Storm Warning for NGOs (Extract)

Israeli NGOs are feeling the crunch in the wake of the U.S. economic recession and the fallout from the Madoff swindle

22ziv224 (photo credit: NIF)
(photo credit: NIF)
Extract from an article in Issue 22, February 16, 2009 of The Jerusalem Report. To subscribe to The Jerusalem Report click here. Yedid, a social and economic justice advocacy organization that runs a national network of citizen rights centers in disadvantaged communities, has for several years been struggling for the installation of solar water heaters in public housing estates. "We were alerted to this issue when we noticed that many of the individuals we were assisting in public housing were suffering from electricity cut-offs when they couldn't pay their electricity bills," relates Sari Revkin, Yedid's executive director. "It was absurd that the poorest populations were not given a basic tool, which most Israelis have, to cut down on electricity bills, and instead were expected to pay more. But we had to fight for years, until 2007, when a law was passed enabling solar heaters to be installed in public housing." The passage of the law was only a first step. Budget allocations for the actual installation of new heaters has yet to be approved by the finance minister, and the matter requires a large measure of follow-up. But Yedid is now being forced to choose between its many projects, and may have to cut back or delay several of them - as a knock-on effect of poor investment decisions made thousands of miles away by American philanthropists on Wall Street. Even in the best of circumstances, the months of November and December can be trying times for Revkin. As every local non-profit organization that depends on donations from the United States knows, the crunch time for charitable giving is most keenly felt as the tax year draws to a close. "If the money isn't here by January 10," says Revkin, referring to the U.S. Internal Revenue Service cut-off date for tax-deductible giving, "I know it won't be coming at all." The 10th of January 2009 has come and gone, and the picture that is emerging in this calendar year for the estimated 18,000 active NGOs in Israel is not pretty. Yedid, which is dependent on American donors for 83 percent of its annual budget, has been forced to reduce its 2009 budget to $2.2 million, down from $3.1 million last year. With the United States sunk deeply in what may prove to be the longest economic recession since the end of World War II, and many Jewish philanthropic networks still reeling from the shock of the Madoff financial swindle, Israeli NGOs across the board are reporting drops of 25 to 30 percent in the donation lifeline they depend upon to survive. According to a survey of 220 NGOs conducted in December 2008, a majority of non-profit organizations report increased expenses, as their clients struggle in the face of an economic downturn, against the backdrop of decreasing incomes. One in five NGOs is in "grave financial danger" with perhaps one in seven contemplating suspending operations or closing entirely. The non-profit sector, which comprises 10 percent of the country's GDP in terms of its outlays and employs hundreds of thousands, is experiencing a wrenchingly difficult financial shock that is forcing it to adapt and adopt new strategies for survival, even as many predict the worst may not yet have been felt. "This storm is going to be long and hard," says Victor Lederfarb, financial manager of the Association for Civil Rights in Israel (ACRI). "Peering into the future, we cannot even begin seeing the end of it." To compound matters even further, 2009 is the second year in a row that the budgets of local NGOs have taken a major hit, although last year's troubles stemmed from a very different source: the strength of the Israeli economy, which caused the shekel to soar in value against virtually every other currency in the world. At one point, the shekel to dollar exchange rate plummeted in less than half a year from 4.20 shekels to the dollar all the way down to 3.20 - a drop of 25 percent (the rate has recently climbed again to around 3.90). While that was good news to many Israelis who benefited from lower prices on imported goods, it wreaked havoc in the balance sheets of the NGOs, who had based their shekel-nominated budget projections on a high exchange rate and suddenly found themselves poorer by a significant factor - and struggled to explain why to their benefactors. "Many of our donors looked at us uncomprehendingly when we tried to explain this to them," reports Revkin. "From their perspective they were giving us as much in dollars as they had in the past, so why were we complaining that we had less? Some of them only understood what we were talking about when they came to visit Israel and noticed they were getting far fewer shekels for their dollars than they had in the past. Only three out of 95 major donors compensated us for the lost income due to the exchange rate." The first signs of an absolute fall in donations to non-profits followed so quickly on the heels of the exchange-rate crisis that NGOs had virtually no time to adjust. Charitable giving tends to be an accurate indicator of the overall wealth of an economy, because it is one of the first items corporations and households reduce when tightening belts, while the restoration of previous levels of benevolence often lags behind recovery from recessions. The farther and faster the NASDAQ and the Dow Jones Industrial average fell, the more organizations in Israel felt their donation base shrink. "I haven't been to the States since May," says Revkin, "and that is saying a lot. Under normal circumstances I would have made two fund-raising trips there by now. But I got messages telling me there is no point in going - there is no one to talk to there. The federations are still giving generously - the Miami Federation just donated at the same level as they did last year - with foundations cutting back, and some closed down entirely as a result of the Madoff scandal. Individual donors have, in the best cases, been reducing their gifts dramatically, and many have stopped donating entirely. But the federations [ultimately] depend on donors for the money they pass on, so they may also eventually cut back. The uncertainty is terrible - we are in uncharted waters, and givens are not givens anymore. We have already cut 30 percent of our budget for 2009." Originally from Borough Park, New York, Revkin graduated with a degree in social work from the University of Maryland and moved to Israel in 1982 after working on issues related to welfare rights for several years in the U.S. She was a founder of Shatil, the New Israel Fund's empowerment and training center for social change organizations, and led it for 14 years. She left Shatil to found yet another social advocacy group, Yedid, which means "friend" in Hebrew. Yedid operates at several levels, from direct grass-roots assistance to people in need, to broader community programs, to working with the Knesset, the courts and the media in order to promote social change through changes in laws and regulations. Its legal department is often leaned upon by Knesset members to frame social legislation for them. "Our main guiding idea is to work on issues that are common to different populations in Israel, be they Ethiopians, Arab, Russian new immigrants, veteran immigrants and so forth," explains Revkin. "For example, that could include reforming debt-collection laws, or assistance in finding alternative housing for people thrown out of their homes because they failed to meet their mortgage payments. All low-income people benefit from that." With so much of her life's work and passion invested in the organizations she has founded, Revkin is understandably saddened by every cutback she is forced to implement. "Our centers are staffed by volunteers, either ex-clients or professionals such as social workers, psychologists, doctors and businessmen," says Revkin. Sometimes the interactions between them are the most important aspect. When our programs started, I thought that the middle-class volunteers would pass on their values to our ex-clients. But we discovered that they had just as much to teach us - and this is especially true now, when laid-off high-tech workers can use lessons on how to survive on a minimal budget." "If we cannot meet the rents that are due, we need to move our centers into less expensive locations," she continues. "We try hard to keep our centers from looking like institutions, because we've found it is much better for them to look like inviting places someone can walk into initially for a cup of coffee. People find it very difficult to ask for help, so having a warm and friendly place is conducive to them finding us for the assistance they need." The shortage of cash has also led to a need to reduce staff. Says Revkin: "In a way we are running an experiment right now - can we cut down on personnel, but not on what we do? If our legal department handles 300 cases per month and we reduce the number of lawyers working in it, can we still handle those cases and not turn away people in need? Our legal department is now torn between how much time to give to individual clients and how much time to devote to working with the Knesset on legislation that could have far-reaching effects for all our clients." Given the tough times NGOs can expect for the foreseeable future, what can be done to minimize the damage done, until prosperous times return? Rachel Liel, who now occupies the position that Revkin filled for many years as executive director of Shatil, has been studying this issue in detail in order to provide advice to the 1,400 non-profit organizations that rely on Shatil for consulting, training and coalition-building assistance. Shatil organized what it called "town hall meetings" in each of its five branch offices - in Haifa, Jerusalem, Beersheba, Baka Al-Gharbiya and Rosh Pina - in November and December, in which it invited directors of organizations to discuss the impact of the financial crisis and brainstorm coping strategies. The meetings provided a safe forum for directors to air their concerns, and reports integrating the discussions and needs from each meeting formed the basis for an action plan. Liel notes that in order to offer a wide variety of NGOs with the best advice, the different needs of the organizations have to be assessed. "First of all, there is a difference between organizations that are primarily service providers, and social advocacy groups," says Liel. "The service providers [who deal primarily with direct provision of assistance to the needy] often have local donors and state assistance. Advocacy groups [who concentrate on expanding social rights] often refuse in principle to accept state funding and are therefore suffering more." A further distinction exists between those who depend on U.S. sources versus European benefactors. American donations have been reduced more than any other source, Liel points out. ACRI'S Lederfarb agrees. "Those hurting most are those dependent on the U.S. for donations," he says. "European donors in general are closer to governmental funding sources and less involved in stock market investments." ACRI, the largest human rights and civil liberties organization in Israel, whose work encompasses litigation, legal advocacy, education and public outreach and employs 45 workers in three cities, is in slightly better shape than many other non-profit advocacy groups, as around 40 percent of its annual $2 million budget comes from European sources, in Britain, Germany, the European Union and the governments of some countries, such as Spain and Norway. But it, like other NGOs, has had to contend with shrinking American financial support "We mostly depend on foundations, but we do approach individual Jewish donors in the U.S.," says Lederfarb, 57, who has a masters degree in business administration and came to Israel in the early 80s from Buenos Aires, initially working at the Jewish Agency before taking a position at ACRI. "Just yesterday, yet another foundation that has been supporting our work for years indicated it may sharply decrease or annul its grants." ACRI in principle refuses to accept state funding, for fear of becoming beholden to a source it is sometimes called upon to criticize. Lederfarb insisted the organization build substantial financial reserves during years in which it received generous support, and those reserves are serving it well now as a source enabling it to maintain operations despite shrinking donations. "We are making use of those reserves to keep all three of our branch offices, in Tel Aviv, Jerusalem and Haifa, staffed and operational," related Lederfarb. "Our expenses consist of 80 percent salaries and running expenditures. We have not fired anyone - the policy has been not to replace employees who have left of their own accord for other jobs." Given the reserves it has saved up, ACRI is doing fairly well relative to most NGOs, which have been forced to consider painful cutbacks. "Some organizations are in denial," says Liel. "They don't want to admit they need to implement any changes. Others are moving into survival mode, but there are no magic formulas for surviving. We tell NGOs to think hard about what their core activities are, and to make the greatest efforts to stick to those activities as opposed to others. That is not as easy as it may sound, and may require difficult choices." Liel's own organization, Shatil, is being forced to implement a 15 percent reduction in budgeting this year. Extract from an article in Issue 22, February 16, 2009 of The Jerusalem Report. To subscribe to The Jerusalem Report click here.