A rough patch for local companies can presage lean times ahead for local nonprofits.
LandAmerica and Circuit City both filed for Chapter 11 Bankruptcy protection in November. Wachovia Securities, another major corporate giver, packed up most of its operations in favor of St. Louis.
All three gave away large sums. Both Circuit City and LandAmerica give away more than $1 million a year, according to paperwork filed with the IRS. LandAmerica matched some employee donations, and its list of recipients is more than four pages, including everything from the American Red Cross to the Virginia Museum of Fine Arts. Most donations were small amounts, about $200, but LandAmerica gave $42,000 to the Virginia Historical Society.
Wealthy individuals, meanwhile, have watched their net worths plummet by as much as 40 percent, and shares of many locally traded companies have taken an even greater hit, including Genworth and Media General. Nonprofits generally rely on several types of donations and grants, including some from the state. But the state is cutting grants to shrink its overall expenditures, and some charities are sounding the alarm. A Boys & Girls Club in Hampton Roads says it might have to close if it can’t raise emergency funds.
Things might not be that bad in Richmond yet, in part because endowments give out grants based on more than the current state of the stock market. Bobby Thalhimer, a senior vice president with The Community Foundation, helps manages endowments that grant money to local nonprofits. The fund was established in 1968 and has $667 million in assets.
Richmond BizSense chatted with Thalhimer before Thanksgiving about the state of local nonprofits and what sort of cuts might be ahead.
Richmond BizSense: Are you seeing a decrease in giving both at your organization and in the Richmond nonprofit world?
Bobby Thalhimer: The fact that endowment values are down is going to diminish spending over time, but it’s not uniform the way it does it. In this foundation, we compute spending at a 12-quarter moving average. Next year’s endowment giving shouldn’t be terribly affected. But if the market stays down, then we will see it diminish.
RBS: Several major corporate benefactors have declared bankruptcy. That means the companies will not be giving and many of the employees are out of work. How will that affect local organizations?
BT: Corporate giving is going to be difficult. If they have charitable expenditures that they also look at marketing, I think that type of giving is likely to be maintained.
The good news is that individual giving in recession is resilient. There are very few instances of year-over-year declines. So for charities that primarily rely on giving from individuals, they will generally fare better than those that rely on corporate or governmental support.
RBS: Are local charities affected by the plummeting value of shares in locally traded companies? Do families or CEOs give stock as a donation?
BT: We get stock all the time, and we sell it as quickly as possible to get our assets diversified. We’ve gotten stock gifts from leaders of local companies. The Community Foundation faces only modest risk from the decline in the shares of local companies, because its policy is to sell assets as soon as possible after receipt, and it achieves broad diversification through an investment partnership with the University of Richmond’s endowment.
RBS: How exactly does your organization function?
BT: We manage charitable endowments and provide stewardship for those assets, make sure we follow the donor’s intent. In most cases, the families who establish funds recommend where the grants go.
RBS: How important is the holiday season for nonprofits?
BT: It’s huge. People do their giving around the end of the tax year. Typically the largest portion of gifts comes in the fourth quarter. From now through the end of the year is a very important time.
RBS: What nonprofits are most vulnerable right now?
BT: Those that are meeting basic human needs have the advantage over those that are culturally based. A lot of social services have many small donors. They’re more diversified and more stable. I think some of the cultural institutions have more risk. The museums, art organizations. They don’t have as broad a giving base. There is a perception this year that is really based in reality, which is there is greater demand at the food bank and greater demand at charities serving the homeless.
RBS: Do you think we will see nonprofits closing up?
BT: It’s fair to say that we can expect nonprofits to deal with similar forces that are happening in corporate America. As budgets get pinched, they will have to become more creative. You will likely see some combinations and mergers of nonprofits. Some of the smaller ones might disappear.
Aaron Kremer is the BizSense Editor. Please email news tips to [email protected].