Bay Area nonprofits brace for 2010 Armageddon IMPACT OF THE ECONOMIC CRISIS

Stacey and Jesse Marwick moved into the center 6 months ago while Stacey was pregnant with her son Nicholas. The family inside their room at the InnVision Clara Mateo Alliance, in Menlo Park, Calif., on Friday Feb. 27, 2009. Nicholas is 5 months old. The center which serves singles and families, has seen private donations, government and foundation support fall dramatically due to the current recession. less Stacey and Jesse Marwick moved into the center 6 months ago while Stacey was pregnant with her son Nicholas. The family inside their room at the InnVision Clara Mateo Alliance, in Menlo Park, Calif., on Friday ... more Photo: Michael Macor, The Chronicle Photo: Michael Macor, The Chronicle Image 1 of / 4 Caption Close Bay Area nonprofits brace for 2010 Armageddon 1 / 4 Back to Gallery

Nonprofits are seeing an alarming drop in funding and increased demand for help this year, setting the stage for a complete shakeup of the sector in 2010.

Unlike recessions past, this one could permanently alter the nonprofit landscape, say nonprofit CEOs, forcing possible closures and mergers as the sector restructures to survive.

Hardest hit will be the Bay Area, home to one of the highest concentrations of nonprofits in the nation. There are 25,000 nonprofits in the region; 7,000 in San Francisco alone. Among them are 10,000 charitable nonprofits with budgets above $25,000. Their combined budgets account for 14 percent of the Bay Area's gross national product - twice the national average.

Many are teetering.

"A lot of nonprofits are living on this year's operating budget, which is based on what they raised a year ago before the economic crisis really hit," said Denise Gammal, co-author of a Stanford University report on Bay Area charities and vice president of strategy and organizational Learning for United Way of the Bay Area.

"Although nonprofits will be OK this year, the next two years will be difficult to weather. That's when the state cuts will have a significant impact," she said.

A survey of nearly 300 Bay Area nonprofits conducted in October by United Way of the Bay Area found widespread worry.

While 70 percent reported increased demand for services, nearly half said they couldn't meet it. Revenue decreases were reported by 65 percent of nonprofits, forcing 23 percent to lay off staff. When asked if they are optimistic about 2009, only 59 percent of nonprofit CEOs said yes, compared with 92 percent in 2007.

In her own unofficial survey, Laura Escobar, who disburses $3 million in federal housing grants to Bay Area charities for the United Way, discovered the requests for funds totaled a record $1 million above what she had available to pass out this year.

Nonprofits are resorting to drastic public pleas for help.

Christine Burroughs, who provides shelter to 24,000 homeless people in Silicon Valley as CEO of InnVision, put out a call to the community for $500,000 to keep her budget from going into the red.

"I feel we'll get through the fiscal year that ends June 30, but my big concern is what to do after that," she said. "We're learning of hundreds of thousands in cuts in our funding."

A huge shortfall

Half of InnVision's funding comes from private donors, 37 percent from government, and the rest from program fees. Burroughs already laid off a few workers, instituted salary cuts and reduced beds at her Menlo Park shelter from 100 to 60 to save money.

Still, her agency has a $500,000 shortfall in its $11 million operating budget for the 2009 fiscal year.

Burroughs worries she may have to shut down the Menlo Park shelter.

"It's painful to watch this erode, but nonprofits are going to have to change their paradigm and figure out how to compete together for what little funding is left," she said.

Funding is drying up on all fronts. Individual donors, dealing with their own financial woes, are not giving. Governments, socked by property tax losses, have eliminated funding. Large philanthropic foundations have scaled back as the stock market has eroded an average 30 percent of their endowments.

The Chronicle of Philanthropy, the leading newspaper of the nonprofit world, surveyed 73 of the nation's largest foundations in December about their 2009 grant making plans and found 39 percent expect to decrease the amount they contribute to charities this year.

Giving more

In hard times, sometimes funders do the opposite - give more.

The Bill and Melinda Gates Foundation, the largest in the world with assets estimated at $30 billion, plans to raise its giving from $3.3 billion in 2008 to $3.8 billion in 2009 to help charities survive.

The San Francisco Foundation plans to give the same amount to charities that it did last year, despite a shrinking endowment.

One of the nation's largest community foundations, the San Francisco Foundation saw its assets decline by 21 percent in 2008. It's valued today at $865 million. It doled out $46.6 million in grants over the last six months of 2008, an 11 percent drop from the same period in 2007.

CEO Sandra Hernandez expects 2009 grants to match those of 2008 as individual donors increase giving to meet demand. "I think any time you are in this kind of economic situation, individual philanthropists feel like they should do more for direct food and shelter type services," she said.

The San Francisco Foundation is conducting a survey to find out what impact the recession is having on the Bay Area nonprofits it funds. Nearly 100 community health nonprofits have responded. Ninety percent said demand is up for their services, 60 percent said their revenues are declining and 25 percent have already had layoffs.

"Large organizations with diverse funding streams will have to do more with less, but it's the tiny grassroots and arts groups that live on very narrow margins that may not make it if a major funder drops out," Hernandez said.

That's what almost happened to Woman's Will, an all-female Shakespeare company in Oakland.

Waiting for the check

In October, when the city of Oakland cut Woman's Will's annual $15,000 grant - the troupe's largest source of funding - founder Erin Merritt thought she'd have to cancel the 2009 season.

Merritt joined arts groups to persuade City Hall to reinstate the money, but the check has yet to arrive. Without it, Merritt had to beg for money for the first time in the company's 12 years. She sent out a desperate e-mail, asking supporters to pitch in $25,000 to save the season. In two weeks, she had $29,000.

She's OK for this season, but 2010 is up in the air.

"The dot-com bust was scary, but this one is so much worse," Merritt said. "We are getting squeezed in all directions."

As jobless claims hit a historic high of 4.8 million nationwide, fundraising is getting exponentially harder for nonprofits.

"People often don't think creatively how to help," Merritt said. "We're happy to be the beneficiary of a garage sale."

Ken Larsen, director of public policy for the California Association of Nonprofits, predicts organizations will also need to get more creative about asking for money.

They will need to partner with corporations to explore embedded giving, where a percent of a purchase goes to charity, he said, or get more savvy about starting Internet campaigns on sites such as Facebook or Twitter.

"Nonprofits might want to shift toward more virtual fundraising and less grant seeking," Larsen said. "Because the folks who have been hurt most by this recession are those who had resources already in the stock market and real estate, so nonprofits might recover faster if they find new ways to target younger people whose wealth is wage-based."

Refining the mission

Experts, foundations, donors and charity leaders all agree that nonprofits are going to have to collaborate and look at the crisis as an opportunity.

"I think it's imperative," said Ellen Dumesnil, director of economic development for Catholic Charities of Santa Clara County. "There is an opportunity in re-evaluating how we are structured and looking at whether we can partner in ways that make sense for our clients.

"Look at the car industry. We didn't want the bottom to fall out, but maybe the fear of that is what it takes to create fuel-efficient cars."