Fewer Friends In Need

Betsy Isroelit has much to be thankful for. The 59-year-old resident of Hollywood, Calif., runs her own marketing company and has a loving husband and four children. But as she sits down to Thanksgiving dinner this year, Isroelit has one big regret: she's less able to share her good fortune with charities as generously as she has in years past. Usually she writes checks to a host of local and national disease-fighting organizations and do-gooders. But this year, with the stagnant economy and the flaccid stock market, she's cut back, axing groups like the Sierra Club, a local AIDS organization and former president Bill Clinton's library from her list of recipients. "I absolutely hate the fact that I did this," says Isroelit. Even the checks she's still sending out--to groups like the Los Angeles Philharmonic and the local Boys Club--are for smaller amounts; overall, her donations have dropped by 25 percent. "I'll never stop giving," she says. "But I wish I didn't have to narrow that list."

Santa won't be the only one checking and rechecking his list in the weeks ahead. Holiday cheer--not to mention the Dec. 31 deadline for chalking up tax deductions--makes this the homestretch in fund-raisers' race to meet their annual goals. But all evidence points toward something less than a banner year. Some of this slippage is to be expected: during a recession, charitable donations usually drop by 1.1 percent, according to the American Association of Fundraising Counsel. But last year, even with the $1.9 billion avalanche of donations to September 11-related causes, total charitable giving declined 2.3 percent to $212 billion, the first inflation-adjusted decline in seven years. And this year the drop may be even steeper, as the impact of the soft economy is compounded by the shrunken stock portfolios and the growing sense that some charities aren't managing their funds as wisely as they should. As a result, fund-raising pros say they're working twice as hard to get every dollar of donations as they did during the '90s boom.

Individuals, who account for 75 percent of charitable giving, aren't the only ones pulling back. Corporations cut their philanthropy by 14.5 percent last year. "As long as corporate earnings lag, then corporate giving will probably lag as well," says Eugene Tempel, executive director of the Center on Philanthropy at Indiana University. Foundations, which contribute 12 cents of every charitable dollar, managed to increase their spending last year, but they can't make up for the shortfall indefinitely. During the first half of 2002, nine of the nation's top 10 foundations lost a combined $8.3 billion as the stock market slid. "The foundations have said they will overspend a bit and hope they see a turnaround in 2003," says Foundation Center president Sara L. Engelhardt. But if conditions don't improve by midyear, she says, "a lot of foundations will have to bite the bullet and make deeper cuts."

For a look at how this disturbing confluence affects one charity, slip into a tux and saunter into the annual November auction benefiting the Boston-based AIDS Action Committee. In past years you could bid on a luxury vacation in the south of France or a ride in the Monster.com blimp. On second thought, skip the fancy duds--the charity recently canceled the event for the second year in a row. The reason: many of its donors, especially high-tech entrepreneurs and venture capitalists, are too strapped to dig deep. Organizers may face the same problem as they plan for next spring's 20th-anniversary gala. There are some bright spots on the group's income statement: penny-pinching shoppers are spending 25 percent more than projected at the nonprofit's secondhand-clothing store. And its annual AIDS walk raised $1.4 million this summer, up from 2001; that's reflective of a nationwide trend of activity-oriented events (hikes, bikeathons and the like) attracting better sup--port than stodgy dinners or auctions. Still, executive director Michael Duffy has had to cut the group's budget by 10 percent and lay off 20 percent of its staff. More cuts may come next year.

The problems go beyond pure economics--America's philanthropies are simultaneously facing a rash of PR problems. Charities, such as the Red Cross, were buffeted by complaints that they had mismanaged the outpouring of 9-11 donations. The United Way has been hit by several rounds of highly publicized articles questioning accounting issues. Scandals at corporations like Enron and Tyco have raised new questions about how fairly big companies are doling out their charitable dollars. In the latest scandal, last month Citigroup faced allegations that it gave $1 million to a Manhattan preschool to help get a star employee's toddlers admitted. Corporate-governance types have long fretted that too many companies give too much to bosses' pet causes and don't tell shareholders where their money is going. In the past, legislators who've tried to address the problem have gotten nowhere, but after growing recognition of the issue this year, that could change. Says Patrick McGurn of Institutional Shareholder Services: "You might see this issue spring back up onto congressional agendas."

Even if Congress doesn't move on that front, charities say they're facing other pressures as donors themselves begin taking a Consumer Reports-style approach to finding the most worthy causes. For groups like the United Way, that means when controversy erupts, "it's not good enough just to be right anymore; [the operations have] to be easy to understand--you have to be transparent," says Brian Gallagher, the United Way's president. The organization says recent press articles about its accounting were unfair. It's an environment that people like Betsy Isroelit are growing accustomed to as well. "There used to be an assumption that moneys you gave would be used appropriately," she says. "Now I really want to know that my money is being used in the right way, that my charity is making a difference." It's a noble impulse, of course, but it makes fund-raisers' jobs that much harder--and perhaps sets the stage for even bluer Christmases in the future.