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Nonprofits Yet Another Victim of Dow Rout as Grants Drop Off

MARKETS IN CRISIS

July 21, 2002|STEPHANIE SIMON | TIMES STAFF WRITER

Dean Gladden never imagined that the Dow could dictate the season lineup at the Cleveland Playhouse. But it has.

The stock market rout has forced Gladden to stage only plays with small casts because he doesn't have enough money to hire lots of actors.

Nonprofit programs across the nation face an equally painful pinch. It's not because they invested in stocks. Most have barely enough cash to pay the rent, much less to gamble on Wall Street. But the foundations they depend on for grants do invest--and many have taken a tremendous hit.

Endowments have tumbled. Income has dried up. And many foundations have been forced to reduce grants, delay payments or cut off nonprofits that have depended on them for years.

"This is one of the untold side effects of the stock market. It's that trickle-down," said Joel Goldenbach of Casita Maria, a New York social service agency that relies on grants.

Almost overnight, hundreds of millions of grant dollars have evaporated, jeopardizing tutoring programs and domestic violence shelters, fisheries monitors and ethnic dance troupes, job training services and physician visits to the homebound elderly. Foundation directors, desperate to save their shriveling endowments, predict that even more grants will be yanked next year.

"This is the first time in my life I've rooted for the rich people," sighed one social activist whose grants are in jeopardy--and who has taken a sudden interest in the twists and turns of the Dow Jones industrial average.

The Dow plunged to a four-year low Friday, losing 390 points to finish at 8,019.

The blue-chip index is now off nearly a third since hitting a peak of 11,722 on Jan. 14, 2000.

The foundation perhaps hardest hit by the bear market has been the David and Lucile Packard Foundation in Los Altos. Its endowment is invested almost entirely in the stock of computer company Hewlett Packard. And it has lost nearly 75% of its value in the last two years.

The result: The foundation will award just $250 million in grants this year, compared with $615 million in 2000.

Another Bay Area group, the Valley Foundation in Los Gatos, cut its awards about 15% this year and predicts another 15% cut, at least, in the next cycle of handouts. That means $1 million less for arts organizations in Santa Clara County.

The story echoes across the country. In Atlanta, the Robert W. Woodruff Foundation has trimmed at least $10 million from its grant pool in the last two years. And at the Central Indiana Community Foundation, President Brian Payne says, with a forced chuckle: "I think our threshold for pain has been crossed just in the past couple of days. We're evaluating what's going to have to go. We don't know the answers yet, but certainly, we're going to have less money to give."

Foundations generally adjust their giving to reflect their financial health over the previous 12 to 36 months. So even if stocks roar back, the dismal returns this year and last could continue to drag down grant awards through 2005.

"What we're hearing right now is only distant thunder. Next year is going to be a lot worse. The year after that, watch out," predicted Jack Shakely, president of the California Community Foundation in Los Angeles. He has watched his endowment shrink by $60 million in the last two years.

Shakely has warned even his favorite nonprofits that they had better start seeking other funds. One potential target: the Read With Me program, which gives preschool children a free backpack full of books and then tutors them on how to "read" the stories to their parents.

"We'll be making far fewer grants next year," Shakely said. "I'm sorry about it, but that's the truth."

The cutbacks are not by any means universal.

Some foundations with limited stock exposure have held steady. The Bill and Melinda Gates Foundation, for example, has done quite well by its investing in bonds. It does not hold a single share of Bill Gates' Microsoft Corp.

Other foundations have lost significant sums but are determined to ride it out. The New York Community Trust endowment stands at $1.72 billion, down from more than $2 billion when the stock market was flying high. But the trust has cut such administrative expenses as travel and advertising to avoid reducing grants.

"We anticipate that we're going to be OK," spokeswoman Ani Hurwitz said.

In response to the Wall Street woes, some foundations have begun to shift the type of grants they offer. A few have stopped funding expensive capital projects, such as new buildings.

Others have cut back on grants for arts and environmental projects, reasoning that help for the hungry and homeless is more vital in a recession. Start-up projects are also unlikely to get grants these days; foundations are directing what money they have to programs with good track records.

"We're trying to [focus giving] on projects that can clearly be sustained even in a bad economy," explained Charles H. McTier, president of the Woodruff Foundation.

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