BOSTON, MA - Some local nonprofits and charities fear they may lose millions of dollars in funding following the collapse of major Wall Street investment firms. The Housing Partnership Network, a nonprofit affordable housing business alliance in Boston, has received more than $13.8 million in investments and grants over the past three years from Merrill Lynch, millions more in funding from Fannie Mae and Freddie Mac, and insurance coverage for thousands of affordable units from troubled American International Group. The nonprofit is considering worst case scenarios that would require new insurers, lenders, and philanthropic support to keep it afloat, said chief executive Tom Bledsoe.
Smaller charities are also bracing for the worst. At the Initiative for a Competitive Inner City in Boston, where Merrill has provided more than $100,000 annual ly, executives are waiting to see what the blow may be to the organization that promotes economic prosperity in US cities. The Joslin Diabetes Center in Boston is expecting to lose $25,000 from Lehman Brothers. And Boston charter school MATCH is starting off the year without $20,000 it was counting on from Lehman to fund a program to buy books every month for its 200 students. "We were in the process of reapplying for the grant as recently as a couple of weeks ago," said Alan Safran, MATCH's executive director. "I don't know what will happen."
Wall Street was the epicenter of the brutal financial earthquake last week following Lehman's filing for bankruptcy protection, Bank of America Corp.'s move to acquire Merrill, and the government's bailout of AIG and takeover of Fannie Mae and Freddie Mac. But shockwaves are being felt far outside the corporate world to nonprofits that have grown accustomed to major support from commercial banks and investment firms. While smaller charities are struggling with immediate funding issues, those with endowments are certain to take a big hit with their investment portfolios. In Massachusetts, the financial services industry serves as the largest and most significant giver, according to the Boston Foundation, and the fallout could not have come at a worse time.
Even before last week, many of the nation's largest companies expected their donations to remain flat or decrease. The Chronicle of Philanthropy reported last month that of the 77 businesses that offered predictions for how much they would donate in 2008, 50 said their giving would remain the same as last year, including local stalwarts Staples, CVS, and Raytheon. Of those businesses, 21 expected an increase and six said donations would drop, including beleaguered Washington Mutual, a savings-and-loan firm that has seen major losses stemming from the nation's mortgage crisis and is expected to put itself up for sale. Five of the top 10 largest corporate givers are financial services firms, including Bank of America and Wachovia, which is reported to be in talks to buy Morgan Stanley.
In August, when the Chronicle of Philanthropy released its report, Bank of America said its philanthropy would remain flat in 2008, after increasing 2.4 percent in 2007 to $210 million. It is unclear how an acquisition of Merrill Lynch by Bank of America would impact its philanthropy, especially for organizations that currently receive funding from both firms. "We have not yet had the opportunity to review with Merrill Lynch their corporate giving profile or where there might be overlap," said Anne Finucane, Bank of America's chief marketing officer and highest ranking local executive. "That work will follow in the months to come."
Philanthropy is embedded in the financial industry's culture, and firms pour millions of dollars to get their brands plastered on major institutions. In Boston, there's Citi Performing Arts Center, and Fidelity Investments is the season sponsor for the Boston Pops, while UBS does the same for the Boston Symphony Orchestra. Charitable giving has increasingly become part of corporations' self-image and the way they position themselves internally and externally, according to Thomas McLaughlin, an adjunct professor at Brandeis University and senior manager at Grant Thornton. It's altruism combined with marketing opportunities, as relationships with these groups often allow firms to reserve seats for friends and clients.
The fallout from last week's financial crisis will have short- and long-term impacts for nonprofits and charities. Struggling or acquired financial firms without a separate charitable foundation will have to decrease or stop giving entirely. Any surviving philanthropic efforts will eventually take on the preferences of the acquiring company. Meanwhile, companies that set up a separate philanthropic foundation may still be able to provide grants but will have fewer assets to give away, according to McLaughlin.
"It's a triple whammy for Boston-area nonprofits, which will result in a significant decrease in operating budgets for the year. It's definitely hitting now," said Kristen J. McCormack, faculty director of the nonprofit MBA program at Boston University. "Boston nonprofits were already challenged to find corporate sponsors because there are fewer corporations housed here and those corporations have fewer dollars to give."
As the financial crisis spreads, analysts expect firms with deep troubles to retrench their charitable giving. Earlier this year, Swiss banking giant UBS, which has written off billions of dollars in assets linked to high-risk subprime mortgages, withdrew its support for the UBS Verbier Orchestra, an elite training ensemble based at the Verbier Festival in Switzerland, and switched funding to a different group. UBS still is negotiating an extension agreement with the BSO, according to Mark Volpe, the symphony's managing director. "They're obviously under a lot of pressure, but they want to continue with us," Volpe said. A UBS spokeswoman confirmed the company renewed its sponsorship for the 2008-2009 season, but said the firm does not comment on the details or terms of sponsorship agreements.
At Joslin Diabetes Center, Lehman's $25,000 contribution comprises about 10 percent of its budget for JumpStart, an outreach initiative for children and teenagers with diabetes. The new fiscal calendar starts in October, and executives are aggressively looking for other funding sources to avoid cutting services and are considering asking the board of directors to tap money from an unrestricted donor fund to cover the gap for the JumpStart program. "In soft economic times, it's tough to forecast well. Donors are going to be cautious in tough economic times to make new commitments," said Michael Sullivan, senior vice president of philanthropy at Joslin. "You have to be prepared for alternative scenarios."
Source: Boston.com