How charities survive tough times

America's charities have faced a tough 2009. By most accounts, 2010 will be worse. Donations are down and other sources of funding are drying up. Cultural institutions are among the hardest hit.

New York City's Metropolitan Museum of Art, whose fundraising efforts once focused on major gifts for new exhibitions and additional space, now appeals to donors merely to support operations. As donations fall, the load on service charities is rising. Despite a 6 percent decline in contributions this year, the Salvation Army is juggling a fivefold increase in demand for services.

Out of all this trouble, one positive trend has emerged: Charities are focused as never before on efficiency, cutting costs while maintaining services and finding new ways to survive.

"Nonprofits are certainly adapting and getting creative," says Kim Klein, author of the book "Reliable Fundraising in Unreliable Times." "I really defy any for-profit corporation to be as efficient and creative as a nonprofit."

Nonprofits have no choice. Donations are down 9 percent this year at the nation's top charities, according to The Chronicle of Philanthropy, an industry publication. Some 77 percent of charities let fundraisers go or cut fundraising spending.

"There's an enormous amount of attention being placed on efficiencies and measurement," says Ken Berger, president of Charity Navigator. "Most nonprofits are focusing on that right now."

Next year will be worse, predicts Robert Ottenhoff, chief executive officer of GuideStar, a firm that provides financial data on nonprofits. "Foundations, who contribute significantly to nonprofit efforts, were willing to go deeper [into endowments to keep up giving] in 2008. But with endowments down, foundations aren't likely to repeat [that]." Add to that a dramatic decline in state government grants and corporate giving, and it becomes clear that nonprofits' streams of funding are drying up. Particularly worrisome for nonprofits and their clients are states like Florida and California, where unemployment is high and state budgets are especially tight.

To keep operating, many nonprofits are starting with the basics – better targeting of donors and cleaning up accounting programs to pinpoint savings, says Ms. Klein. She points to Amnesty International, which uses advanced technology to analyze giving patterns in order to maximize donations while reducing the overall frequency of fundraising campaigns throughout the year.

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