The full impact of the economic recession on our local charities will not be felt until next year. Although the recession has certainly curtailed charitable giving on the part of individuals, foundations, which typically use a rolling average asset calculation as the basis for determining the amount of money they will give for the calendar year, have yet to incorporate the reduction in their assets caused by the financial market declines we have witnessed over the past six months. Unless the stock market rallies substantially this year, foundations could see as much as a thirty percent reduction in giving for 2010.
Tom Parker, president of Hutton Foundation, despite the negative impact of the recent market declines on giving levels for foundations, sees opportunities for foundations to make positive changes and advancements due to the economic downturn. Recently Hutton Foundation, along with the Orfalea Foundation and the J.S. Bower Foundation, entered into a joint use agreement with the Carpinteria Unified School District for use of the former Main School Elementary building in Carpinteria. They are currently in the process of developing a collaborative nonprofit early childhood education and family resource center at this location. In addition, Hutton also recently purchased an office building located in downtown Santa Barbara, at 1330 State, in which they plan to house multiple nonprofit performing arts and arts-education agencies.
Although these recent acquisitions are a positive sign that our local foundations are working hard to address the many needs in our community, Parker states that there will be difficult times ahead. At the recent Partnership for Excellence Conference, with over 500 local non-profit and foundation representatives in attendance, it was made clear from discussions that foundations will be forced to prioritize their giving in the coming few years, focusing on essential services such as food, shelter, and education. Parker also warns that federal, state, and local funding sources will likely be cut as budgets are strained by the difficult economic environment. As a result, local charities will be much more dependent on local foundations, as well as donations from individuals and businesses.
Ron Gallo, President and CEO of the Santa Barbara Foundation also sees tough times ahead for local foundations and the charities that they support, but says that our community foundation has committed to maintaining its level of giving this year. While Gallo acknowledges that the foundation has a commitment to maintaining the value of its portfolio to support long-term giving, the board feels that the tough times we are experiencing warrant additional support in the short-run. With this in mind, the Santa Barbara Foundation is considering an additional distribution to support essential services-related charities in town. Gallo also says that despite the recession, the donations received last year were about in line with previous years, and amounted to about $13 million. Still, Gallo hopes that potential donors will recognize how critical their support is, for foundations and charities, and that donors will do everything possible to help during this trying economic time.
For non-profits, Gallo recommends they focus on three primary issues:
- Non-profits need to understand the political landscape, and pay attention to legislation like the upcoming ballot measures in the May 19th special election, which if passed, could be devastating to some of our local charities that provide critical services for mental health and children’s programs.
- Charities need to also consider partnering and collaboration, or merging with complimentary agencies, both to increase their effectiveness and to cut overhead costs. The alternative for some may be failure, and Gallo advises that it is better to be proactive and explore options before it may be too late.
- Finally, on the fundraising side, charities need to work with foundations and their donors to explore as many funding sources as possible, and to get their story out to the public, so that potential new donors are made aware of the services provided by the charity, and also what their needs may be.
Foundations can also help charities with their fundraising activities, and Gallo states that all options are on the table. It may be possible for local foundations to collectively establish a fundraising panel to help both foundations and charities with their fundraising activities. Most charities do not have staff with direct expertise in fundraising, and are either forced to spend donor funds to pay outside consultants, or more often, just do their best with existing staff members who may not have the skills or time to fully pursue a comprehensive fundraising program.
Parker states that about twenty percent of total funding for local charities comes from foundations, meaning that eighty percent comes from either existing funds held by charities, or individual and business donations. Also, the Santa Barbara Foundation also depends in large part on donations from community members and businesses, and they are working hard to connect with potential donors. With the vast majority of funding coming from individuals and businesses, it is crucial that community members recognize the need for donations, and that we all do our part to support local charities, especially those providing essential services, such as food, shelter, children’s programs, and education.
As the President of the Board of Transition House, I can state that demand for our services in our twenty-five year history has never been greater. It is especially difficult to see funding cut for services that directly benefit children. Transition House is in the process of building an endowment fund, which we hope, in time, will provide substantial funding for the annual budgetary needs of the agency. However, at the moment, and as with most charities in town, Transition House depends in large part on individual and business donations to keep the agency operating.
Gallo says that the donors who consistently give the largest percentage of their incomes are the lowest income-earners. Santa Barbara is a community with many high income earners, with large pools of wealth. Hopefully, some of our wealthier residents will consider supporting our local charities to a higher degree than in previous years, given the negative impact of the recession on other funding sources, and also keeping in mind that proposed changes to the tax law could make charitable deductions in the future less attractive.
Obama favors limiting the tax benefit on charitable contributions to 28 percent, rather than the higher rate for those in the highest tax bracket, currently 35 percent, or the proposed 39.6 percent if we return to the previous top bracket under President Reagan. So, it may make sense for top income earners to consider giving more this tax year to take advantage of the higher potential deduction. (Make sure you check with your tax advisor before making any decisions regarding taxation or charitable giving.)
My last few articles have had a connecting theme, which is that local residents can make a difference, to help our community survive this recession and to lessen the impact of these hard times on our citizens and businesses. This is also certainly true for our local charities, especially those that provide essential services like food, shelter, children’s programs, and education. When times are tough, we don’t always think of helping others, especially when we are struggling ourselves. But, it is precisely these circumstances that cause the greatest demand for basic services provided by charities, and therefore the greatest need for your support. Hopefully we can all do our part to support our local charities and make Santa Barbara a better place for all who live here.