It’s Not What You Spend, But How You Spend It.

Israel’s Finance Ministry announced that increases in the country’s Education budget would not keep pace with increases in the national budget.

A budget reflects the priorities of the organization allocating funds; by not increasing the education budget, the Israeli government is making a clear statement about its view on the importance of educating its children vs. other programs and initiatives.

That said, I can’t say that I disagree with the Finance Minister on this particular point. The education budget has increased steadily over the past two decades while student performance has continued to decline and the schools themselves continue to decay. It not always about what you spend, but how you spend it.

It is time for the Israeli government to get serious about education reform. It is a crisis that must be addressed immediately. Improve the curriculum, provide training and development for teachers, upgrade the facilities. Until then, thousands of children will continue to be left behind, ignored by their government that will be forced to support an under-educated population.

Where Have All the Dollars Gone?

In the past few weeks, public opinion against Wall Street and anyone who has ever worked in the financial services industry has clearly reached an all-time low. Congress is seeking to enact retroactive taxes that could impact thousands of people, and AIG employees are receiving regular death threats.

This wave of anger and desire for punishment is overlooking the critical philanthropic role that many financial services professionals play in our society. Yes, many Wall Street bankers, traders, and their colleagues at hedge funds and private equity firms may earn salaries well above the national average. But they also contribute a huge percentage of that wealth to charity. Some firms actually mandate percentages of income that senior executives are required to donate.

New York City is home to thousands of organizations that provide food, shelter, clothing, education, job training, access to the arts, counseling, medical services--the list goes on and on. These programs help not just New Yorkers, but people in need around the country and around the globe. Moreover, these organizations also employ approximately 14% of NYC’s workforce (source: New York City Economic Development Corporation).

The impact the loss of these donor dollars will have on the not-for-profit community is already being felt and will only worsen over time. Daily, I learn of organizations--many of which have been around for decades--that are cutting programs and laying off staff. In the next few years, literally hundreds of millions of philanthropic dollars will disappear, perhaps never to be seen again.

This tragedy must be recognized and addressed. The recession will only increase the demand for the types of services these organizations provide. Philanthropically-minded individuals who now face salary caps, higher taxes and restrictions on charitable deductions are going to be less incentivized--and less able--to help the organizations that have relied on them in the past.

Of course, I am not an unbiased source. I live in New York and--as even our Mayor has admitted--this city’s economy is dependent on the financial services industry. I also run a not-for-profit organization that was founded by a handful of young Wall Street professionals who used their first bonuses to help others. Yet I see every day the importance of Wall Street, not only to our city, but also to our country and our world—and this is a message that seems to be getting lost in the press. We can’t blame this mess on an entire profession. We need to move forward. America has always been a very charitable society--let’s not change that.

Don't Be Such a Stranger

A recent study examining giving patterns of wealthy donors noted that 60% of households that stopped giving to a specific charity did so because they no longer felt connected to the organization.

This lesson is important for all nonprofit organizations, particularly in these difficult times. Economic circumstances may result in declined giving, even from long time supporters, but it is more important than ever to maintain relationships with donors.

Charity executives need to be turning up the communications--emails, letters, reports--to ensure that donors continue to feel connected to the organization and understand that their support is making a difference. Donor cultivation is always important, but in this economy it becomes even more critical to let your supporters know how much you appreciate them.

"The Times They are a-Changin'" (Bob Dylan)

Just when you think the economic news can’t get any worse, it does. Daily stock market declines, a credit crisis, and talk of a long lasting, international recession crowd the headlines and broadcasts. Nearly everyone is worried about their own jobs and the financial health of their companies.

For those of us in the not-for-profit world, the stress is even greater. Our success is directly dependent on the income of others; donations come from disposable incomes. Despite the best intentions and the philanthropic nature of Americans, I am uncomfortably certain that there will be a decline in charitable giving this year.

So how should nonprofit organizations respond? If you don’t have the money to fund your programs, the answer is painful yet simple--you must cut. But if you do have enough capital to fund your current activities, what should you do? Cut now to save for next year? Continue to spend normally while expecting to substantially reduce budgets in the future? Nothing is black and white, and there is no one right answer. Here are a few suggestions to help not-for-profit executives weather the current economic climate:

• Continue to review budgets and trim anything that is unnecessary. Donors will want to see that you are responding to the economy. They’re cutting back, their businesses are cutting back, and you should too.

• Continue to fundraise--if you don’t ask for money, you won’t get it. Don’t be surprised if even long time donors turn you down or decrease their giving, but don’t give up. You must keep asking.

• Involve your board in the discussion. Reach out to key supporters for their opinions. Have them help you identify different options.

• Ask board members for their own personal financial commitments. Now is the time for a board to show leadership. If they can’t commit during these times, you can’t expect others to do so.

• Develop an action plan that includes future decision-making milestones.

• Communicate with your supporters. Let your community know how the economic uncertainty will (or will not) impact your organization and the demand for your services. Focus on donor stewardship so that when the market does come back, your support base will too.

There may be some not-for-profit organizations--like their for-profit cousins--that do not survive the current downswing. This is an unfortunate reality. However, if your services are in demand, your programs effective and your operations sound, you will get through this period. It may involve hard decisions and unpleasant actions, but the times have to change back at some point--don’t they?

"These are the times that try men’s souls." (Thomas Paine, 1776)

The front page of today’s Wall Street Journal included a headline that read “Worst Crisis Since ‘30s, With No End in Sight.” It is the latter half of this sentence that is particularly frightening.

The current level of economic uncertainty and turmoil is unprecedented and leaves many not-for-profit organizations fearing for their futures and unsure as to what the appropriate near term actions may be.

Many of my colleagues—particularly those who work for Jewish organizations that traditionally solicit funds now, in advance of the Jewish High Holy Days—are wondering if it is still appropriate to ask for money during a time when their donors may be facing personal financial crises. My answer to them is yes. You must ask. You may change the way you ask and you should understand when even longtime supporters say no, but you must continue to ask.

In the coming months, the role not-for-profit organizations play will increase in importance. Demand for programs that address basic socioeconomic needs like food, health and education will rise exponentially. The ripple from the financial market meltdown will soon be widespread, unemployment across all sectors will increase and the need for assistance will grow. A shrinking tax base will reduce government funds available, and not-for-profit organizations will be called upon to fulfill critical needs in communities across the country and around the globe.

Organizations must keep up their development efforts in order to meet this demand. No one said the work was easy, but we all agree that it must get done.

Fight Fiercely Harvard

Philanthropy News Digest: Alumni Group Presses Harvard to Do More With Its Endowment

NY Times: Alumni Group Tries to Elicit Social Action From Harvard

Much has been made in the press lately about a group of Harvard alumni who are pressuring the university to use some of the estimated $35 billion Harvard endowment to fund programs beyond Harvard. In particular, the articles tell the story of one alumna who asked her classmates to redirect their reunion contributions to struggling colleges in Africa and requested Harvard’s support in this process.

I salute the efforts of alumna Paula Tavrow to help African colleges and commend her for encouraging friends and contacts to support this cause. I also understand the frustration many alumni may feel (full disclosure: I am a Harvard alumna) when being solicited for donations to help grow an endowment that is already larger than the GNP of many countries. However, I understand Harvard’s position and the university’s reluctance to officially disperse funding to outside organizations.

First of all, while not intimately familiar with the mission of the Harvard endowment, I must assume that it grew out of donations from alumni who expected the money would be used to directly benefit Harvard. While giving to colleges elsewhere in the world is commendable and needed, such an act could alienate many longtime Harvard supporters. Plus, it just isn’t nice. No matter how noble the cause, you can’t take money that was given for one purpose and use it for another.

Second, there is no good argument in favor of Harvard sharing alumni information that was given with the expectation of privacy. Tavrow’s group expresses frustration that Harvard refuses to share its alumni contact list. Good for Harvard—fight on! When I provide Harvard with my personal information, it is under the assumption that it will not be shared with outside organizations who might want to solicit me for funding. I’m sorry, but “the ends justify the means” argument is not working for me here. With all the social networking sites and online resources available, there are plenty of other ways to reach fellow Harvard alumni who want to be found.

Despite these defenses, I am not letting Harvard off the hook so easily. Harvard has what I term CTWM—“Change The World Money.” CTWM is money that when deployed correctly can have a real impact. I will reserve my general thoughts on CTWM and how it is being used by the institutions and individuals who have it for another blog.

There are endless ways Harvard could harness its vast resources to change the world. Harvard could create programs that teach alumni about effective philanthropy. It could educate its students about world problems and require service obligations for students to get hands on experience. Harvard could create more scholarships for students from underdeveloped countries, or initiate programs that will help these students pave a path toward higher education. It could implement professional development and training programs for university administrators, as well as professors from other universities. Harvard could use its endowment to subsidize the salaries of graduates who choose public service or not-for-profit careers. Many these ideas may already be in motion (disclaimer #2: I don’t always read the alumni magazine), and if so—my apologies.

Harvard has a worldwide reputation as being a leading academic and research institution. The superlatives and “ests” (biggest, largest, best) that are used to describe the university’s achievements, qualifications, awards, etc. are endless. Harvard now has the opportunity—and I would argue the obligation—to leverage its capabilities to find new ways for the university and its community to change the world. I look forward to watching the progress.

If You're Happy and You Know It Clap Your Hands

Science Magazine has just published a study that documents something those of us in the philanthropy business have known for years—people who donate to charities or splurge on gifts for others are happier than those who do not. While most of those surveyed assumed they would be happier if they spent money on themselves, the opposite proved to be true. It’s worth keeping the results of this study in mind over the next few weeks as you tally up your 2007 charitable giving for your taxes, or find a crumpled $20 bill in your coat pocket—or even as you deposit your 2008 “economic stimulus” tax rebate.