SEATTLE - As snowstorms blew into this Northwest city and the economy iced over in December, the occupants of a shelter nestled among industrial buildings on the north side prayed for divine intervention.

"We were hoping for the Christmas miracle," says Glen Dennis, 41, who was working his way through a residential drug-treatment program at the CityTeam Ministries shelter. Dennis and the other 11 guys in the long-term program -dubbed the "disciples" - also worked each day to prepare for some 50 to 60 overnight shelter guests, and dish up free hot meals to about 100 people. "We kept doing what we were doing, and hoped someone would come by and drop off a big check."

But the check did not come - even after a coalition of other shelters, nonprofits and local churches tried to pull together a rescue package to keep the shelter open. On Dec. 27, CityTeam Ministries, based in San Jose, Calif., closed the Seattle facility - leaving scores of people to seek food, shelter and sobriety elsewhere. For Dennis, who had been free of crack cocaine for nearly 11 months, the upheaval led to another painful relapse out on the streets.

"It's a real loss," says Herb Pfifner, executive director of the Union Gospel Mission shelter in downtown Seattle. "We're all scrambling to try to handle the growth of homelessness because of the economic situation ... and then the closing of another mission adds more pressure."

The CityTeam closure is a piece in the expanding problem of homelessness across the nation: Shelters and related services for the homeless are facing funding shortfalls as the downturn takes its toll on state budgets and corporate donations. And while individual donors in many cases are keeping up gifts - or even digging a little deeper for charities that help with urgent needs like food and shelter - the service providers say they are faced with a rapidly growing demand from people losing jobs and homes in the economic crisis.

"A downturn in (overall) funding in this case is accompanied by a surge in demand, so a homeless shelter, food pantry, or job-training program is going to feel it first," says Chuck Bean, executive director of Nonprofit Roundtable of Greater Washington, in the District of Columbia. "Even if they have 100 percent of their budget compared to last year, they now see a 50 percent surge in demand. Then (they) get into the tough decisions: Do you thin the soup, or shorten the line?"

Even as census-takers fan out in cities across the country this week in an attempt to count homeless populations, advocates and experts point to a bevy of evidence that homelessness is rising and will continue to, most notably among families with children.

Shelters across the country report that more people are seeking emergency shelter and more are being turned away. In a report published in December, 330 school districts identified the same number or more homeless students in the first few months of the school year than they identified in the entire previous year. Meantime, demand is sharply up at soup kitchens, an indication of deepening hardship and potential homelessness.

"Everything we are seeing is indicating an increase," says Laurel Weir, policy director at the National Law Center on Homelessness and Poverty. "And homelessness tends to lag the economy. So we're probably seeing the tip of the iceberg here."

In the foreclosure crisis, the people being displaced from homes won't likely be on the street immediately, explains Michael Stoops, director of National Coalition for the Homeless.

"The people who have lost homes or tenants in homes that were foreclosed ... have downsized, and if that doesn't work they will move in with family and friends," says Stoops. "After a while, they will move into their RV in a state campground. The next step is a car. And the worst nightmare for a working, middle-class person or even a wealthy person who has never experienced homelessness is knocking on a shelter door."

Services teeter on brink

As the case of Seattle's CityTeam shelter illustrates, many nonprofits serving the poor are working on a shoestring, even in better times. Seattle-area donations to the shelter had to be supplemented from general funds, said Jeff Cherniss, chief financial officer of CityTeam, which operates shelters and food programs in five other U.S. cities.

"We were hoping (the Seattle shelter) could become self-sustaining," says Cherniss. CityTeam Ministries, a Christian organization funded by donations from individuals, corporations and churches, kept the Seattle facility afloat with help from its general fund for most of a decade, but the 2008 crisis prompted them to retrench.

Every major source of funding is under pressure in the current environment: Charitable foundations - which rely on corporate profits for their seed money and investments to preserve and build those funds - have been forced to pull back grants after taking a massive hit as corporate earnings faltered and stocks plunged. The National Council of Foundations recently estimated that philanthropic foundation endowments have lost $200 billion in value during the economic crisis.

A few of the largest foundations have, despite losses, promised to maintain or give at higher levels in the face of the crisis. The Bill and Melinda Gates Foundation this week said it would increase its giving to 7 percent of its assets from 5 percent. And the John D. and Catherine T. MacArthur Foundation announced three gifts totaling $34 million to help homeowners in Chicago avoid foreclosure and keep renters in homes.

Still, the casualties are mounting. Among them: Atlanta nonprofit Nicholas House, which closed a shelter for families in mid-January so it could safely keep other housing services open. Nearly all corporate donors gave to the organization at lower levels this year, says Dennis Bowman, executive director of the 26-year-old agency. The final straw came when a corporate donation ended, and was not renewed.

"It was directly because of the economy - the business has suffered in this economy, and so can't provide the funding, which was well over $100,000 a year," says Bowman.

The organization is scrambling to find other options for the 12 families - 45 people in all - who lived there, by squeezing them into other parts of its own programs or openings with other nonprofit programs.

Shaky foundations, difficult choices

Arguably, no single event in the economic crisis has caused a greater ripple of concern among advocates for the homeless than the government takeover of mortgage giants Freddie Mac and Fannie Mae in September. In 2007 alone, charitable giving through the Freddie Mac Foundation and the Fannie Mae philanthropic division topped $47 million - the bulk of which goes to programs that shelter and feed homeless Americans, and establish affordable housing.

In Washington, D.C., where Fannie and Freddie had been the largest corporate donors, dozens of organizations were up in the air as government auditors reviewed the corporations' records, including their charity operations.

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Linda Dunphy, executive director of Doorways for Women and Families, a shelter program that has been receiving funding from Freddie Mac since 1996, says the takeover of the mortgage company threw a promised $300,000 grant into limbo.

Meantime, Doorways watched other substantial corporate donations drain away - including some $50,000 that had been coming through an annual walkathon from financial companies Morgan Stanley and Merrill Lynch.

Fortunately, when the review of Fannie and Freddie's charitable operations ended in late December, the Freddie Mac grant came through for Doorways, averting the need to shut down a family shelter - for the next six months, at least. "But then we face a whole new fiscal year, and our concerns about what is going to happen at (Freddie Mac Foundation) and whether they can continue to keep giving at the level they have been giving," says Dunphy.

The Alternative House for homeless mothers in northern Virginia was not as lucky. Freddie Mac had been giving $35,000 to $60,000 a year to this nonprofit. The Freddie Mac money was spent on providing developmental assistance for the babies, who are often behind because of their chaotic beginnings. Last week, Judith Dittman, who runs the program, got word that the funding was cut.

States awash in red ink

Up to now, another major source of funding for nonprofits providing homeless services came from state budgets. But entering 2009, at least 45 states faced budget deficits, according to the Center on Budget and Policy Priorities, which estimates combined state budget gaps for the remainder of this fiscal year and state fiscal years 2010 and 2011 at more than $350 billion. The trend bodes very badly for programs that benefit the poor and homeless. The leading example of state budget problems is California, which has eliminated funding for emergency housing assistance this year as it struggles to pare its $40 billion deficit.

In Ventura County just north of Los Angeles, the cut of about $60,000 delivered an immediate blow to three homeless operations. The largest, a winter shelter run by St. Vincent de Paul that provides beds for 100 people, was forced to cut 30 nights from its schedule.

"Because they operate on a shoestring, it's a significant hit to them," says Karen Schulkin, program coordinator for homeless services in the county. "The winter shelter at the National Guard Armory can only stay open for the number of days they have funding for."

Local government funding often provides seed money for nonprofits, who leverage it to drum up foundation money and other donations. So, according to Bean of the Nonprofit Roundtable of Greater Washington, the local deficit - about $1.5 billion in the case of D.C. and surrounding areas - could present an even bigger problem than the uncertainty over the future of Fannie Mae and Freddie Mac Foundation.

"This will put a huge strain on the ability to invest in the safety net. ...The challenge for a lot of nonprofits is that local government support will be down, foundations will be down," says Bean. "The question will be what happens with individual donations."

Shelter in Danville re-opens for business

To be sure, out of the crisis come tales of inspired giving as communities scramble to raise new funding. The town of Danville in southern Virginia rallied to reopen a shelter that closed at the end of December after 15 years in operation. A drive prompted a $20,000 anonymous gift, which was more than matched by dozens of other local contributions. By Jan. 22, the money and a new director were in place to reopen the 20-bed shelter-offering some reprieve, at least, in a town with an estimated 150 homeless.

"The people of Danville ... opened up their hearts and pocketbooks with $23,100 in matching funds," reports Pastor Donnie Anderson of the Riveroak Church of God, who spearheaded the fundraising. "We are so grateful! The shelter is open as House of Hope and is ready for any who may need a warm place to stay and hot meals to eat."

On Capitol Hill, as part of the $819 billion economic stimulus package, Congress included a boost in funding for emergency shelters. The $1.5 billion provision doubles the annual federal funding for alleviating homelessness. In addition, the bill includes $200 million to help people who are behind on mortgage or rent payments.

The bill, now being debated in the Senate, is "a good step forward," says Maria Foscarinis, executive director of National Law Center on Poverty and Homelessness. But the organization is also calling for the federal government to renew its commitment to affordable housing, which she says ended with large cuts for low-income housing in the 1980s. The NLCPH calls for Congress to make a large infusion of funding to the National Housing Trust Fund, tasked with building affordable housing.

"The growing gap between wages and housing costs has long been hard for low-income people," says Foscarinis. "Now we're seeing people who are middle-income who are being squeezed."

While that debate continues, local churches and homeless activists are still trying to revive the CityTeam shelter, though hope for a breakthrough is dwindling.

Glen Dennis was lucky. His former CityTeam friends dusted him off after his relapse and helped him get into a rehab program at Bread of Life Ministry in downtown Seattle. He is starting over again.

Charles Capizano, who lives with three other graduates of the rehab program in a house secured for them by Bread of Life, is cautiously planning his future, but worries about the many people who scattered when the shelter closed.

"Once you lose everything, it's very hard to get back to the surface again," he says. "You get a good lead on a job and you think, 'how am I going to get there, how can I dress for work?' Not having a place to cycle out of that is really tough."