
will go up. Although the foundation’s
assets declined by about 20 percent in
2008, Bill Gates said in his 2009
Annual Letter that the foundation is
choosing to increase its spending in
2009. To do this, the foundation will
increase its payout rate—the percentage
of its endowment assets distributed for
charitable purposes. By comparison, the
MacArthur Foundation says that it
expects to “maintain or increase” its
grantmaking in 2009.
Holding Steady in the Current Year
Foundations that hope to hold their
giving levels steady in 2009 will
generally have to increase payout rates
to achieve that goal. Ten of the nation’s
100 largest foundations have so far
announced intentions to do just that,
including the Robert Wood Johnson
Foundation (NJ), Andrew W. Mellon
Foundation (NY), California
Endowment (CA), Kresge Foundation
(MI), Harry and Jeanette Weinberg
Foundation (MD), Silicon Valley
Community Foundation (CA),
Houston Endowment (TX), Oregon
Community Foundation (OR), Jim
Joseph Foundation (CA), and Bush
Foundation (MN).
To keep giving levels on par with
2008, many of these foundations have
indicated that they are instituting
cost-cutting measures. For example, the
Silicon Valley Community Foundation
announced in early February that it is
“freezing salaries, putting a hold on
open positions, reducing retirement
benefits by 50 percent, and asking staff
to absorb increases in medical
insurance costs.” It has also had to
make “the difficult decision to lay off
14 staff members, which represents
14 percent of our workforce.” By
taking these actions, the foundation
expects to be able to maintain its giving
level at roughly $8 million in 2009.
About Foundations’ “Payout Rate”
To maintain their tax-exempt status, private non-operating
foundations must pay out in charitable distributions each year an
average of at least 5 percent of the value of their endowment.
Charitable distributions primarily include grant payments and
administrative costs directly associated with the awarding of those
grants. For example, a foundation with assets of $100 million that
“pays out” at a rate of 5 percent would award approximately $5
million for grants and program-related expenses each year. (Foundations may carry forward excess
disbursements over several years.)
If that same foundation’s assets dropped 25 percent to $75 million,
but it decided to hold its giving steady at $5 million, then the
foundation’s “payout rate” would increase to 6.7 percent. For
foundations that have seen their assets decline by 30 percent or
more, their payout rates would need to reach or exceed 7 percent
to maintain a consistent level of giving between 2008 and 2009.
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Reducing Giving or Taking a “Wait
and See” Approach
Despite the desire of grantmakers
to maintain consistent levels of
support for their grantees, six of the
largest 100 foundations have so far
announced plans to reduce their giving
in 2009. These include the William
and Flora Hewlett Foundation (CA),
David and Lucile Packard Foundation
(CA), Starr Foundation (NY),
McKnight Foundation (MN),
Daniels Fund (CO), and Anschutz
Foundation (CO). Another nine top
funders have issued statements that
express a continued commitment to
their core grantmaking priorities but
do not explicitly state whether their
total grantmaking will decline in
2009 or not.
Though both the Packard and Hewlett
foundations plan to reduce giving, they
have also announced plans to increase
their payout rates in order to limit the
reductions. Packard, which paid out at
a rate of about 6 percent in 2008, will
raise its payout rate to about 7 percent,
allowing it to set a grant award level of
$276 million in 2009. Nonetheless, the
foundation expects its giving to be
about 18 percent less than in 2008. For
Hewlett, increasing its payout rate will
limit reductions in its 2009 giving to
about 5 to 7 percent. Likewise, “to
limit the recession’s impact on grant
payments,” the McKnight Foundation
has announced that it “will increase the
percentage it draws from its own
endowment in the coming year.”
Beyond the largest 100 foundations, a
number of other funders have explicitly
stated that they will be reducing their
giving, and, unfortunately, a few have
announced that they will close
their doors. Among these are the
Chais Family Foundation, JEHT
Foundation, Robert I. Lappin
Charitable Foundation, and
Picower Foundation, all of which
were victims of the alleged
investment scam perpetrated by
financier Bernard Madoff.
Nine of the largest 100 foundations
have issued statements that do not
specifically project anticipated total
giving for 2009. These include the
Ford Foundation (NY), Carnegie
Corporation of New York, John S.
and James L. Knight Foundation (FL),
Cleveland Foundation (OH), Eli &
Edythe Broad Foundation (CA),
James Irvine Foundation (CA),
Weingart Foundation (CA),
John Templeton Foundation (PA),
and Hartford Foundation for Public
Giving (CT).
The Ford Foundation has publicly
stated that it plans to increase its
payout rate so that it can “continue to
honor all outstanding grants and,
going forward, safeguard our core
grantmaking budget.” It also points
out that its investment strategies in
recent years have put it in a
comparatively favorable position to
maintain its grantmaking budget.
In a December 2008 message posted
on its web site, Ford’s president Luis
Ubiñas says that “entering the
economic downturn, our portfolio
was highly liquid, ensuring that we
have the capacity to continue making
grants without disruption.” Whether
this means that 2009 giving will
equal 2008 giving, however, was not
made explicit.
Mapping the Safety Net in Real Time
The Foundation Center is constantly
monitoring and collecting the most recent
data on U.S. foundation and corporate
support in response to the economic crisis.
This information is easily accessed at foundationcenter.org on an interactive map
displaying grants and program-related
investments (PRIs), which is updated weekly
and supplemented by a daily RSS grant feed.
The map details nearly $140 million in support to date. To submit grants
data for inclusion, please contact Matthew Ross, manager of
special data projects, at mr@foundationcenter.org.
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The John S. and James L. Knight
Foundation also notes that it
“foresee[s] no liquidity issues for the
Foundation,” which will allow it to
“honor all existing pledges and grants.”
But, similar to Ford, it makes no
predictions as to whether its total
giving will go up, go down, or remain
the same in 2009.
Liquidity is an often-overlooked
variable in assessing how well a
foundation will be able to weather the
current economic storm. In general,
foundations that entered the crisis with
substantial amounts of cash or cash equivalents
will be in a better position
than those faced with liquidating
deeply depreciated assets in order to
meet current commitments.
Without committing to any specific
predictions for 2009, the James Irvine
Foundation holds out hope that its
giving may actually increase, based on
its practice of using rolling averages to
calculate its annual grantmaking
budget. That is, it bases its annual
giving budget on the average size of its
assets over a multi-year period, rather
than upon the size of its asset base at
the end of the most recently completed
fiscal year. Since assets typically
increase from year to year, a
foundation’s average asset level over a
three- to five-year period is usually
lower than its asset level for the most
recently completed fiscal year.
Conversely, when a foundation’s assets
go down, its three- to five-year average
asset level may be higher than its asset
level during the most recently
completed fiscal year.
As a result of asset averaging, says
Irvine’s president, James Canales, “our
grantmaking may not increase as
quickly as our endowment value
during the good years, but conversely,
the formula protects us from having to
decrease our grantmaking significantly
in times such as these. This approach is
specifically designed to minimize
disruptions to current and prospective
grantees when the economy is bad,
precisely the time when many
nonprofits experience reduced income
from a variety of sources.”
Forthcoming Research
The examples cited above describe how
a number of leading and smaller
foundations and corporations expect to
modify their giving and other activities
in response to the current economic
crisis. For a more comprehensive
analysis of how foundations’
grantmaking may change over the
coming year, the Foundation Center’s
next research advisory will examine the
responses of over 1,200 of the largest
U.S. independent, corporate, and
community foundations to a new
survey. Among questions to be
addressed are whether these funders
expect to make fewer grants or support
fewer grantees in 2009; whether they
anticipate providing more capacity-building
grants or engaging in more
non-grantmaking activities, such as
program-related investments or
collaborations and partnerships; and
whether they made changes in response
to the early 2000s economic downturn
that have better prepared them to
face the current downturn. This next
advisory will be released in early
April 2009.
Finally, for perspective on 2009
giving by all U.S. grantmaking
foundations and the outlook for giving
in 2010, see Foundation Growth and
Giving Estimates, to be released by the
Foundation Center in late
March 2009.
Source for all data:
The Foundation Center
For more information about this advisory, contact communications@foundationcenter.org.
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