This post is co-authored by Olivia Miller Gattuso with input from the entire Ostara team.
This post is part one of a three-part series. In this post, we discuss what the data tells us about how funders responded during the last recession and what nonprofits can expect this time.
To understand the extent of damage to the sector in the last recession and identify ways nonprofits can survive the crisis at hand, our team compiled giving trends from the top 50 private foundation funders in Washington State between 2007 and 2012.[1] During the last recession, it is worth noting three things:
1. Foundation funding surged, dropped, then recovered:
Following the economic crash in mid-2008, private foundation giving experienced a temporary one-year boom of more than $150M[2] (presumably to address immediate short-term emergencies) and then a large drop below 2007 rates. By 2012, giving had almost entirely rebounded: in our sample, giving hit 98% of 2007 giving levels that year. These trends are consistent with national data, which shows funding did not fully recover until 2012.
Figure 1 Source: Nonprofit Quarterly, March 2020
What does this mean for you?
Think about your organization’s big picture and what you can do to prepare for 2021 and 2022. Even if you are doing okay now, know that more drop-offs in foundation funding could be coming down the road and consider a plan to increase revenue in other areas as a practical measure. Think about foundation funding as one piece in an interconnected ecosystem of funding. If foundation funding goes down, what other parts can go up? Read Part II of this series for very specific recommendations of what to do now to prepare.
2. Funders responded differently:
In the 2008 economic crash, we see the response of funders in three different ways. In our sample:
One-third of funders completely stopped giving. This reduction represented a loss of $39M to the local nonprofit economy.
One-third gave less than the prior year. This shows the average funder decreased giving by 33%.
One-third gave more. These funders gave an average of 83% more than the previous year.[3]
The Seattle Foundation, whom we might view as a microcosm of donor behaviors and attitudes, awarded smaller grants to fewer grantees in 2008 and 2009 compared to 2007. By 2011, they gave more than twice as many grants but fewer total dollars. This indicates lower average amounts per grant, but more organizations impacted than before the recession.
What does this mean for you?
Reach out to all of your funders, but know that it is unlikely that all of them will respond the same way. Lean into relationships with funders who understand and are responding to the pressures you are feeling. Nurture those relationships, but don’t ignore the others – they will come back eventually and you want to be positioned to resume that relationship when they do. Check out this post that describes how to approach funders that you already have relationships with to garner additional support during this tricky time.
3. Funding varied per mission sector:
The short and long term impacts of changing funder priorities were felt differently in each category. See below for the response of each sector:
Education:
Initial Response: In our list of 50 funders, education grants more than doubled in the year of the recession, following the pattern noted above. In 2009, though, they dropped back down to lower than pre-recession levels. At the same time, according to Philanthropy Northwest, grants to education-related causes increased in proportion to overall giving in that same time period, indicating a sharper decline in other categories.
Rebound: By 2012, education funding in our sample had increased back to 44% higher than 2007 levels. By 2014, education received more dollars in the Pacific Northwest than any other category.[4]
Today: There are key differences between the 2008 recession and this one for education organizations, primarily the profound impact that closing schools across the country has on youth and education-based programming. It is yet to be seen how this trend transfers into the age of COVID-19. Focus diligently on funder retention over the next 6-18 months. Thank funders who have given more money to your cause or shifted to general operating grants. Share anecdotes and regular updates about your work. Communicate regularly about how you are planning for the future and the funds you know you will need to sustain services. Demonstrate that you understand and are keeping up with changing education priorities.
Arts:
Initial Response: Between 2006 and 2008, arts funding increased overall, but decreased as a percentage of total charitable giving in the Pacific Northwest.
Rebound: Philanthropy Northwest research indicates that arts giving declined in the region overall by $8.2M between 2010 and 2012. Community foundations and corporate funders actually increased their arts giving in this same time period.
Today: So far, we have seen public funders step up to support arts grantees during this time. But some family foundations and COVID-19 relief funds have been slower to respond. Continue to advocate for the value of arts organizations, even during this time. Seek relationships with community foundations and corporations who already understand the tremendous value you provide. Keep your funders engaged by celebrating past performances and any programming that has pivoted to the digital space.
Human Services:
Initial Response: Funders in our sample followed a different trajectory than other categories; they immediately decreased funding in 2008 but then rose back up to distribute more funding by 2010 than they had pre-recession in 2007. This represents a quicker and bigger increase – likely in response to soaring community need for food, housing, and wage support—than giving in other categories.
Rebound: By 2012, as the economy regained its footing, growth in human services funding was outpaced by growth in other areas.
Today: We have already seen a surge in responsive funding for human services. However, we anticipate this increase to dissolve in 2021 and potentially level out or grow in future years. Similar to education funding, focus on funder retention.
Environment:
Initial Response: The environmental sector took the hardest hit in 2009 as total dollars granted by our sample of funders shrank by 62%.
Rebound: By 2012, environment funding had fully rebounded, and the number of grants distributed to environmental causes had more than doubled over 2007 numbers.
Today: Pacific Northwest funders consistently give higher dollar amounts in this category than funders in other parts of the country (according to Philanthropy Northwest trends reports). While environmental grants may decrease in 2021, we anticipate the community interest to save our planet will grow in the future. Like in the arts, continue to communicate the value of your sector even in this time; what lessons can we learn right now about the impact of lower human activity on the environment? How can you use this time to plan for and expand services strategically? How can you bring funders along on that journey?
Health:
Initial Response: In the last recession, health funding was remarkably steady. 2012 giving by our sample was comparable to 2007 in both dollar amount and number of grants distributed.
Rebound: When we expand the time period in question, though, we can see that health funding began to soar in subsequent years; between 2012 and 2014, overall giving to health-related causes more than doubled.[5]
Today: Funding in this category has the potential to be the most radically different than the last recession, due to the overwhelming impact of COVID-19 on our health-related infrastructure. It is difficult to understand and predict how philanthropy will respond. In the past, family foundations made up most of the surge in health-giving, so look to these funders that you already have relationships with to bolster revenue in the next several years.
Capital:
Initial Response: During the real estate boom prior to the 2008 crash, capital funding had increased each year relative to other types of gifts and made up one-quarter of all grants in the Pacific Northwest. In 2009, capital grants quickly decreased to one-third of 2007 levels. During this time, we saw many foundations quit funding capital. As part of our capital projects back then, organizations had to plan for fewer foundation gifts and move many of those asks from the early stages of the campaign to the back-end of the campaign, with the hope that they would come back.
Rebound: By 2012, our sample of funders recovered this loss and distributed more capital grants than in 2007. Philanthropy Northwest reports continued gains in capital funding of more than $37M (a 41% increase) between 2012 and 2014.
Today: Many organizations will need to reassess the goals and timeline of their capital campaign. Make sure your case for support is clear and timely. As foundation funding for capital potentially declines, focus on stewarding your individual donors and engaging your community within this new context.
What does this mean for you?
While COVID-19 brings its own challenges to each sector, we can rely on 2008-2012 data to make conservative and educated budget projections for the next few years. It may be in your best interest to review your actuals from 2007 to 2009. What changed? Which funders were most responsive to your needs? Use this information to prepare your board, staff, and organization for the next few years. Most importantly, be sure to maintain communication with your current and lapsed funders—even if they deny your next proposal.
From all of this, we know that many funders come back and new funders pop up, so continue your stewardship, cultivation, and research efforts. Based on our prior experience, this will lead to more institutional funding in the future.
Read part two for more details on how to shift other parts of your fundraising efforts and your financial planning in response to the changing priorities of grant funders.
Conclusion
We know that the future is filled with uncertainty and fear, but nonprofits of all sectors have been resilient in the past, coming back stronger than ever. We must use the lessons of the past to help guide organizations through this unprecedented time. Look out for Part II of this three-part series that will help you navigate the next 30 days, prepare through the end of the 2020 fiscal year, and set 2021 up for success. We are in this together and we look forward to serving as your thought partner through this.
We are here for you and we will walk with you as you navigate this situation. Please don’t hesitate to reach out to us if you would like to discuss how to shift your fundraising event plans, how to respond to funder inquiries about programs and services, how to manage remote work for your teams, or to navigate fears with donors or volunteers. We’re here to connect.
[1] Data included private foundations whose tax records can be found in Foundation Directory Online, through public Form 990s. We compiled the 50 foundations who are based in Washington State and who gave the most in terms of total dollars granted in the five-year period examined. Then we assessed their individual giving patterns towards WA-based 501(c)(3) organizations during that time. This is an admittedly incomplete, but still informative, the sample of WA philanthropy during the last recession. While private foundations do not make up the entire funding landscape in Washington, we know that they distribute as much as 85% of the region’s dollars.
[2] Private grants increased from $701M to $859M between 2006 and 2008.
[3] This excludes Gates who increased giving by $80M, more than doubling their 2007 figures.
[4] See Philanthropy Northwest 2014 Trends report: https://philanthropynw.org/sites/default/files/resources/Trends_in_Northwest_Giving_2014-Philanthropy_Northwest-2.0.pdf
[5] See Philanthropy Northwest 2017 trends report: https://philanthropynw.org/trends17/fundertype