The Funding Gap: The Decline in Charitable Donations

Although private donations are on the rise, New Jersey’s nonprofits have yet to recover from recession-driven government cuts in support.

Illustration by Polly Becker

From 2005 to 2013, the nonprofit after-school program known as New Jersey After Three offered more than 75,000 disadvantaged students a chance to spend more time in school and less time on the street or sitting at home playing video games. But After Three was more than a babysitting service for kids of working parents. An independent three-year study showed that it provided academic and behavioral benefits and did so at half the cost of most similar after-school services across the country.

Like many social programs in New Jersey, After Three was backed by a combination of private and government funds. When the state withdrew all of its financial support in 2012, After Three started to scramble financially. In 2013 it closed its doors for good. When that happened, says After Three’s former CEO, Mark Valli, the state lost “a wonderful organization that didn’t just fund high-quality after-school programs, but also elevated the importance of expanded learning time in the consciousness of the state’s citizens.”

The Christie administration’s decision to severely cut support of programs like After Three was precipitated by the state’s slow recovery from the 2008 recession and reflected a growing trend in New Jersey and across the nation toward attrition in government funding for services deemed nonessential.

Nationwide, federal, state and local governments provide the overwhelming majority of funding for nonprofits, including social-welfare, education and arts organizations. Additional funding comes from the private sector, primarily individual donors, who account for roughly 80 percent of private giving. The rest comes from corporations and private foundations—philanthropic organizations whose principal purpose is to make grants to individuals and nonprofits in need.

When governments cut funding to nonprofits, it is often assumed by policymakers that the private sector will pick up the slack. But the recession that hit the state budget so hard also walloped New Jersey’s individual donors and corporations and eroded the endowments of private foundations.

While private giving has rebounded somewhat from the recession, nonprofits “are still in a period of trying to come out of it,” says Linda Czipo, executive director of New Jersey’s Center for Non-Profits.

New Jersey itself is still struggling to emerge from the recession. Among other indicators, we are one of only three states in which poverty grew in 2013. That puts even more pressure on the organizations that serve those in need.

Nowhere is the growth in poverty, and the concurrent demand for services, more apparent than at the Community FoodBank of New Jersey. The nonprofit and its partner organizations throughout the state annually distribute food to some 900,000 residents. Even before the recession, “we were beginning to see an increase in need,” says Phyllis Dunlop, vice president of resource development and marketing. But the food bank, which gets 34 percent of its funding from individual donors, was better able than most to weather the economic downturn, says Dunlop, because it became, in a sense, the face of need. “People were able to see that many in the state were going hungry,” Dunlop says. “We got a lot of publicity that way, which helped with our fundraising efforts, to the detriment of other charities.”

Those other organizations in need include nonprofits supporting education and the arts, which have been hit particularly hard. John McEwan, executive director of the New Jersey Theatre Alliance, says donations from individual supporters to theaters and theater groups, while beginning to rebound from the decline that began in 2008, are still down overall, and government support for the state’s theaters (which is tied to the state’s hotel-motel tax) has been flat for the past 10 years.

For arts organizations, finding and retaining corporate support is an increasing challenge. “Business support has changed drastically,” says McEwan, noting that a number of corporations have moved out of the state and others have merged. “Where you once got funding from two or three companies,” he adds, “you’re now lucky if you get funding from one.”

For Marysue DePaola, development director of the Mayo Performing Arts Center in Morristown, finding corporate support has become particularly difficult. “Many corporate givers are increasingly focusing on technology- or science-based programs,” she says. And the fact that New Jersey is a largely suburban state without a major urban anchor complicates things further. “New Jersey is sandwiched between New York and Philadelphia, the first and fourth largest markets in the country, which makes our work that much more challenging,” says McEwan.

The state’s suburban character may help explain another fundraising challenge our nonprofits face. While the state is third highest in the nation in per capita income and ninth in the number of billionaires residing here (six, according to Forbes), it’s home to surprisingly few large private (noncorporate) foundations. In fact, only one, the Robert Wood Johnson Foundation, with an endowment of $9.5 billion, falls into that heady category—generally defined as organizations with endowments of $700 million or more.

After RWJ, the endowments drop sharply. There’s the Hess Foundation, with a $565 million endowment, and the F.M. Kirby Foundation, with an endowment of roughly $441 million. New York State, by comparison, is home to 12 foundations with endowments of more than $1 billion. Nina Stack, president of the Council of New Jersey Grantmakers, suspects that the paucity of large private foundations here may derive, in part, from the fact that major foundations often arise in large, economically thriving cities, rather than the kind of affluent suburban landscape that characterizes much of New Jersey.

Our resident billionaires and the other super-rich aren’t likely to fill the gap. “The nature of philanthropy is changing,” says Chris Daggett, president and CEO of the Geraldine R. Dodge Foundation, headquartered in Morristown. “Younger people of wealth are not setting up foundations in the traditional way they were set up by a Rockefeller, a Ford or a Dodge.” Where a more traditional foundation is likely to have a large, experienced staff, a well-defined mission, and very public guidelines about applying for grants, these newer organizations, says Daggett, may be run largely according to the whims of their founders—and that can be a problem for nonprofits and individuals in need. “It’s not always easy to discern how best to apply to them, and in some cases you can’t apply,” Daggett says.

The same geographic realities that may have discouraged the growth of large private foundations in New Jersey also have worked against the establishment of community foundations here. Similar to private foundations, community foundations act as stewards for a group of smaller private funds—most established by individual donors—and focus their giving on a specific community. While they proliferate in many states—Ohio has 64 and Pennsylvania has 39—New Jersey has only five, all of which, with the exception of the Community Foundation of New Jersey, are quite small.

“Most community foundations grew up around metropolitan areas, and we just don’t have very many large metropolitan areas that function as social and cultural hubs in the state,” says Hans Dekker, president of CFNJ. The foundation, with assets of $320 million and annual giving of $36 million, has an extraordinary impact throughout New Jersey, but it’s virtually going it alone as a community foundation in the state.

New Jersey doesn’t just have fewer large and community foundations; we also have a generosity gap. Although we are one of the wealthiest states in the nation, ranked third in per capita income, we appear to be one of the least generous in terms of the percentage of income given to charity—2.02 percent, according to a recent study published in The Chronicle of Philanthropy. (Residents of Utah, ranked first in the study, give 6.56 percent.)

This shortfall of individual giving puts New Jersey’s nonprofits on shaky ground, with insufficient revenue to fill the void left by government and few places to turn for alternative funding.

And current needs are pressing. In a survey on philanthropic trends published this year by the Center for Non-Profits, more than 80 percent of responding nonprofit organizations reported that demand for their services had increased in 2013 and that they expected still more demand in the coming year. Nearly one-third reported that their expenses exceeded revenue and support in 2013, and 74 percent said they expected expenses to increase in 2014.

Are New Jerseyans stingy by nature? Czipo, of the Center for Non-Profits, thinks not. She speculates that our giving numbers reflect, in part, the high cost of living in the state, which severely curtails discretionary spending. The data also do not reflect exactly how much bang we’re getting for our buck. In fact, more of our giving may go to those truly in need than in states like Utah and Alabama, where a substantial percentage of donor funding goes to religious organizations.

And certainly there are many New Jersey individuals and companies that give generously—as documented by New Jersey Monthly’s annual Seeds of Hope Awards and the new Great Oaks Awards.

Czipo suspects that a state-level charitable tax incentive could help to increase private donations. The Center for Non-Profits is investigating the feasibility of such an incentive.

“I believe it’s in the state’s best interest to have a healthy, thriving nonprofit community so the needs of society can be met,” says Czipo.

Not too many of us would argue with that. But given New Jersey’s inability to shake off the recession, and the increasing shift of responsibility for social services from government to the private sector, the health of our nonprofit community could be severely compromised for years to come.

Leslie Garisto Pfaff is a longtime correspondent.

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