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Published in Print: November 6, 2002, as Foundation Assets, Giving Wither In Wake of the Stock Market Swoon

Foundation Assets, Giving Wither In Wake of the Stock Market Swoon

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Just as many Americans have watched their retirement accounts dwindle because of the vertiginous swoon in stock values, many education grantmakers have seen dramatic decreases in their endowments. As a result, some have had to cut back operating budgets, or refrain from giving the sorts of sizable grants foundations were able to distribute in the late 1990s through 2000.

Nonprofit organizations seeking that grant money have found that while the foundation well has certainly not run dry, and education retains a special allure for givers, the flow of dollars has noticeably ebbed.

"Bleak," Jan Masoaka, the executive director of CompassPoint Nonprofit Services, a consulting and training organization in San Francisco, said of the atmosphere at many education nonprofits. "In one word, bleak."

Organizations are cutting budgets, staff, and hours because of the slowing economy and a decrease in the grant money available, Ms. Masoaka said.

Fewer philanthropic dollars are available, of course, because many foundations have less to give.

The Ford Foundation, the George Gund Foundation, the Lilly Endowment, the Panasonic Foundation, and the Spencer Foundation—all major contributors to education programs—have seen decreases in their endowments as a result of the drop in stock values.

Perhaps the hardest hit of all the education givers is the David and Lucile Packard Foundation. The value of its endowment has fallen more than $9 billion during the current bear market, from $13 billion in 1999 to about $3.7 billion currently.

The Palo Alto, Calif.-based foundation has slashed its grantmaking budget for fiscal 2003 to $200 million, down from $250 million in 2002 and $451 million in 2000. The foundation, which has traditionally supported some national health and education-related efforts, has announced plans to focus its children, families, and community program area on creating universal preschool in California.

"There is simply no way we can do as much as we could do two years ago," said Chris DeCardy, a spokesman for the Packard Foundation.

Education a Priority

Streamlining and combining program areas, as the Packard Foundation plans to do, is an approach many foundations have taken to deal with their shrinking budgets, said Steven Lawrence, the research director for the New York City-based Foundation Center. The center is a research group and clearinghouse for information on philanthropies.

Other foundations have decided to stop accepting grant applications from organizations they have not traditionally supported.

"They have tried to home in on their core grantees," Mr. Lawrence said. "They don't want to cut back support for causes they believe in."

Nonprofit organizations, in turn, have had to take similar steps because the grant funds they normally count on have become more scarce, said Howie Schaffer, the managing editor for the Public Education Network, a Washington- based association of local education funds.

Nonprofits have to perform "budgetary triage," a painful process that forces them to examine their fundamental values, Mr. Shaffer said.

"Everybody is laying off staff, closing programs, and cutting back hours of service," added CompassPoint's Ms. Masoaka.

But the good news for education is that it still seems to be a priority for many foundations.

"A lot of our donors have said that 'we would like to keep you in the picture, but our assets are lower,'" said Stephen A. Janger, the executive director of the Close Up Foundation, a civics education group based in Washington. "We are not hearing people say, 'We don't like what you are doing anymore.'"

According to a report released by the Foundation Center earlier this year, growth in grantmaking to education has grown significantly in recent years.

Between 1999 and 2000, a thousand of the largest U.S. foundations increased their grant dollars for elementary and secondary education programs and support programs by 73.4 percent, from $802.4 million to $1.4 billion, the report says. That amounted to almost 37 percent of foundation grants for education, according to the report, which did not include grant data for 2001 and 2002.

Love Letters

For 17 years, the Education Fund has worked with the Miami- Dade County school district, using grant money to pay for initiatives in the 370,000-student district.

In recent years, the group has been working on a parent-outreach program with the district and had hoped to expand it, said Linda Lecht, the fund's executive director. Instead, the employee who was working on the program now works only 10 hours a week.

The fund has seen its overall $2 million budget decrease by 10 percent over the past two years, Ms. Lecht said.

But still, the organization's funders believe in the work it is doing, she added. "They realize," she said, "that K-12 is as much a priority as ever."

One of the funders that has been making grants to the Miami-Dade organization since its inception had to cut back two-thirds of its grant this year. Though the amount was not huge—the foundation gave $5,000 instead of $15,000—it still stung because the two groups had worked together for so long, Ms. Lecht said.

But to ease the pain, the foundation sent what Ms. Lecht called a "love letter" along with its grant this year. The letter, she said, assured the Education Fund that the philanthropy firmly believes in the work that the fund is doing with the school district, and explained that the foundation had to give less this year because of the ailing economy.

Investment Strategies

Given the state of the economy and the stock market, many foundations may be disbursing more warm words than grant money for the time being.

Every foundation has been affected differently, based generally on its investment approach. One of the reasons the Packard Foundation was hit so hard, for instance, was that its portfolio was invested almost solely in its founders' company, the Hewlett-Packard Co., and its subsidiary Agilent Technologies, a research and development company.

As one of the largest shareholders in Hewlett-Packard, the Packard Foundation depends heavily on the performance of the technology company's stock. And it has performed badly. Two Halloweens ago, in 2000, HP stock closed at $46.50 a share. Last Wednesday, Halloween Eve, the stock price was a spooky $15.65 a share.

Similarly, up to 95 percent of the Indianapolis-based Lilly Endowment's funds are invested in Eli Lilly and Co. But because the drug manufacturer's stock has performed better than Hewlett-Packard's—tailing off about 36 percent in the past two years—the Lilly Endowment did not experience such significant losses.

Still, at the end of last year, the Lilly Endowment, which finances K-12 education initiatives primarily in Indiana, was worth $12.8 billion, down from $15.6 billion at the end of 2000.

The Packard Foundation, meanwhile, plans to diversify its portfolio, slowly but surely pulling some of its investments out of Hewlett-Packard and Agilent, Mr. DeCardy said.

Having a diversified and conservatively invested portfolio has been beneficial to the Panasonic Foundation, according to Sophie Sa, the executive director of the Secaucus, N.J.-based philanthropy, which focuses on forming partnerships with districts.

Only a third of the investments in the foundation's endowment have traditionally been in stocks, and the rest were in low-risk bonds and government-issued certificates. At the end of 2000, the Panasonic Foundation's endowment was worth about $22.7 million. It is currently hovering around $19.5 million.

The endowment of the Chicago-based Spencer Foundation, which supports education research, decreased 4 percent between March 2001 and March 2002. Since then, it has dropped about 17 percent more, according to Paul Goren, the foundation's vice president.

Unlike the Panasonic Foundation, 70 percent of the Spencer Foundation's endowment is invested in equities, and 30 percent is in bonds. "We have made our investment decisions for the long run," Mr. Goren said, "to sustain and grow the resources according to historical trends."

The Spencer Foundation, which helps underwrite Education Week's research coverage, has lowered its annual grantmaking budget from almost $27 million to $12 million, according to Mr. Goren.

"Although this may reduce the number of grants available, we will still focus on funding the best proposals on education research that come before us," he said.

Bullish Memories

If some foundation investment managers are hesitant to bolt the stock market, it may be because when the bulls were running through the market in the late 1990s, endowments blossomed. The George Gund Foundation's endowment, for example, rose dramatically over the past 20 years.

When David Bergholtz, the Cleveland-based foundation's executive director, joined the philanthropy in 1989, its endowment was worth $250 million, he said. Now it is worth about $400 million, down about $50 million from last year, Mr. Bergholtz said.

"It was a lot more fun when the portfolio was growing," he said, because then the foundation was able to give much larger grants.

Similarly, the Ford Foundation was able to give large, one-time grants when its investments were performing well that the foundation is not able to give now, according to Janice Petrovich, the director of the education, knowledge, and religion program at the New York City-based philanthropy.

Throughout the 1990s, the Ford Foundation made grants to support an urban superintendents' leadership program at Harvard University. The foundation decided to endow the program by giving it more than $1 million, so that now the program is self- sustaining, Ms. Petrovich said.

Those kinds of grants will be rare now, she said. The foundation's stock was worth $14.9 billion on its highest day in 2000, Ms. Petrovich said. Now it is worth around $9 billion, she said.

Because the Ford Foundation works from a two-year budget, its grantmaking plans were set when its stocks were performing well. But those plans could change, Ms. Petrovich said.

"If the stock market doesn't rebound and our endowment doesn't rebound," she said, "we might be seeing a different situation next year."

Editorial Administrative Assistant Catherine A. Carroll contributed to this report.

Vol. 22, Issue 10, Pages 6-7

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