The Perfect Storm
Some prominent foundations are heeding these calls. The MacArthur Foundation has disbursed $68 million in emergency grants to mitigate the subprime mortgage crisis in Chicago, boosted funding for the arts and front-loaded donations to human rights organizations even as its endowment has been depleted, a response Jonathan Fanton, its president, declines to depict as outsize in its generosity. "In 2003 we had about $3.8 billion in assets," Fanton tells me. "We got up to nearly $7 billion, and now we're at $5.2 billion. So the endowment is off maybe 20 percent, but if you see a starting point of 3.8 and you're now at 5.2, you don't feel so poor."
"We're giving back some of the extraordinary gains we earned," he continues, "and I think it's important for some institutions to hold steady and say, 'You can count on us; we're not going to reduce our investment in human rights, affordable housing, all the rest.' Maybe if other foundations did the same, it would begin to ease the fear and panic."
Some fallout in the nonprofit sector may be inevitable. And there may even be some benefit in forcing grant recipients to think hard about how to use their resources, a question that was easy to put off when the inflated stock market caused the level of giving to swell. Nonprofit agencies love to portray themselves as mission-driven operations staffed by underpaid idealists who never think about themselves, but the field also has its share of organizations that lack a clear mission and sometimes seem more concerned with burnishing their image than advancing social change or meeting their clients' needs. If such groups are forced to rethink their priorities or close their doors, it might not be a bad thing. "Has there been a nonprofit bubble along the lines of the market bubble?" asks Gara LaMarche. "Probably, and it's beginning to burst. Are there too many small groups? Are the bigger groups as creative and intelligent with their resources as they could be? Do turf issues tend to get in the way of joint ventures? These conversations may be driven by crisis, but out of it could come some more effective ways of doing things."
There is another question people tend to put off when too much money is swishing around--namely, how much even a wealthy society like the United States can realistically expect of the nonprofit sector. Few politicians in recent years issued warnings about the danger of relying too much on private charities to help the poor--these charities were, after all, the widely heralded alternative to the welfare system, whose defects came to represent the evils of big government. But today, the number of Americans receiving cash assistance through what remains of the welfare system has fallen to a forty-year low despite spiraling unemployment, a disparity that prompted Ron Haskins, a former Republican Congressional aide who helped craft the welfare reform law, to tell the New York Times that even he has become "concerned." The Times story appeared the day I met with David Jones of the Community Service Society, who shared this concern but was not surprised. "Responsibility for the poor was a government function in the Great Depression and Roosevelt's time," said Jones. "Now more and more people who lose their jobs turn to charity because we've off-loaded the responsibility to not-for-profits and made it so difficult and cumbersome for people to receive benefits."
A few days after I saw Jones, I spoke to Doris Koo, president of Enterprise Community Partners, a nonprofit that provides development capital and expertise to help build affordable low-income housing. Until the Reagan era, this, too, had been a responsibility of government. As funding for public housing dwindled, an alternative system of tax credits was established that offered investors incentives to float capital to nonprofit developers constructing housing for the poor. A $9 billion industry quietly arose that has poured the concrete, hung the drywall and placed hundreds of thousands of tenants in decentralized low-income housing units, hardly enough to meet the overall demand but a significant achievement that many view as an improvement over the large, crime-infested projects that used to be the only option for the poor.
Last year, however, the flow of capital suddenly dried up, turning a $9 billion industry into a $4 billion one and leaving nonprofit developers with half-finished projects that are in limbo. "What we've got are these diligent community-based organizations in New Orleans, Harlem and the Bronx that are in a twilight zone situation," said Koo. "They have a debt obligation, and they've acquired land that can produce no income because they can't finish the project--there's zero capital."
"So groups are panicking," she went on. "Some are coming to us to ask for extensions on loans, some are selling anything they can to raise capital to finish their projects--many of which are shovel-ready--and some have gone under." The story illustrates how much community-based nonprofits can achieve, but also how vulnerable they can be to the vagaries of the market. What might save some of those shovel-ready projects? As it happens, $2.25 billion will soon begin flowing to states through something called the HOME Investment Partnerships Program, which draws its funding from a much-vilified source that many bankers and investors have lately come to view in a more positive light: the federal government.