Paul Anton, chief economist for Wilder Research and a member of the Minnesota Council of Economic Advisors, did his best to give some good news to nonprofit leaders: “Your worst fears … will not be realized,” he said.
Anton spoke to 300-400 people Tuesday at an event organized by the Minnesota Council of Nonprofits to discuss the 2009 economic outlook and strategies for hard times, held at the North Central States Regional Council in St. Paul.
He’s optimistic the economy will be growing in a year. Job growth will lag behind. Employment could decline for five or six quarters. That said, the coming economic trough — while the worst most of us have seen in our lifetimes — is not very bad, “nothing like the Great Depression,” he said.
Then he threw out some staggering numbers that, if not changing the reality of the problems ahead, at least put them in perspective and gave me a greater appreciation of a depression. First, he said the Gross Domestic Product (the value of the goods and services produced in the country) fell 40 percent between 1929 and 1932. For comparison, last quarter our GDP dropped at an annualized rate of one-half percent.
Further, we have lost 1.8 million jobs nationally since the beginning of this year. To get to the Depression-era unemployment rates, we would have had to lose approximately 30 million jobs, he said.
The GDP numbers don’t tell the whole story. For instance, when a home is foreclosed, the GDP doesn’t change. Further, the economic pain will not be shared, but concentrated on poor and vulnerable people. That means more demands on nonprofit organizations.
“By and large, the middle class in the United States is not likely to feel a tremendous amount of pain unless they are actually losing employment,” he said.
The Stockdale paradox
Before the event, I chatted with several people to see how their organizations were faring. Gary Wagner, chief development officer for Fraser, said Fraser is right on target for 2008 but next year could be difficult. They are getting notes in donation envelopes from individuals and corporations that say something to the effect of: “We can give this year. We won’t be able to give next year.”
Barbara La Valleur, executive director of the Payne-Phalen Living at Home/Block Nurse Program, said during a Q&A that her organization lost significant grant funding this summer. They no longer have a volunteer coordinator, and La Valleur isn’t getting paid this month: “There is no money.”
Kate Barr, executive director of the Nonprofits Assistance Fund, was one of the speakers. She told nonprofit leaders they needed to make four versions of their budget and start budgeting over multiple years — how would you respond to cuts of 5 percent, 10 percent or 30 percent?” she said. “I talked to an organization last week that had actually run the model of what they would do if they got no new revenue for a year,” she said. “They didn’t have a year’s worth of reserves.”
Doing multiyear budgets could force nonprofits to come to grips with the fact that things aren’t going to get better. It would get them past the short-term question of how to survive for a year. “If you look at a two- or three-year projection, there is more incentive to change the way you operate,” she said.
She encouraged people to follow the Stockdale paradox, named for Vice Adm. James Stockdale, a former prisoner of war. As Barr described the paradox, it is being both completely confident and brutally honest.
“[You] need to be completely confident that the work that your organizations do is essential,” she said. “We have to advocate. We have to fundraise. We have to tell stories. But meanwhile you need to be brutally honest about what is happening.”
Foundations trying to hold steady
Chuck Peterson, the Minnesota Council of Foundations‘ vice president of member relations and operations, said foundation assets are dropping by between 10 percent and 40 percent.
“Everything is changing at a breakneck speed,” he said. “What we heard three weeks ago from a foundation may not even be relevant today.”
He gave a sneak peak of a council survey that will be released in January, a snapshot of responses from 107 foundations. About 40 percent are thinking about reducing giving, 40 percent are hoping to maintain current levels and 15 percent are hoping to increase giving. (Five percent did not respond.)
“We might see a slight dip in giving in 2009, but we are hoping for flat giving,” Peterson said. “The overarching feeling is that 2010 will probably be a little worse than 2009.”
That’s because grant makers get donation levels based on a multiyear rolling average of assets, so the impact of investment losses has a delayed impact on giving.