‘Recession’ or not, this won’t be fun

Originally published in Current, July 14, 2008
By Jeremy Egner

Former blue-chip stocks are no longer worth the paper they’re printed on. Tumbleweeds blow through abandoned department stores. A full gas tank is worth more than the remaining equity in your house.

This only slightly exaggerates the economy’s plight as broad concerns about the economy deepen — with no relief in sight.

The U.S. has yet to officially enter a recession, defined as two or more consecutive quarters of negative economic growth. But financial pain, not the state of the gross domestic product, is what governs Americans’ behavior, economists say, and they’re definitely feeling it.

“Unemployment is growing, new job creation is slowing, foreclosures and bankruptcies are on the rise,” says Patrick Rooney, economist and director of research at Indiana University’s Center on Philanthropy. “To many households and firms, it looks like a recession.”

Jared Bernstein, an economist at the Economic Policy Institute, a think tank in Washington, D.C., says the current malaise could last deep into 2009.

What that means for public broadcasters and other nonprofits is still unclear, but it probably won’t be fun. When people tighten their belts, philanthropy is often among the first to feel the squeeze.

The sort of corporate image marketing that fuels underwriting is one of the first budget lines companies cut in tough economic times, says Don Ershow, c.o.o. of the underwriting broker National Public Media.

On the individual donor side, while giving remains a core value in many households during grim times, the option starts to disappear for those with lower incomes. Economic pains add to the challenge of public radio’s 3MG project, which aims to build the field’s donor lists to 3 million by the end of 2012 (commentary by DEI's Jay Clayton and Melanie Coulson).

While 2007 remained a mostly positive year for nonprofit fundraising according to recent reports such as Giving USA and the Philanthropic Giving Index, compiled by the Center on Philanthropy, there are signs of trouble in 2008. Target Analytics' Index of National Fundraising Performance found that in the first quarter of 2008, overall revenue slipped nearly 2 percent.

That survey covered the period that ended March 31. Since then, the S&P 500 index — the single strongest predictor of household giving, Rooney says — has dropped by nearly 10 percent, as of last week.

Target Analytics report didn’t cover data from public broadcasters. But some parts of the system have also either begun to feel the pinch or are preparing to do so as they enter fiscal year 2009, which for many pubcasters started July 1.

Underwriting revenues at Vegas PBS in Las Vegas are down $100,000 from last year, says Tom Axtell, g.m. More than half of public TV’s state networks face funding cuts this year (Current, June 9). Earlier this spring, NPR had to adjust its underwriting growth projections for 2009. And Minnesota Public Radio plans to pare down its staff this year (Current, June 9), though the network had no details to report last week.

Plenty of stations are doing fine so far, at least in pledge drives, according to consultants. But corporate dollars are increasingly scarce and, as a result, the numbers “for a lot of stations have not come together,” says Doug Eichten, president of Development Exchange Inc.

DEI modified a good chunk of this week’s Public Radio Development and Marketing Conference, which starts July 17 in Orlando, to address “what do you do in a down economy,” he says.

The one thing stations shouldn’t do is feel guilty about asking for money or radically alter their approaches just because things are tough, consultants say.

“This just means you have to work harder,” Eichten says. “What happens in an environment like this is nonprofits become much more competitive with each other than they typically would be.”

“We know with certainty that fundraising success will go down if people stop fundraising,” Rooney quips. “In general, people don’t give as much if they’re not asked.”

The bigger the bubble’s burst,
the longer the recovery

While we gawk at the crumpled wrecks of General Motors, Fannie Mae and other massive institutions in a fiscal pileup, the economy is generating a backdrop of gloomy national stats.

On July 11, the Dow Jones Industrial Average slipped below 11,000 for the first time in two years before recovering somewhat. The national unemployment rate for the past two months was 5.5 percent, the highest since 2004. The consumer confidence index fell to 50.4 in June — down from more than 90 as recently as October — and is projected to sink lower.

The gross domestic product grew at an annual rate of roughly 1 percent in the first quarter of this year, according to the Bureau of Economic Analysis. But such meager progress can feel as bad as a recession, according to Bernstein.

“If it is growing at 0.5 or 1 percent, that’s too slow to generate the economic activity for job and income creation,” he says.

When and how will the sluggishness end? Economists don’t often agree on such things.

However, there’s a general consensus that the U.S. has slipped into one of the more painful types of slowdowns, Bernstein says.

Economic recoveries tend to follow one of three alphabetical paths, he says. A “V” is characterized by a sharp dip followed relatively quickly by a sharp return to normal. A “U” features a longer stint in the economic doldrums.

The country is now facing an “L,” Bernstein says, which, as you’d expect, includes an especially lengthy recovery period. (Picture a forlorn Uncle Sam with his pockets turned out, making a “loser” sign on his forehead.)

As with the last downturn at the start of this decade, this one was precipitated by a bursting bubble. The pain of the dotcom collapse was focused mostly in Silicon Valley and on Wall Street, however. This time, many more of us are feeling the housing crisis, and there’s a greater loss of paper wealth, Bernstein says. More important, its turnaround will be based on the behavior of millions of home buyers and sellers, rather than the relatively focused fluctuations of the stock market, he predicts.

Throw in spiking fuel prices and food costs, Bernstein says, and “it looks to me like we’re going to be slogging along in the doldrums for much of 2009.”

What Wall Street says about
nonprofit bottom lines

Nonprofits should expect to do some slogging, too.

In normal years, charitable giving grows at an average of 4.3 percent, adjusted for inflation, Rooney says. In recessionary years, giving declines an average of 1 percent.

“That 5 percent swing is not precipitous, but it’s noticeable,” he says.

Historically, high- and middle-income households remain just as likely to give during downturns, he says, though there’s generally a drop-off among those that earn less.

Target Analytics found that the number of donors declined 4 percent between the first quarter of 2007 and the same period in 2008. This continues a decline in the index that has prevailed since the last broad donor influx, after the U.S. Gulf Coast hurricanes in 2005.

But for the first time, revenue declined along with the number of donors. Larger average gifts have offset donor loss until this most recent index, which saw revenue drop by nearly 2 percent.

That trend could continue if the strong historic link persists between individual giving and Wall Street’s faltering performance. “If the stock market goes down, giving tends to go down,” Rooney says.

Since foundations are required to pay out at least 5 percent of their portfolios every year, market performance could affect their outlay as well, Rooney notes.

Foundation assets do tend to “go in the same direction as the stock market,” acknowledges Josie Atienza, assistant director of research for the Foundation Center, a research and support group for nonprofits.

However, many foundations set their grant budgets based on asset totals averaged over several years, which have allowed them to give at consistent levels even during past slowdowns, she says.

For example, when foundation assets decreased in value during the market crash earlier this decade, overall giving declined by a much smaller percentage.

The value of foundation holdings has steadily increased since 2003, she notes.

“We expect that to help in terms of making it possible for foundations to maintain their giving” during the current malaise, Atienza says.

The landscape may change
but the basics stay the same

Thus far, the downturn’s most notable effect on pubcasters has been in the area of underwriting, according to development pros paying attention.

“Marketing goes first,” NPM’s Ershow says. “It’s a lot easier to cut down on marketing than it is to shut down a factory or lay people off.”

National underwriting has been flat this calendar year after modest growth in 2007, he says. “As of right now, it would be unwise — given the current environment—to anticipate growth” this year.

Although some stations have reported poor pledge drives, membership has not yet been affected in the same way, says Jay Clayton, an advisor with DEI. “If somebody has a bad pledge drive, it isn’t necessarily the economy,” he says. “It can be any number of factors.”

Individual giving typically doesn’t decline quickly, DEI’s Eichten says. Instead, it steadily declines over a much longer period of time, which can be even more detrimental, he says.

Some stations have begun to see subtle signs that the economy is affecting individual giving. At KRWG in Las Cruces, N.M., donations have been healthy and overall revenue was up more than 14 percent in fiscal 2008, says Ford Ballard, development director. But smaller gifts have lagged, he says. The station has been asking for “whatever you can give” rather than fixed membership levels.

Nonprofits should make it clear that they want and need gifts of whatever size the donors can afford, whatever the state of the economy, Clayton says.

“What I always encourage stations to do is look not at the average gift among new donors, but look at the most common gift,” he says. Stations can encourage gifts of that amount by letting people know others are doing the same.

Stations should focus on retaining existing givers, which means keeping up communication between gifts and telling them how their gifts helped the station, Clayton says.

At the end of the day, development pros say, the basics — recruiting new clients, fine-tuning direct mail, nurturing member relationships — become even more important when times are tough.

“You have to do the blocking and tackling of fundraising,” Ershow says. “You have to make sure you don’t allow the economic conditions to derail you from doing what you’re supposed to do.”

“Those are the things you can control,” he says. “You can’t control the price of oil.”  

Reported with help from Katy June-Friesen and Mike Janssen.

Web page posted July 16, 2008
Copyright 2008 by Current LLC

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EARLIER ARTICLES

Work week trimmed in San Francisco, 32 layoffs foreseen in Seattle, 2003.

Public TV's revenues were down again in FY03, radio's boomed in key sectors, 2005.

Kentucky, other states pass on their fiscal pinch to pubcasters, June 2008.

Seeing "sustained" downturn, MPR predicts staff cuts, June 2008.

RELATED ARTICLES

3MG (3 million givers): necessary drive for reachable goal, by DEI fundraising consultants Jay Clayton and Melanie Coulson.

Observing the subprime 'tsunami,' CPB commissions a response: KETC's Facing the Mortgage Crisis outreach project.

LINKS

Target Analytics' Index of National Fundraising Performance, 1st quarter 2008 (PDF).

Giving to educational institutions is expected to grow 5.3 percent this fiscal year, slower than the average 7 percent, based on a survey by the Council for Advancement and Support of Education, the Chronicle of Philanthropy reported.

 

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