Charities, still reeling, try some new tacks

In her fight against the spread of HIV in her community, Pat Christen faces the loss of a key tool in her kit: the donated funds that have helped her campaign to raise awareness.

Ms. Christen, executive director of the San Francisco AIDS Foundation, is not alone.

Across the country, small and midsize nonprofits are struggling to stay afloat in harsh economic times. While the economic impact varies widely, few regions have been shielded, and nearly every charitable service has been challenged.

The United Way of Chicago, for example, announced cutbacks of 19 percent. And in Atlanta, local United Way officials estimate a 2 percent budget shortfall.

Adding to its woes, the national organization is coming off a year in which allegations of financial mismanagement may have hurt public trust.

Nationwide, total giving fell 2.3 percent last year, according to the American Association of Fundraising Consultants (AAFRC). According to the group, this year marks the first slowdown in giving since 1993. In past years, donations grew as high as 10 percent annually.

Experts attribute this year's drop on rising unemployment and a tumbling stock market.

Art and cultural programs have been hit particularly hard, especially in New York City, according to Diane Baillargeon, an executive vice president of Seedco. To assist, her New York-based organization makes millions of dollars' worth of interest-free loans to nonprofits.

She's seen many groups abandon programs, lay off staff, and turn away those needing help.

"We've seen a dramatic increase in the number of stressed nonprofits. It's a tough economy with government funds drying up and individuals reluctant to give," says Ms. Baillargeon.

"Art programs have been truly hard hit, but even the direct human-services programs have seen dollars decrease," she adds.

At the center of the nonprofits' woes is the enduring economic uncertainty. Many experts attribute the stock-market plunge to the drop in donations, making individual donors – including many who feel tapped out after post-Sept. 11 donations – reluctant to give. Corporate donors have scaled back giving by 14.5 percent, according to the AAFRC.

Atlanta, home to one of the nation's largest airports and a center of the travel industry, has been especially hard hit.

"Atlanta was used to significant growth in our economy and our fundraising always kept pace," says Mark Dvorak a vice president of United Way in that city. "After 9/11, the travel industry workers were without jobs for months, and for some it just hasn't gotten any better."

Mr. Dvorak says many Atlanta nonprofits have struggled to keep up with the demand from travel workers, and many are reluctantly contemplating staff and service cutbacks.

Nonprofits haven't been shy in stepping up their appeals, and some have taken lessons from their for-profit cousins.

"Nonprofits are seeing just how valuable their assets are, and are creating 'social-purpose business programs' to earn income from them," says Baillargeon of Seedco. "More and more they're treating services like businesses."

For example, New Haven and New York's City Kids Foundation has relied on a social-purpose business program for as much as 10 percent of its revenue. Since 1995, the nonprofit, which aims to develop and train young leaders, has marketed "Kayla's Story," a video on pregnancy prevention. The organization is now developing a business plan that would market other educational materials and videos to generate funds. The products would be sold mainly to other nonprofits.

Liz Sak, City Kids president, says many nonprofits "got fat" in the 1990s. "You have to build an economically stable program and some nonprofits created program after program to keep up with the flood of money," she says. "They never prepared for any downturn in the economy."

Ms. Sak adds that City Kids' business program has allowed it to weather the stock market downturn relatively well.

Fort a fee, Seedco also helps nonprofits start workforce-development programs that have helped people find jobs.

New York's Brooklyn Children's Museum started one such program that has already generated income. The program, still in its infancy, operates a gift shop that uses its revenue to employ inner-city youth.

Organizers say these for-profit programs further the nonprofits' goals of involving and supporting the community.

Other organizations have sought to help nonprofits save money through "in-kind donation" programs. These programs collect free or reduced-cost equipment and supplies from manufacturers and donate them to nonprofits. Atlanta's United Way recently started such a program. The agency hopes that by offering nonprofits a range of free goods, from staplers to computers, it will lessen the impact of fundraising shortfalls.

Still, some large nonprofits have weathered the economic storm well. Recently the American Red Cross closed its Colorado wildfire-disaster fund, saying it had received enough funds to support its relief operations – even before the fires abated.

That news sometimes disheartens smaller nonprofits, concerned that the public will perceive that their needs, too, have been met. But it doesn't distract them from their mission.

"All I care about is stopping HIV," says Christen. "My community needs our services, and I'm focused on delivering [them]."