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Heads-up to nonprofits: Foundations expect 4 percent decrease in grant-making in 2009

With the economy and investments in the tank, it should come as no surprise that foundations expect to give out less money this year. Still, the information in the Minnesota Council on Foundation’s 2009 Outlook Report is more bad news for nonprofits.

In a nutshell, the MCF report said foundations and other giving programs are expected to decrease their grants on average by 4 percent this year.

MCF polled member and nonmember foundations in November. Responses included those organizations awarding 70 percent of the approximately $1 billion in annual grants made in Minnesota. A 4 percent drop would translate into $40 million less for nonprofits.

The good news is that while grants are expected to drop, they are not dropping as much as foundation assets, said Bill King, MCF president. That’s because foundations typically base their payouts on the average assets they’ve held for the past one to three years. The bad news is that using those rolling averages means the investment losses in 2008 and 2009 will still affect the amount of grants given out in 2010 and 2011.

The hit for grantees will be less in 2009, King said. “But the recovery will also be slower.”

The report is a snapshot. The economic winds could change throughout the year. For now, the report said 40 percent of grant-makers would cut grants this year, 41 percent would have flat funding, and 15 percent would pull a rabbit out of their hats and increase grants.

More than half of the respondents anticipated their assets would decrease this year, and of those most anticipated losses exceeding 15 percent.

In-kind help
One-third of responding grant-makers said they are looking for ways to increase in-kind and non-monetary support. It’s another good news-bad news message for nonprofits that hope to survive until the economy turns around.

On the positive side, corporate grant-makers in particular are looking to provide more volunteers, donate products, or provide training programs to improve nonprofit financial management and efficiency, King said. But the in-kind training and technical support also could include assisting nonprofit programs in going out of business gracefully, such as mergers, spin-offs or program dissolutions.

“I think that is the reality that we all face, not just the nonprofit sector,” King said. “Clearly in every sector – business, nonprofit and government – are all faced with this same economic situation. And it is going to require us to do business differently.”

Foundations themselves are feeling the pinch. About 10 percent reported that they are looking to cut administrative expenses, including layoffs.

A letter from McKnight
McKnight Foundation President Kate Wolford wrote a letter to grantees in December, describing the foundation’s response to the current economic turmoil. It’s posted on McKnight’s website.

“[T]he Foundation’s board of directors met recently to finalize our grantmaking forecast for 2009,” it said. “Since January [2008], McKnight has lost more than $700 million, roughly 30 percent of our endowment – a shocking loss, although generally on par with foundations around the country. To limit the impact on the communities we support, McKnight’s board has authorized us to draw a larger than usual percentage from the Foundation’s endowment next year. But the net result will not be status quo.”

“To honor all current commitments, support existing programs, and pursue new strategies to combat climate change, we will have less funding available for returning and new grantseekers in 2009.”

MCF also released on Thursday its report titled “Giving in Minnesota, 2008 Edition,”  a summary of 2006 charitable data, the most recent year for which comprehensive data are available.

Ah, the good old days. From 2003 to 2006, individuals and grant-makers increased their charitable giving in Minnesota by nearly 20 percent, from $4.4 billion to $5.2 billion. However, the growth in charitable giving slowed each year during that stretch, and from 2005-2006 giving increased by less than 2 percent.

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