Steeling for possible dry spell

Nonprofits could find donations dwindling as economy limps along

Anushka Ramirez, 18, plays with her 18-month-old son, Erik Santiago, at Ruth House, a nonprofit that helps homeless teenage mothers. The Brockton organization receives funds from Lutheran Social Services, which is paying attention to how the economy may affect giving. (MATTHEW J. LEE/GLOBE STAFF)

Will nonprofits be the next casualty in the shaky US economy?

So far, nonprofit organizations have been largely insulated from the economic turmoil afflicting the nation's housing market and credit industry, but many nonprofits say they are bracing themselves in case their fortunes take a turn for the worse.

In tough economic times, small social service agencies like food pantries and homeless shelters are most vulnerable, not the large educational and cultural institutions that typically have fat endowments.

While research shows that hefty gifts by wealthy benefactors to museums, hospitals, and universities continue during recessions, modest donations by middle-class contributors to smaller organizations, which often care for the most vulnerable populations, are more likely to dry up even as demand for their services is spiking.

"I worry about the social service agencies that really depend on $200 gifts," said Allen Peckham, chief development officer at Partners HealthCare, who sits on the boards of social service agencies. "Because if you have the choice of making a $200 gift or buying gas, as much as you love the organization, you may buy the gas. So during recessions a lot of the small nonprofits have a really hard time."

The Greater Boston Food Bank, which estimates that it provides food for 320,000 people annually, has been hit with a 10 percent jump in its costs in the past two years due to increased fuel prices. As a result, the organization's expenses are rising because of the cost of transporting food, even though the bulk of that food is donated or supplied through government commodity programs.

So far, the food bank has been able to meet its rising costs, according to its president and chief executive, Catherine D'Amato. "But that doesn't mean I've met demand," D'Amato added, "because the need is always greater than we can provide." In creased fuel expenses, she said, are preventing the food bank from trying to reach more of the estimated 700,000 people in the state who don't have an adequate food supply.

For now, many nonprofits are optimistic that they will be able to ride out the ongoing economic storm without much financial damage. They point to a study by the Giving USA Foundation, a Glenview, Ill., organization that provides data about charitable giving, showing that philanthropy slows only slightly during recessions.

"People keep on giving, because they believe in the institutions they want to support, and those institutions are increasingly effective in seeking that support," said Nelson C. Lees, a senior consultant for Marts & Lundy, a New Jersey-based consulting firm to the nonprofit sector.

The Museum of Fine Arts, for instance, has not experienced a decrease in gifts of stock or cash since reports of economic difficulties, and has already raised $445 million of an ongoing $500 million capital campaign, according to deputy director Patricia Jacoby. The museum has also received some "very considerable gifts from both individuals and corporations," she said.

Still, Jacoby added, the museum was ready to review pledges with major contributors who might run into cash flow problems. "We certainly would be willing to negotiate with donors as to a period of pledge fulfillment, and I think most organizations would," she said.

Some nonprofit groups report that higher-end donors are looking for ways to restructure their gifts because their investments have suffered in the recent market decline.

Some of them are reluctant to give stock gifts, for example, because the value of their shares has declined, meaning they may not get as high a capital gains savings as they had anticipated on gifts of appreciated stock.

In recognition of that financial dynamic, some nonprofits are trying to ward off a possible dip in fund-raising by working with donors to reshape gifts or extend payment deadlines. Others are making donors aware of estate planning tools, like certain types of charitable trusts, that are most beneficial in low-interest-rate environments.

"A lot of our major donors' portfolios are valued less at the end of 2007 than they were before, so if they're giving through stock, they don't stop giving but they might extend their pledge over multiple years," said Heather L. Feltman, president and chief executive of Wellesley-based Lutheran Social Services of New England, who recently spoke to her board about how a recession could affect giving.

"We need to be more creative about how we address donors, and talk with them about how they can work with financial planners or tax experts to accomplish their philanthropic goals," Felton said. "So I see some of this as an opportunity that doesn't come around every day."

Nadia Yassa, director of estate and gift planning at the Boston Foundation, a major grant-making organization, agreed that there can be a "silver lining" to an uncertain economic environment, including the chance to sell depreciated assets in ways that benefit both a charity and the donor.

"We talk to donors about alternatives they can be thinking about," including trusts that allow donors and their heirs to take advantage of low interest rates, Yassa said.

The full effect of an economic downturn on charitable giving tends to lag by six to 18 months, according to Don Fellows, president and chief executive of Marts & Lundy, in part because different nonprofit sectors report their fund-raising data at different times of the year.

"It's safe to say that for most clients we're talking to, they're not seeing significant changes, at least at this point," Fellows said.

Sacha Pfeiffer can be reached at pfeiffer@globe.com.