Philanthropy: Doubtful donors

Foundations are shaken by the market quake.

It’s always tricky asking for money in shaky economic times. If you’re a charitable organization, or a major social or cultural institution like a hospital or a museum, you may want to place a call to your friendly neighbourhood philanthropic architect. That’s what Susan Egles and Sandy MacKenzie, co-owners of Toronto fundraising consultancy Inspire, call themselves. The term sounds pretentious, but it makes sense. Just as an architect designs a building, the philanthropic version, says Egles, is “looking at the total fundraising architecture … from the foundation up.”

While steel-and-glass architects design structures to withstand earthquakes, Inspire advises its clients on how to build and operate fundraising systems to ride out market tremors. But right now, the metaphorical calamity is more akin to the San Andreas Fault on a bad day. If you rely on funding from one of Canada’s private philanthropic foundations, keep an eye on the Richter scale.

Canada has 4,659 private foundations. With a combined asset base of $15.1 billion, they doled out just over $1 billion in 2006–2007, according to the Canada Revenue Agency. CRA rules require a private foundation to disburse annually 3.5% of the average value of its assets over the previous eight quarters. Given that the asset base of most foundations is weighted toward equity, those two fiscal years smooth the market bumps, bringing a predictability to the disbursement process.

For the past six years, Bruce Lourie has been president of the Toronto-based private Ivey Foundation, which has an endowment currently valued at approximately $60 million. Over the summer, it was worth $70 million. Just about every foundation has lost about 20% to 30% of the value of its endowment, says Lourie. “What we are seeing now is more than just the cyclical up and down.”

This much we knew. But the compounding shock wave yet to come was triggered six years ago in an adjustment in CRA rules, a change brought about by the previous economic downturn.

When the dot-com bubble burst in 2001, some foundations — many new charities cannot tap their capital base for the first 10 years — were unable to cover their disbursement quota, which was then 4.5%. So, in 2004, the Liberal government under Paul Martin reduced the quota to 3.5%. Meanwhile, many established foundations continued to give at the old rate of 4.5% and higher. By giving more than the minimum, these foundations established credits they can use against lean times.

Lourie draws the conclusion: “Most foundations I am familiar with maintained their giving at between 4.5% and 6%, so any foundation has the ability to drop down to the legal requirement. That’s a huge drop.” Those foundations with a credit will have the option not to disburse money for a year or two.

“This is going to make a lot of foundation boards think twice and carefully about their granting,” says Hilary Pearson of Philanthropic Foundations Canada, which represents 96 of Canada’s private foundations. “What I am hearing from our membership is that they are not going to be panicked into making short-term decisions.”

As for new foundations, Marvi Ricker’s phone isn’t ringing as much these days. The job of the vice-president and managing director, philanthropic services for BMO Harris Private Banking, is to help high-net-worth individuals establish private foundations. But with the stock market in sharp decline, many who were one step from acting are now holding back. Before they make the commitment “they just want to know what they are worth,” says Ricker.

“This is not a time to panic,” says Inspire’s Sandy MacKenzie. He advises fundraisers to concentrate on keeping existing donors, even if it means not asking them for more money, likening the situation to “a friend who only calls you when he’s moving.” Especially when the earth is moving.