Charity funders feeling pinched

Minnesota foundation executives are sweating the hits to their endowments caused by the 40 percent decline in the value of the U.S. stock market this year.

Some are flexing grant-making guidelines and otherwise scrambling to make good on 2009 commitments to hard-hit charities that are experiencing unprecedented demand amid a recession that reaches from heart of the city to the shores of Lake Minnetonka.

"We have found that about one-third of the grant makers are reviewing their priorities and are making some adjustments to fund community responses in 2009," said Wendy Wehr, an executive with the Minnesota Council on Foundations. "In addition to financial support, we're seeing General Mills and other corporate foundations doing more to provide employees and technical help to nonprofits."

In other words, foundations, which exist solely to give away money, are trying to step up.

For example, last week Cargill and its foundation, one of the state's 10 largest, made an emergency grant of $5 million nationally to Second Harvest and other wholesale food distributors who stock community food shelves and kitchens. These efforts help, but they won't close the need gap that occurs when thousands of working-class breadwinners get cut from Best Buy, Pentair, Caterpillar or the iron mines of northeastern Minnesota.

Nonprofit executives are grim-faced because individual donations in the fourth quarter are declining compared with last year, amid higher unemployment and smaller checks even from wealthy donors, who feel less-affluent because of declines in their investment portfolios.

"Since January, McKnight has lost more than $700 million, roughly 30 percent of our endowment -- a shocking loss, although generally on par with foundations around the country," Kate Wolford, president of Minnesota's largest foundation told grant recipients in a letter this month. "To limit the impact on the communities we support, McKnight's board has authorized us to draw a larger-than-usual percentage from the foundation's endowment next year. But the net result will not be status quo."

All bets are off if the economy doesn't start to recover next year.

"It's unlikely that there will be a [federal] bailout for the charitable sector, as there has been the [$700 billion commitment to big financial companies]," said Carleen Rhodes, president of the united St. Paul Foundation and Minnesota Community Foundation. "But we sure hope that this will help lift up our economy and employ people. Because the jobless and disadvantaged come to the charitable sector for help."

Minnesotans donate more than $5 billion annually, about 20 percent of which is provided to foundations for the arts, education, medical research, and charities that serve the disadvantaged.

In the long run, many Minnesota foundations are streamlining their missions to have maximum impact while also trying to get ahead of the electronic revolution that's transformed fundraising through the Internet. The wired grass-roots outreach of President-elect Barack Obama's election campaign is the most visible example of the power of mobilizing millions of small contributors toward a cause.

And increasingly, donors are making their philanthropic decisions and contributions online. Most online giving goes to national and international charities with strong brand names.

The Minnesota Foundation is spearheading a local effort among several foundations and the United Way to create "a common portal" to state-related giving foundations and charities.

Traditional foundations have accepted hundreds of thousands to hundreds of millions of dollars in assets from affluent families, then hired money managers to try to increase the principal at the same time they oblige the donors by investing specifically or generally in their areas of highest interest and concern.

But younger family members and next-generation wealthy folks generally want a bigger say about how the money will be spent and more hands-on involvement than their grandparents.

"We will continue to work with donors one on one and we have a good high-touch model, and we want to work with donors any way they want -- and that will include 'e-philanthropy,"' Rhodes said. "We envision this portal as a place that will really serve two constituencies: nonprofits and donors. Donors can look at opportunities to donate and volunteer, and nonprofits can show themselves. We'll make it an exciting place to go that features community needs and good ways to get involved."

Jennifer Ford Reedy, a former McKinsey & Co. consultant who heads strategy and engagement at the Minnesota and St. Paul foundations, said e-philanthropy is "a competitive threat, without a doubt, but it also means that we can be useful to a whole swath of new givers, of Minnesota donors, in addition to traditional individuals or families or anyone wealthy enough for donor-advised funds."

Still, programs such as "American Idol" are calling attention to diseases in Africa through "Idol Gives Back." And cause-based marketing programs run by corporations are appealing to millions of Americans, even broadcasters such as CNN are referring viewers to related charities at the end of some programs.

"We're just starting to embrace e-philanthropy," Reedy said. "Our primary offensive is to build the 'play-space' giving portal in the country. Our idea is giving portals that allow you to do full-service philanthropy and manage all charitable giving on one site."

The Minnesota philanthropists hope to have a portal up by summer 2009.