Gifts from trusts decline for first time in two decades. (Wealthiest Angelenos: Rich Kids).

NON-profit groups that rely on the largesse of area trusts and foundations find themselves in the odd predicament of getting steady funding but being unable to meet overhead.

As the asset bases of foundations here and nationwide continue to slip in the midst of a mired equity market, they have responded by more targeted giving.

The result is that some non-profits are flush with funding for their programs but can't afford the offices or staff to run them, putting pressure on individual donors to cover the difference.

At the Make-A-Wish Foundation of Greater Los Angeles, funding is off by only a few percentage points, but the organization has been relying more on individual and corporate donors to pay its overhead, said Judy Lewis, the organization's president and chief officer.

"Grant proposals are more narrowly focused than they used to be," she said. "There's been a definite trend away from funding operating expenses."

It's a symptom of a market that has seen foundations nationwide lose nearly 17 percent of their value in 2002. according to the Merrill Lynch Center for Philanthropy and NonProfit Management. Meanwhile, California foundations took far less of a hit, dropping about 11 percent in value, according to Jim Ferris, director of University of Southern California's Center on Philanthropy and Public Policy.

In the boom days of the late 1990s, foundations expanded grants by either giving more money, extending the duration of their funding by several years or offering grants in new subject areas.

The result, especially of giving fixed multi-year grants during a period of rapidly declining asset bases, has taken its toll on foundations.

"Many large foundations have a lot less new grant money to offer because they are locked into all these multi-year grants issued during the good years," said Pete Manzo, executive director for the L.A.-based Center for Non-Profit Management.

Declining asset values have dramatically altered foundations' grant making. Nationally, foundation giving remained steady in 2002 at an estimated $30.3 billion, just below the $30.5 billion doled out in 2001, according to the Foundation Center.

But the .07 percent decrease represents the first national decline in giving reported since 1983, and it followed six straight years of double-digit growth in grant dollars, according to a study by the Council on Foundations.

Statewide, the level of giving from foundations skyrocketed in 1999 by nearly 30 percent over the year earlier. It rose again by 18.5 percent in 2000 but slowed to a 4 percent increase in 2001. While 2002 regional giving levels are yet available, the forecasts have not been good.

"If you look from 2001 to 2002, the drop will be even greater" Ferris said.

While foundations are making an effort to hold their funding steady, many are refocusing their giving strategies to reflect original areas of interest. As a result, more than half the nonprofits founded after the Sept. 11, 2001 terrorist attacks and subsequent market downturn no longer exist, according to David Ratcliffe, director of the Merrill Lynch Center.

"For a while, many foundations were giving grants a mile wide but an inch deep," he said. "Now they are focusing on a few core components of their message."

That has put organizations in a bind. Many non-profits are being challenged not only by the loss of grant money, but a decline in government funding and a steep drop-off in donations from corporations and individuals.

"Non-profits are trying to get leaner," said Manzo. "Many are cutting whole areas of their activities because they don't have the money to maintain them."

The situation has drawn the attention of lawmakers in Washington, where a bill now pending before both houses of Congress would increase the annual minimum amount foundations are required to give under IRS tax codes, from 5 percent of their asset worth to nearly 7 percent.

Ratcliffe called the bill a move by legislators to force foundations to perform functions previously in the domain of the government.

"It's becoming apparent that if government resources are pulled away, you can't rely on the non-profit sector to pick up the slack because they are subject to the same market forces," he said. "For a while, there was a euphoric belief that non-profits would be able to solve all of society's ills. Well, now reality has sunk in and that can't work either."

Even if the federal government raises the minimum foundations must give, non-profits wouldn't likely see an increase in their grants for another three years. That's because foundations lay out their grants based on a two to three year estimate of their asset value.

While that helped non-profits after the Sept. 11 terrorist attacks when foundations were giving at 1999 levels, it means when there is a rebound in the market foundations won't be able to react quickly.

For an already extremely cash-poor nonprofit industry, that might mean a number of mergers.

"This is a very difficult time for even well-established non-profits," Ratcliffe said. "There is eventually going to have to be some collaboration and mergers between organizations with similar goals."

Local Lag

Percent change in foundation assets

               2000   2001

Assets

California     2.7%  (5.7%)
United States  13.2   (3)

Giving

California     18.5%   4%
United States   14     10

Source: USC Center on Philanthropy & Public Policy.
Council on Foundations