Financial Crisis Hits Charities

Nonprofit organizations, like the American Red Cross, are facing sharply lower charitable contributions at a time when they need it most.

The 18th century poet Thomas Gray once said, "When your courtyard twists, do not pour the water abroad." As the U.S. economy tightens, more folks seem to be following that advice, by keeping their money close, and pulling the plug on charitable contributions.

Spirit of giving in short supply

U.S. banks and financial institutions have long been generous to the nonprofit world. Some of those institutions, like Bear Stearns, joined in the nonprofit fundraising by strongly encouraging their employees to join in the giving.  Now that banks and brokerages are essentially falling apart, many individual and corporate budgets no longer have room for such charitable contributions.

Collapsed financial companies gave millions

When times were good, mortgage companies Fannie Mae and Freddie Mac regularly made sizeable donations to a selection of favorite charities. Freddie Mac was the primary sponsor of the Doorways for Women and Families, a part of its Freddie Mac Foundation Family Home program.  The company also gave hefty gifts to The Child & Family Network Centers charity, among others. This year, that organization's funding request of $350,000 was submitted to the Freddie Mac Foundation only days before both Freddie and Fannie were taken over by the federal government. Not surprisingly, the feds have put all of Freddie and Fannie's charitable donations on hold, making each gift subject to Federal Housing Finance Agency review.

Charities favored by Lehman Brothers and former AIG Chairman Hank Greenberg will also suffer. In 2007, Lehman gifted roughly $39 million to various recipients, including Doctors Without Borders and Grand Street Settlement. News of Lehman's bankruptcy undoubtedly sent shockwaves through those organizations. AIG's Greenberg is chairman of the Starr Foundation, whose website claims it's one of the largest private foundations in the country. It was hit hard by the plunge in AIG's stock, and is now rolling back the scale of its activities.

Automotive industry meltdown

Other former givers are likely to cut back, too, simply in reaction to the prevailing uncertainty about the economy. In Michigan, the United Way of Genesee County continues to feel the effects of the strikingly unprofitable automotive industry. Workplace fundraising pledges at GM, Ford, and Chrysler usually generated big bucks for the United Way; but years of layoffs have already taken their toll. This year, with automakers and their employees getting squeezed further by the financial crisis, the United Way has an even steeper hill to climb.

The American Red Cross has reported lower corporate donations and a double-digit decline in contributions from new donors, despite expanded nonprofit fundraising efforts. Meals on Wheels, Catholic Charities USA, and the Salvation Army have also reported fundraising drops. All of this is evidence that many are inclined to follow Gray's recommendation about keeping the money close to home. Should the trend continue, charities will have no choice but to shut down some of the services they provide.