Charities feeling the financial squeeze

As Americans watched their retirement savings dwindle last year, the volatile stock market also caused significant investment losses for charitable foundations.

Facing declines in asset values ranging from $131 million at El Pomar Foundation to $333 million at the Daniels Fund to $7 million at Pikes Peak Community Fund, nonprofit foundations are grappling with plans to minimize damage not only to their operations but also to the organizations they support.

Typically, foundations are started by monetary gifts from individuals or companies, which are invested in stocks, bonds and real estate. Foundations then use the income generated from the principal investment to make grants for charitable purposes.

With this year's continued market uncertainty, many have been forced to restructure internally and shed staff, reduce employee benefits or cut programs. They also are prioritizing funding requests, which could affect organizations later in the year.

While nonprofits organizations are anticipating funding cuts from foundations, "we're not seeing the complete impact yet," said Lynne Telford, executive director of the Center for Nonprofit Excellence and a vice president with Pikes Peak United Way.

Although grants from foundations are not usually the primary source of revenue for nonprofits - more than 80 percent of donations to nonprofits come from individuals, Telford said - foundation support is important to budgets.

"We always recommend nonprofits have reserves, like any business, to protect for downturns. So we're not seeing local nonprofits falling by the wayside yet," she said.

Last year's asset losses could have been worse, officials from several locally based foundations say. They point to conservative investment strategies as their saving grace.

Nationally, the median decline in asset values for family, independent and public foundations was 28 percent in 2008, according to a Council on Foundations survey released last month.

And, last year's overall stock market decline came in at 38.5 percent, as measured by the S&P 500 Index.

Thus, the 19 percent drop for the Pikes Peak Community Foundation was good news, said Michael Hannigan, founding director of the decade-old organization that funds several projects, from the Venetucci Farm to arts and education programs to neighborhood initiatives.

"There's not another year in the last 20 I would have felt good about that number, but we met or exceeded our benchmarks last year," Hannigan said.

The foundation's portfolio fell from $50 million to about $43 million by year's end, he said.

El Pomar Foundation, which funds health, human services, education, arts and humanities and community-based programs throughout the state, experienced its largest single-year decline in three decades.

Assets of the foundation, which Cripple Creek gold magnate Spencer Penrose started in 1937, totaled $567 million at the start of 2008. By the end of the year, the portfolio was down to $436 million, a decrease of nearly 23 percent, said R. Thayer Tutt Jr., president and chief investment officer.

The $131 million loss, however, is not disastrous, he said, and could have been greater if it weren't for the fixed-income securities and blue chip stock the foundation prefers.

"I try to mange the money for the difficult times, not the good times, so last year we outperformed in a bad year," Tutt said.
The Daniels Fund, which is headquartered in Denver and awards grants and educational scholarships in Colorado Springs and elsewhere, has dipped below $1 billion in assets for the first time since 2003, said spokesman Peter J. Droege. Assets decreased 27 percent last year, from $1.3 billion to $967 million, he said.

Foundation officials say they are doing everything they can to lessen the blow to nonprofit organizations that rely on them for funding. The Internal Revenue Service requires foundations to donate at least 5 percent of the market value of their assets each year to charities and philanthropic projects, regardless of the economy.

"We're feeling the downturn in the market in a very personal way, but we're committed to getting the maximum dollars out the door to benefit communities," Droege said.

The Daniels Foundation sent a letter in December to groups it funds, saying it would make cuts in charitable allocations this year. Grants totaling $31.8 million will be disbursed this year, a $6.8 million decrease over last year, Droege said.

Construction projects will see the brunt of diminished foundation support from giants El Pomar and The Daniels Fund.
El Pomar is deferring funding for major capital construction, said Bill Hybl, chairman and chief executive officer, such as museums, hospitals and art galleries throughout the state, though he declined to name specific projects.

Because the economic downturn also has increased demand for social services, both foundations will make a priority of funding emergency needs, such as food, housing, health care, and rental and utilities assistance.

El Pomar expects to award grants totaling $23 to $23.5 million this year, Tutt said, down from $25.4 million last year.

To loosen up more money for grant making, the foundation reduced its operating expenses, Hybl said, by downsizing its fellows program from the current number of 29 to 11 or 12 by June. The two-year program trains college graduates in leadership skills.
El Pomar also is withdrawing funding for its Youth in Community Service program that operated in 144 high schools

statewide.Reductions or freezing of staff salaries and benefit plans also have occurred, and Hybl said the foundation will continue to reduce its annual operating budget by 25 percent for three years.

Droege said the Daniels Fund will keep its scholarship program this year and award $11.5 million to 250 students, many from Colorado Springs, who are in financial need.

The organization decreased its annual operating budget by $2.5 million this year by eliminating 6½ staff positions and reducing administrative expenses.

The U.S. Olympic Committee also is trimming administrative and program expenses, in part due to U.S. Olympic Foundation's 29 percent decline in assets in 2008, said spokesman Darryl Seibel.

Final figures are not yet in for 2008, but Tutt, who chairs the Olympic Foundation's investment committee, said the amount granted to the Olympic Committee for this year will be less than the $10.4 million check written in January.

The foundation's contribution is the smallest part of the USOC's revenue for its annual budget of more than $125 million, Seibel said, but when combined with other downturns means "we're having to very aggressively manage expenses."

The St. Francis Medical Foundation, which supports Penrose-St. Francis Health Services, had the largest drop of all seven foundations in the Catholic Health Initiatives system in Colorado, $1.4 million, for the fiscal year that ended June 30. All seven foundations, which are tied to hospitals around the state, collectively lost $4.5 million on a $72 million portfolio, said Jerry Bagg, president of CHI Colorado Foundation.