Not your father's economic crisis

Even grizzled fundraising veterans who have been through many recessions in the past are beginning to realize this is not your father's economic crisis... someonew who has been doing this job for three decades sent me this quote from the DMA Digest:

NONPROFITS BRACE FOR SLOWDOWN IN CHARITABLE GIVING.

The turmoil on Wall Street could further curb a giving environment that was already slowing down. The failure of Lehman Brothers and pain at other big firms threaten to cut into the corporate and individual donations that more than a million nonprofit organizations rely on for basic operations and charitable programs. Worse for charities, the height of the financial crisis is hitting just before the end of the year, when nonprofits typically bring in the largest amount of revenue as Americans open their wallets around the holidays. Officials at charities are trying to devise creative ways to stand out. They are making urgent appeals through direct-mail and email campaigns and taking to the airwaves. Charities also are gearing up to tap their wealthy board members and other well-off supporters for extra cash. If they fail, charities may have to cut staff or seek loans. The collapse of corporate balance sheets, along with strained household budgets, could start cutting into the more-than-$300 billion national charitable-giving pie. US charitable donations only grew by 1% adjusted for inflation in 2007, according to the Giving USA Foundation. That was before the worst of the housing correction and the current Wall Street crisis. In a recent Chronicle of Philanthropy survey of 77 businesses, 50 said they expected giving to remain flat in 2008. US companies donated an average of 0.8% of their pretax profits in 2007, down from 1.4% in 2004, according to Mark Shamley, president of the Association of Corporate Contribution Professionals. "Companies are looking to cut expenditures across" the board "and corporate giving is going to be part of that," he said.

I still think the biggest threat is that more banks are going to fail and I think too many nonprofits don't understand how FDIC rules apply to charities.

Told you so?

I'm too busy this week to remind readers that I told you so... instead, I'll simply point out a link to an oldie, but goodie from early July of 2008. Enjoy.

And in case you aren't panicked enough... here is a link to an article about what happens to charities when the bank they use goes bust. Don't think this isn't happening already.

If you haven't reviewed FDIC rules on your nonprofit's (and affiliate's) bank account you are gmabling with your donor's money. Next week might be too late.

This is a good Q&A from a treasurer for a local Habitat for Humanity group on FDIC rules regarding their affiliate accounts.

Why the collapse of Freddie and Fannie scares fundraisers

A lot of people are being hurt by the collapse of Freddie Mac and Fannie Mae. As a fundraiser, I can't help but focus on the philanthropic implications. During a press conference describing the takeover, the government said it "will review the charitable activities."

That doesn't sound like good news...

Cuts in giving to the groups Freddie and Fannie supported will have major ripple effects. Let's consider this description from the Washington Post:

By its account, Freddie Mac, along with its foundation, has invested more than $348 million in the community to date. Last year its annual Hoops for the Homeless campaign, a celebrity-studded basketball tournament to fight family homelessness, raised $900,000 for six local nonprofits that included Hannah House and So Others Might Eat.

Last year Fannie Mae dissolved its foundation -- an organization that has put more than $1 billion into education, affordable housing, education and economic development programs since 1979. The company said its philanthropic activities would be handled in-house, and it continued to give to local organization and initiatives. Among its 2007 programs, the company pledged $10 million to improve infrastructure in D.C. schools and $1 million in grants to help revitalize D.C. neighborhoods. Its annual Help the Homeless walkathon raised more than $7 million last year to support 175 local homeless service providers, such as Reston Interfaith, last year."

Some of you may remember that the embattled mortgage giants came under fire this past summer for making sizeable contributions to Jesse Jackson's Rainbow/PUSH Coalition and Citizenship Education Fund Annual Conference.

According to the conference program, obtained by an NLPC staff member who attended the event, Freddie Mac, as a “Platinum Sponsor,” paid $150,000. Fannie Mae paid $100,000 to be listed as a “Diamond Sponsor.”

Combined these guys also gave almost $2 million in contributions to politicians during the 2006 election cycle.

I mean... Freddie Mac was recognized by the Washington Business Journal and Greater D.C. Cares as the top corporate philanthropist in the Washington region.

Do you understand how big this is?

A fellow fundraiser once told me that the only news worse than hearing that a major donor has been indicted is that a major donor has declared bankruptcy. Trust me. I have experience with this one... it's not always easy making a bankrupt corporate donor make good on a charitable pledge.

What happens to charities deposits when their banks fail?

When a bank fails and the FDIC seizes possession, most people know that individuals are insured by the government up to $100,000. There are exceptions for joint accounts and retirement accounts... but the people who usually get screwed by businesses that have large sums of money on deposit.

The Charities Aid Foundation (CAF) in the UK is worried that charities would that have their funds in a bank that fails would be ruined.

The Charities Aid Foundation has written to Chancellor Alistair Darling and the Financial Services Authority requesting full compensation for charities if they lose money in bank failures.

CAF has asked for the proposal of full compensation for charities to be included in an FSA consultation on compensation limits, which will take place in the autumn.

Yikes. That's scary. I have to admit, I don't know what the rules are in the United States... nor do I know who would be lobbying the FDIC to look out for charities?

Foundations and endowments hit by market slide

It seems like only yesterday when foundations and non-profit endowment managers were talking with lustful jealousy about their desire to get involved with hedge funds that could return double digit gains.

Well, it's hard to believe we won't be hearing from some of the bigger losers who chased out sized market performance and lost bundles. According to Investment News:

Endowments have posted double-digit returns since 2004, according to a survey of 785 institutions by the National Association of College and University Business Officers, a Washington-based professional organization. It found a one-year average return of 17.2% for fiscal-year 2007, 10.7% for 2006, 9.3% for 2005 and 15.1% for 2004.

But that reign is over.

A recent report from Chicago-based Northern Trust Corp. found that year-to-date returns through June 30 were negative for the third consecutive quarter for its database of 291 funds, which include 90 foundations and endowments with $91 billion in assets.

While I'm sure that there will be some big blow-ups... much are expecting flat to moderately negative returns:

On an anecdotal basis, foundations and endowments are experiencing flat to negative returns, said John Griswold, executive director of the Commonfund Institute of Wilton, Conn., which researches nearly 800 endowments of colleges and private independent schools, and about 300 foundations.

And finally, some people believe that the big dogs like Harvard and Yale will escape without serious injury this year:

Some larger endowments may have positive returns, such as Harvard University of Cambridge, Mass., which is expected to have returns that range from 7% to 9%, according to published reports not confirmed by the university. The university reported this year that 33% of its endowment's holdings were in real assets.

"I think you can expect Yale [University of New Haven, Conn.] to be positive again and many of the large universities, which have a heavy allocation to private-capital investments and commodities," Mr. Griswold said. "But for those who came into commodities only recently, they may have found it disappointing."

You can read more here.

Salesforce.com offers disappointing outlook

Shareholders reacted negatively today to news from Salesforce.com, Inc.'s disappointing outlook. Shares were down more than $10 at $55.15 (about 16%) in early trading on worries about the software-as-a-service company's future sales growth amid macro economic concerns.

A lot of nonprofits use Salesforce.com - so, here's the part that should serve as a warning to fundraisers:

Analyst Charles Di Bona of Bernstein Research said the shaky economic environment may be hurting Salesforce.com's business as some of its key customers, small and medium-sized companies, reel from the slowdown.

"We are concerned that SMBs, which make up 2/3 of Salesforce's customer base, may suffer more markedly than their larger counterparts amid any ongoing economic weakness, and that this may in turn impact Salesforce's bookings, new and renewal, and ultimately Salesforce's top line," Di Bona wrote. "Indeed, Salesforce appears to have had some softness in its deferred revenues and bookings in the quarter, perhaps giving fuel to this concern."

This is what I would call a leading economic indicator. That's right folks... we've been saying it at Don't Tell the Donor since late 2007. Smaller and medium sized nonprofits are going to feel this pain a lot sooner than the big dogs.

Oh yeah, and by the way... Goldman Sachs said today that half of the world's economies are in or will be in a recession within the next year. So much for our "second half recovery," huh?

What if it doesn't get better in 2009?

Paulson might be about six months too late, but at least he is warning people that these tough times are going to last months. As long as only 10% of economists are predicting that the economy will contract in the second half of this year... it's obvious that people still don't understand the extent of this problem.

Personally, I think fundraisers need to prepare for the fact that there will be no recovery in 2009. This is not a typical six month recession... and all those "expert" fundraising jokers who are out there saying that they have 30 years of experience fundraising and have survived many recessions in the past should be reminded that we need to be prepared for an extended period of fear and economic stress.

How would your fundraising plans change if you knew for a fact that there would be no recovery until 2010?

Do you wanna know where I've been?

In addition to the thousands of people who visit this website every month or read my stories via RSS, more than 700 people are signed up to receive Don't Tell the Donor by email. In the two weeks since I last posted to this blog, many of you have emailed to ask where I've been or why I stopped writing. So... I'm going to tell you:

I bought a time machine.

That's right, a small metal chair rigged to flux capacitor which only requires 1.21 gigawatts of electrical power to send me flying forward or backward in time. Despite my lifelong promise to myself that if I should go back in time and steal someone else's invention or stop myself from making all those mistakes I made in high school... alas... I decided to use the time machine to travel into the future to share with you what fundraising will look like next year at this time.

It's worse than just not good... it's downright scary.

The housing market isn't going to get better. As a result, I guess it was inevitable that banks like Wachovia, Washington Mutual, PNC Bank, and Fifth Third were going to go belly-up... but, even I was surprised to see General Motors and American Airlines file for bankruptcy.

Unemployment soars above 6% and many of you lose your jobs as smaller nonprofits begin to disintegrate in larger numbers. I hate to say I warned you this was going to happen... but I even ran around with my hair on fire trying to get your attention.

This isn't a normal recession. Unfortunately, this is an unraveling of a massive credit bubble... and it will not end through the normal cyclical economic patterns.

The truth of the matter is that you don't need a time machine. The writing is already on the wall. Target Analytics reported yesterday that revenue declined in the 1st quarter of 2008 for 60% of the 72 large organizations in their benchmarking study. Giving USA Foundation and the Center on Philanthropy at Indiana University reported individual and corporate giving actually declined in 2007 when adjusted for inflation.

So... go back to living in denial if you want to... or you can adjust yourself and your fundraising programs for the new economy... either way, it's not going to get better for at least another year.

Let's face it - most of your donors have credit card debt

I wrote last week about the ethical dilemma facing fundraisers who see their donors making gifts on credit cards. As usually happens when I'm too far out in front of the accepted debate - many have been skeptical.

My favorite response was from a reader who told me, "I doubt that my donors who are making donations are the type of people who have big credit card debts." Seriously? I'm think that's pretty naive.

Your donors are not millionaires. Let's face it - most Americans carry credit card debt they can't afford to pay off all once. In fact, just today TransUnion released a survey conducted by Zogby that found 61% of Americans said they will spend less or not go on vacation this summer. When asked why, "Thirty-five percent cite concern about credit card debt, and nearly half (47 percent) cite concern about other debt or financial obligations."

Let me do one better:

A 2007 survey by CardTrak.com found that American households with credit card debt owed a median of $6,600, and that less than one-third of households pay of their balances monthly. The survey also found that 13 percent of those who carry credit card debt have balances in excess of $25,000.

I think it is foolish to assume your donors don't have credit card debt. For many people, making a donation is an emotional reaction to a well reasoned understanding of the problems facing our world... donors don't check their debt balances first before responding to a nonprofit's call for help.

I'm sure that Liz Pulliam Weston disagrees with me, but let me ask these two questions to get the debate started. Do you personally have credit card debt? Have you made a donation in the past 12 months?

Will the ticking credit card time bomb impact donations?

For the past few years fundraisers have been aggressively pushing donors to give by credit card instead of by check... especially when it comes to the increase in online fundraising and/or monthly giving programs.

But there is a growing sense of dread that a pending tsunami of credit card defaults is creating a ticking time bomb in this country... and I am going to go out on a limb (just like I did early last December when I warned about the looming recession) and predict that fundraisers will need to grapple with serious concerns about donors who are charging their donations.

Do we have any ethical concerns about donors putting a $100 donation that they can't afford on a credit card where it will eventually cost them $130 in interest? Do fundraisers benefit by getting donors to give more when they use a credit card than they would if they had to use cash?
I read some alarming statistics last week:

"According to Equifax, a credit card analysis firm, people have been buying more with their credit cards but paying down less. As a result average balances jumped nearly 9% in 2007 and delinquency rates recently hit a 4-year high of 4.5%.

Also, the reliance on credit cards is preventing some of the markets salutary forces from working. With credit always an option, domestic demand remains strong despite rising prices. Absent the option of putting more costly gasoline on their credit cards, Americans might have actually been forced to cut back on their consumption, taking some of the upward pressure off gas prices.

It should be painfully obvious that expanded consumer credit is not evidence of improvement, but simply, deterioration. Unfortunately, when it comes to understanding the economy, there is little common sense on display. By going even deeper into debt just to make ends meet, American consumers are digging themselves, and our entire economy, into an even greater economic hole and laying the foundation for the next major credit debacle."

I'm sure people have been warning about credit card debt since the first person used their Diner's Club card to buy a dinner for friends that he/she couldn't afford... but with the reality of the housing implosion hitting home now - many people think a credit card default crisis is closer than we think.

So, what should we do? Continue to ask donors to put their gift on credit cards... but only if they promise to be responsible and pay off the card balance every month?

I'm going to talk about this more in the next couple weeks... but in the meantime, I think nonprofit fundraisers should start to truly understand the real cost of processing donations on credit cards. Start by reading this article about how the organizations that handle Internet contributions and related services for the presidential campaigns have already collected more than $11 million in fees!

How Bear Stearns collapse is good for some nonprofits

JP Morgan Chase announced today that they would be cutting approximately 7,000 of the 14,000 employees who worked for Bear Stearns.

Sucks for them.

I have to admit, I don't usually feel much empathy for financial services folks who lose their jobs because the over-leveraged firm went bust and needed a Federal bail-out. Part of that above average pay they've been enjoying is all part of the risk-reward that comes from working for the crazy gamblers on Wall Street.

However, Will Schneider at Future Leaders in Philanthropy (FLiP) posted a great an interested story today on the "dozens" of internships that had been offered to college and MBA students.

Brian J. Marchiony, a spokesman for JP Morgan, told the Harvard Crimson that students who lost their full-time job offers will not be left empty-handed.

“[They] will be able to retain their sign-on and relocation bonuses and have the opportunity to use our career placement services,” Marchiony said. J.P. Morgan is also providing an alternative summer plan for students who had their internships withdrawn. If they work at one of the many non-profit organizations selected by J.P. Morgan, those students will receive their full internship salary, according to Marchiony.

Does anyone have a copy of the approved nonprofits? Be careful if you hire one of these wiz-kids for your fundraising staff. They are liable to suggest illiquid mortgage backed securities and/or risky real-estate investment trusts in order to offer above average returns on your money.

Local governments prepare to cut nonprofits from budget

The Chronicle of Philanthropy followed up on their in-depth coverage of what a recession might mean for fundraising with a live chat yesterday.

Unfortunately, Michael Seltzer and Robert Sharpe, the guests for the chat addressed the impending diaster awaiting nonprofit groups that rely on local government funding. Not only has the collapsed of the real estate bubble reduced the size of tax revenue for many jurisdictions... but in case you missed it, we are about to face a major crisis with municipal bonds.

As a result, I expect to hear more about municipalities declaring bankruptcy. When that happens, expect to see more headlines like this from El Dorado County in California:

Museum and bookmobile services might be curtailed and a surcharge added to cell phone bills as part of El Dorado County's efforts to close a projected $15.6 million budget gap in the coming fiscal year.

Don't be surprised if other cash-strapped municipalities begin to do more than close the county Historical Museum or eliminate the library's bookmobile service.

I guess DM News finally got my memo

Exactly one month ago today, I warned readers of this blog that I wasn't here to waste their time. I believe my exact words were:

Most people don't know this, but I have a magic crystal ball in my desk drawer. It has special powers that allow me to predict the future. Not only that, but I read a shit load of news stories everyday about fundraising in order to hopefully share some observations of what trends will influence our industry.I'm not trying to scare you. I only want to warn you - so pay attention.

For Pete's sake, I'm been running around with my hair on fire trying to tell fundraisers that they need to be very worried about a pending financial disaster in the global economy. Are you listening yet?

It appears Chantal Todé got my memo. An article written by Todé appeared on the DM News website yesterday with quotes from Greg Fox, SVP and chief strategy officer at database market­ing agency Merkle.

According to Merkle's data, giving is already down in some areas of the Midwest and the South, and Fox says, “there may be a correlation between [the reduced giving and] the heightened foreclo­sure rates in those markets."

Unfortunately, I think we've moved past just describing this as a "foreclosure crisis" and what we now need to deal with is a global economy that needs to unwind massive amounts of leveraged trades tied to a spreading credit crisis.

...but what do I know, I'm just "a fundraiser" with a blog.

tick tick tick...

I think Jeff Brooks may have been talking about me when he mentioned not wanting to be "an alarmist" in his post today.

...but Holly Hall at the Chronicle sniffed out the real story in Target Analysis Group's most recent National Index report.

Even though Target's press release painted a rosy picture saying that there was "Modest Revenue Growth During First Three Quarters of 2007" the picture is actually a little different when you figure in inflation as Holly Hall notes:

In first three quarters of last year, donations made in response to direct-marketing appeals failed to keep pace with inflation, growing by a median of 1.4 percent, meaning that half the groups achieved greater increases and half fared worse. The number of people who made gifts declined by a median 1.4 percent since 2006. Meanwhile, the organizations recruited a median 6.2 percent fewer new donors, on top of a 10-percent decline in new donors for the first three quarters of 2006.

Oh yeah... and did I mention that Goldman Sachs finally jumped on the bandwagon predicting a recession?

Is your job at risk in 2008?

I've already told readers that I think a recession is coming in 2008... if it's not already here. I see scary signs that our economy is in serious trouble... and as the economy slows, fundraising will be affected.

But what about fundraising jobs? Is your job as a nonprofit fundraiser, consultant, or vendor serving the nonprofit sector in jeopardy?

Peter Panepento at the Chronicle of Philanthropy moderated an online discussion today with Alan J. Abramson is director of the Nonprofit Sector and Philanthropy Program at the Aspen Institute and Patrick Rooney is director of research at Indiana University's Center on Philanthropy, where he manages the research and writing for Giving USA.

One participant asked what changes in the economy will mean for fundraising sector jobs in 2008 and Rooney had some dire predictions:

...charities face a tough situation in times of fiscal distress: one the one hand they need to reduce costs and for most charities, compensation is 3/4 or more of their costs, so RIF are seen as a necessary solution sometimes.

For those of you that don't know, RIF stands for "reduction in force" and refers to different kinds of layoffs.

Rooney then went on to say:

...we know from our prior research that recessions have a deletarious impact on giving for all subsectors (except religion, which grows throughout all stages of the business cycle--although more slowly than most subsectors in good time and in bad). Human service org's are especially hard hit as they experience an increase in demand for their services at the same time they typically see a decline in their charitable gift receipts.

I'm afraid we are already there.

AFP publishes more proof of fundraising divide

Look. I'm not here to waste your time.

Most people don't know this, but I have a magic crystal ball in my desk drawer. It has special powers that allow me to predict the future. Not only that, but I read a shit load of news stories everyday about fundraising in order to hopefully share some observations of what trends will influence our industry.

I'm not trying to scare you. I only want to warn you - so pay attention.

Small nonprofits seem to be in trouble... and it may only be a matter of time before larger groups start to see the same fundraising weakness creep into their programs.

The AFP published the results of an online fundraising survey today.

In general, larger organizations are faring better than smaller charities. Two-thirds of organizations with budgets greater than $50 million have raised more money during the last quarter of 2007 than in 2006, as are more than half (52.4 percent) of charities with budgets between $10 million and $50 million. In contrast, only about one-third (32.7 percent) of organizations with budgets smaller than $500,000 have raised more money during the last quarter of 2007 then they did during the same period in 2006.

Now, I know what you are thinking... fundraising is not an easy job. This is a very tough profession and if charities can't retain top quality talent and invest in fundraising, they aren't going to make it over the long run.

But if there is a recession looming which could cause an industry wide fundraising slump, there is no doubt smaller charities would be affected first. If you are a Development Director you might want to consider buying a canary for your coal mine in 2008.

"It’s got to be the economy, when those who usually donate are seeking help"

Another local Salvation Army might have to extend its kettle drive to meet its goal. With just six days left, the Fergus Falls Daily Journal reports that local officials are considering putting the kettles out for another week past the Dec. 24 deadline. Go here to read more.

Maybe they need a miracle like what happened in Exton, PA where an Army veteran who remembered getting free coffee and doughnuts from the Salvation Army decades ago gave a $10,000 check to a dumbfounded bell-ringer.

But honestly, even if expensive coins were dropped in kettles across the country, there is still bad news brewing... I can feel it in my bones.

Local Salvation Army chapters feel pinch

Channel 15 in Madison, WI says the Salvation Army needs a miracle:

Currently, the Salvation Army is about $70,000 behind where it was this time last year. There's also about 400 bell ringers short of last years volunteers as well. The Salvation Army's goal is $480,000 for its red kettle campaign. Right now its at $275,000 which means its $205,000 short.

And in Minneapolis - St. Paul the news seems to be even worse:

However, agencies that depend in part on United Way, businesses and individual donors -- such as Catholic Charities, the Emergency FoodShelf Network and Salvation Army -- report that fundraising is lagging while demand for food, shelter, clothing and other support has risen. Those seeking help range from the chronic homeless to folks who can't make mortgage payments.

Bad fundraisers are always looking for an excuse for missing their numbers. I've been doing this long enough to remember when groups used 9/11 or Katrina donation fatigue in past years... but I really think the Chronicle of Philanthropy is on to something when they point out the growing economic divide between charities.

Did the credit crisis kill Santa Claus?

Back in August when the sub prime housing bubble sparked a sell-off in the stock market, the New York Sun wrote an article asking if year-end fundraising would get caught in the downdraft.

"The credit crisis and the stock market turmoil are having a preliminary impact on the nonprofit sector and concern is growing that fund-raising could be hurt if the downturn continues to gain steam."

Yet before fundraisers could blink, the market rallied and stocks hit multi-year highs in the early fall and everything seemed fine again.

And then November happened. Investors began to see that the impacts of the housing "bubble" were beginning to spread and infect consumer spending. Huge financial institutions began to write off billions of dollars in bad debt. As a result, the stock market appears poised for another precipitous decline - one that could threaten to wipe out most of the gains from 2007 in the Dow and the S&P index.

If stocks suffer, year-end bonuses will suffer, and therefore, year-end giving will also suffer.

I know some fundraisers who dug out that newspaper article from August and are already preparing their excuses in case they don't hit their year end numbers. I've joked before about creating a major donor fundraiser anxiety index and selling it to the guys on Wall Street who would use it as a leading market indicator of consumer confidence.

Fundraisers don't need Morgan Stanley to tell them that the country will enter a recession in 2008... the smart development directors see it happening already.

Two more articles on Monday finally confirmed for me that Santa Claus might be having trouble making his adjustable rate jumbo mortgage and therefore won't be bringing many year-end presents.

First, MasterCard announced that sales of women’s clothing, a traditional pillar of the holiday shopping season, are unusually bleak so far this year. "From high-end dresses to bargain coats, spending on women’s apparel dropped nearly 6 percent during the first half of the Christmas season, compared with the same period last year."

The second ominous sign came from Tracie McMillan who published an article on MSNBC this morning profiling the fundraising worries at the National Wildlife Federation where fears of a donor drain have made it difficult to replace departing benefactors.

Bill Levis, the author of a new pilot survey by the Urban Institute that documents the trend. Levis’ survey shows that most nonprofits post an average gain of just 10 percent each year: they lose 52 percent of their donations, which is then offset by a 62 percent gain in new or upgraded donations. In short, says Levis, nonprofits are losing almost as much as they’re gaining, pouring a river of money into a nearly open drain.

You could make an argument that different nonprofits have different fundraising structures. Some cash strapped organizations are dependant on aggressive short term revenue targets at the expense of growing a more sustainable long term donor value... but that misses the point.

If the economy is about to hit a recession, nonprofit fundraisers will be among the first to know it.

UPDATE: I can't imagine what it must be like to live in Manhattan and be surrounded by this shit all the time - but a Wall Street blog is reporting that Morgan Stanley and Bear Sterns are "much lower" than last years.