The worst economic crisis since the Great Depression resulted in the biggest reduction in U.S. foundation giving on record, according to the 2010 edition of “Foundation Growth and Giving Estimates” published by the Foundation Center, released in April, 2010.

In 2009, the nation’s more than 75,000 grant-making foundations cut their giving by an estimated 8.4 percent (that is,  $3.9 billion,) to $42.9 billion, down from $46.8 billion in 2008.  Since the Foundation Center began tracking foundation giving in 1975, current-dollar giving had declined in only three years – 1983, 2002 and 2003 – and by less than 1 percent in each of those years.

Despite its unprecedented severity, the reduction in 2009 giving could have been worse.  According to the survey, roughly four out of five foundations indicated that they determined their grant budgets based primarily on their assets, with half of these foundations basing their calculations on the value of their prior year’s assets.  Given the 17.2 percent drop in foundation assets recorded in 2008 – a $117.3 billion loss – a larger reduction in giving wouldn’t have been surprising.

Several factors helped to moderate the overall decline in foundation giving.  First, among foundations that base their grant budgets on their asset values, more than one-quarter (particularly the larger foundations) does so using an average of their asset values over the prior two-to-five years.  During less volatile economic periods, this practice allows grantmakers to maintain more stable levels of giving.  In the current period, according to the survey, this practice enabled foundations to average in the asset growth in years prior to 2008, which lessened the amount by which they had to reduce their giving in 2009.

A second surprising factor was that a notable share of foundations actually increased their giving in 2009.  Twenty-seven percent of foundations increased their giving last year, while another 5 percent kept their giving at the same level it was in 2008.  The biggest increase was reported by the Bill and Melinda Gates Foundation, the nation’s largest foundation with assets of approximately $30 billion at the end of 2008, which increased its giving from approximately $2.8 billion to $3 billion.  Without this increase in giving by the Gates Foundation, combined giving by the nation’s other foundations would have declined 9.4 percent (rather than 8.4 percent). 

A third factor was that a significant number of foundations took exceptional steps in 2009 to maintain their grant budgets or minimize the extent of reductions in their giving.  Nearly two out of five foundations used their endowments to help shore up their grant budgets.  More than two-thirds of foundations indicated that they had reduced administrative expenses since the start of the economic crisis, often to allow additional funds to be shifted to grantmaking.  These cutbacks ranged from reducing staff travel to freezing salaries to laying off staff.  As a result, the ratio of 2009 foundation giving to 2008 foundation assets – a rough proxy for foundation payout – was at the highest level recorded by the Foundation Center since 1985.

In typical years, the creation of new foundations also serves to boost foundation giving, but this was almost certainly less of a factor in 2009 than it has been in recent years.  The number of grant-making U.S. foundations has increased each year since the early 1980s, and the nation’s foundation community is now more than three times larger than it was in 1980.  In 2008, however, the number of active foundations increased a marginal 0.5 percent from 75,187 in 2007 to 75,595, the slowest annual rate of growth tracked since 1981.  This finding undoubtedly reflects in part a lower rate of foundation creation in the wake of the economic crisis.  The statistics for foundation creation in 2009 aren’t yet available.

On a positive note, donors continued to put new and often substantial resources into existing foundations in 2009 through gifts and bequests.  For example, the Druckenmiller Foundation received $705 million from its founders, Stanley and Fiona Druckenmiller, and the John Templeton Foundation benefited from a $573 million bequest from its founder.

Outlook for 2010 and Beyond

The Foundation Center predicts that foundation giving will be flat in 2010.  Although the longest recession in the post-World War II era has ended and major stock market indices posted year-end 2009 increases ranging from roughly 19 percent (Dow Jones) to 37 percent (S&P 500) to 62.3 percent (NASDAQ), foundation assets rose a far more modest but still positive 3.3 percent to an estimated  $583.4 billion.  While still well below their 2007 peak of $682.2 billion, foundation assets in 2009 surpassed the $550.6 billion recorded in 2005.

The Foundation Center survey predicts the change in foundation giving from 2009 to 2010 lies somewhere between a 1 percent decline and a 1 percent increase.  While the largest percentage of respondents expects to increase their giving (44.7 percent) or keep it about the same (16.4 percent), a substantial minority (38.9 percent) anticipates that their giving will decline in 2010.

Among independent foundations (those other than corporate or community foundations) specifically – a larger share of respondents expect to increase their giving in 2010 rather than reduce it (45.6 percent versus 38.1 percent).  This holds true for corporate foundation respondents as well, although the difference was less pronounced (42.9 percent versus 40 percent).  Among community foundations, about the same number reported that their giving would decrease as said it would increase (42.2 percent versus 41.4 percent).

Looking out to 2011, the survey reports that given the economic volatility of the past two years, the accuracy of predictions about 2011 giving will depend greatly on the economy and stock market showing continued stability and, ideally, growth.  Nonetheless, the increasing optimism in economic forecasts appears to have buoyed the outlook of many grantmakers.  Among respondents, only 8.3 percent expect to reduce their giving in 2011, while 47.3 percent expect it to remain about the same and 25.9 percent are anticipating an increase.  Close to 19 percent of respondents remain uncertain about the prospects for their 2011 giving, reflecting a general, although perhaps lessening nervousness regarding the sustainability of the economic recovery.  The survey cautions that as long as poor housing sales, increasing oil prices, persistent unemployment or other unforeseen factors don’t derail the economic rebound that began late last year, foundation giving should show positive, albeit very modest growth in 2011.