Challenging Times Ahead

FUND RAISERS STRAIN TO CAPTURE ATTENTION OF DONORS

In Grand Rapids, Mich., where the average high temperature at this time of
year hovers just above freezing, the local Salvation Army is relying on
donors to give generously so it can help needy people pay heat and utility
bills.

But DeWayne Duskin, the group's director of development, worries that he
could have trouble raising enough money to meet the demand for help,
especially because so many donors have been opening their wallets for
efforts to help the tsunami victims in South Asia.

"I hope we don't run into a dry spell like we did with 9/11," he says.
"Fund raising took a dip for three or four months and went real flat. We
cannot afford that at the front of the calendar year."

Across the country, many other fund raisers are struggling to find creative
ways to capture the attention of donors and experimenting with new
approaches to soliciting gifts. As charities map out their fund-raising
approaches for 2005, many are redoubling efforts to solicit gifts from
affluent people rather than putting more energy into mass solicitations,
such as mailings and telemarketing, and are looking for new ways to attract
money from corporations.

Fund raisers at domestic charities say it is not just the spotlight on the
tsunamis that's making it harder to win contributions. With Americans
focused on topics like the war in Iraq, the debate over Social Security,
and the ups and downs of the stock market, donors seem to be paying less
attention to causes like the environment.

Garnering attention from donors is likely to become ever more challenging
in the months ahead, as more and more nonprofit groups step up
solicitations to individuals, foundations, and corporations -- often in an
attempt to make up for cuts in government aid.

Cautious Approach

The bleak outlook for 2005 comes after a year in which many charities
struggled to raise enough money to keep pace with inflation, which was 3.3
percent in 2004.

Even though other organizations saw strong increases in donations last
year, many say they are not overly optimistic about the fund-raising climate.

"The market is still volatile, and we are being careful rather than
optimistic," says Jon Gossett, senior vice president for development at
Minnesota Public Radio, in St. Paul, where a new effort to win big
contributions from affluent donors helped push donations to $31.6-million
last year, up from $27.7-million in 2003.

While many of the fund raisers at more than 50 organizations interviewed by
The Chronicle in the past month said they expected 2005 to be a year of
continued struggles, a new survey has found that fund raisers are more
optimistic about giving than they were a year ago.

In a semiannual survey of more than 200 fund raisers nationwide released by
the Association of Fundraising Professionals in December, 88 percent of
respondents said they were optimistic about their ability to raise money in
the current economy, up from 75 percent one year earlier. It was the
highest level of confidence reported since 2001.

Election Aftermath

For many nonprofit groups, the reverberations of the 2004 elections
continue to affect their finances.

Some groups hope that in 2005 they can make up money they believe they lost
because donors were giving to political causes rather than to charitable ones.

At Covenant House, which operates shelters for runaways in Los Angeles, New
York, and other cities, officials say the election was at least partly
responsible for a 12-percent decline in direct-mail returns, which make up
about 70 percent of the charity's $120-million budget. "The election sucked
out some contributions," says James Harnett, the group's chief operating
officer.

Other charities may still be experiencing cash-flow problems because of
sluggish direct-mail returns. Political candidates and advocacy groups sent
out so many mailings last year that the postal system couldn't keep up,
says Ray Grace, chairman of Creative Direct Response, a Crofton, Md.,
company that handles direct mail for nearly 20 large charities. "We saw
pieces that normally turn around in 7 to 10 days take a month or five
weeks," he says.

But for many advocacy groups, the election year was a fund-raising bonanza.
Groups that are concerned with some of the most divisive and prominent
social issues, such as gay marriage and abortion, say they raised a lot of
money from donors who wanted to influence the election or its aftermath.

Focus on the Family, a Christian advocacy group in Colorado Springs that
promotes traditional family values, raised $146-million, a 13-percent
increase over 2003.

Mark Buzzetta, the group's chief financial officer, said 7 percent of the
rise came from contributions to the organization's new lobbying arm, which
promotes President Bush's call for a constitutional amendment to restrict
marriage to heterosexual couples.

But this year, Mr. Buzzetta says he doubts that donations will increase by
as much as they did in 2004, especially now that the election is over.
"We're not anticipating another 13-percent growth year," says Mr. Buzzetta.
"This was unique."

At Planned Parenthood affiliates, fund raisers say that donations flowed in
fast after the election. Many donors, they say, are concerned that the Bush
administration will push for new limits on abortion, birth control, and sex
education, and they don't expect contributions to taper off, because donors
support the charity's efforts to oppose such restrictions.

"We saw a definite postelection bounce among our supporters," says Bryan
Howard, president of Planned Parenthood of Central and Northern Arizona, in
Phoenix, which raises about $1.3-million from donors each year.

Mr. Howard says that total contributions for December, immediately
following the election, were 20 percent higher than projected, with
direct-mail returns alone generating 30 percent more than expected. "Our
supporters are very familiar with the policies of the first Bush term," Mr.
Howard says. "The re-election caused supporters to sit up and take note
that challenges we faced over the past four years will become that much
stronger."

Out of the Spotlight

Donors have not rushed to give to all types of advocacy groups, however,
and charities working on issues that are not hot topics of debate among
politicians and pundits are seeking new and better ways to raise money.

At the Drug Policy Alliance, in New York, Clovis Thorn, director of
development, says many of his donors do not see his organization's issues
as a high priority these days. The alliance wants to promote
needle-exchange programs to help drug users avoid disease, legalize
marijuana use for medical purposes, and seek ways to help drug addicts get
treatment.

"So many donors are turning their attention elsewhere," Mr. Thorn says. "A
lot of our major donors are staying committed to political issues, and
we're being moved down to tier two."

His charity raised $7-million last year, about the same as in 2003. To
increase donations in 2005, Mr. Thorn says, the alliance "is going to have
to work harder to convince donors and the public that drug reforms are needed."

He says that the group hopes to persuade the public and policy makers that
taking a different approach to drug offenses could save considerable
amounts of money at a time when the growing federal budget deficit is
prompting many lawmakers to look for ways to slash spending.

"Offering treatment for drug offenders rather than incarceration could save
hundreds of millions of dollars," he says. "Our challenge is to demonstrate
that."

Environmental groups say they also are straining to get donor attention.

"There has been a reordering of priorities, and the environment is not as
pressing an issue as it used to be," says Kalman Stein, chief executive
officer of Earth Share, which last year raised a total of $13.4-million for
500 environmental groups through on-the-job drives. In the organization's
most recently completed campaign, Mr. Stein estimates that Earth Share will
raise enough to keep up with inflation.

Appeals From Volunteers

With fund raising growing more competitive, charities of all kinds are
lavishing attention on individuals who have the potential to make
significant gifts -- especially after such efforts paid off handsomely last
year.

Big Brothers Big Sisters Southeastern Pennsylvania, in Philadelphia, raised
$1.1-million in donations and pledges at a spring breakfast gathering. That
event, plus a similar one in December that raised $312,000, helped the
charity raise 40 percent more last year than it did in 2003.

The spring breakfast featured a youth choir and testimonials from both a
Big Sister volunteer and the 16-year-old she helps. The event worked
because board members invited friends and colleagues to the breakfast who
were greatly impressed with the program, says Linda Jacobsen, the group's
fund raiser. "We let the people whose lives have been changed by this work
do the talking." Sixty percent of the nearly 250 people who attended, she
notes, made a gift to the charity, many for the first time.

Other charities are getting more aggressive in asking wealthy people to
donate land or stock in privately held businesses. World Vision, the
international relief organization, received $12.2-million in such gifts
last year, triple the amount it received in 2003. Although that is a small
part of the organization's donations -- it estimated that it raised
$800-million last year -- the organization believes such donations can
become a strong part of its fund-raising effort in the future.

Real-estate gifts are attractive to many people. Property values have
soared in recent years, and donating land to charity allows contributors to
escape capital-gains taxes they would have to pay if they sold it.

World Vision only recently started going after stock in certain types of
privately held companies, after Congress passed a law in 1998 that made it
easier for stockholders in many private companies to donate their shares.
Before that, stock in S corporations, a tax status used by many family-held
businesses, could not be donated to charity.

"A lot of these family-owned businesses have been doing very, very well, in
contradiction to the stock market," says Dan Rice, World Vision's national
director of planned giving. "Ninety percent of all businesses are privately
held; half of those are S corporations. We're getting these gifts because
we're asking for them, and you get what you ask for. If you went all the
way through 2004 and did not get real estate or closely held stock, you
left something on the table."

Corporate Support

Many charities are turning to companies for help in reaching both new
clients and new donors.

In Nebraska, Father Flanagan's Girls and Boys Town has formed an agreement
with Godfather's Pizza, the national chain that has its headquarters in
Omaha. The deal is the first corporate-charity agreement for both
organizations.

Godfather's is printing the Boys Town logo and hotline number for children
on more than 18 million of the boxes it uses to deliver pizzas and is
mentioning the charity in its national advertising. In addition, the
company says it will devise ways for its 600 local stores to raise money
for the charity.

William Swindell, national director of development for Boys Town, estimates
that the charity will realize $1.5-million per year from the Godfather's
deal. "We'll be able to serve more kids as a result," he says.

Cardboard Fund Raisers

The Salvation Army, which received a major setback last year when Target
stores said the charity could no longer hold its traditional red-kettle
holiday drive on its premises, has also been developing new ways to work
with companies.

While the charity figured it might be wise to solicit customers at small
stores, it didn't have enough people to stand alongside the kettles. During
the 2004 holiday season, the charity's fund raisers decided that one way
around the problem was to use life-size cardboard figures as stand-ins for
the charity's workers.

Two versions of the cardboard figures -- a man and a woman, both wearing
Salvation Army uniforms and broad smiles -- were placed beside kettles in
200 bookstores and sporting-goods stores. Each figure was rigged with a
motion detector so that when a customer walked by, the cardboard figure's
arm would wave up and down to the sound of a ringing bell, and a voice
recording would ask for a gift.

The cardboard displays raised $135,000 this year, and the charity says that
it wants to place them in 1,000 retail locations next holiday season.

The charity's efforts to diversify the locations where it solicits kettle
gifts -- plus the publicity the Salvation Army received when Target ousted
the charity's workers -- helped the organization raise more this year than
it had in the past. While the charity is still calculating how much the
kettles brought in nationwide last year, officials say that at least
$94-million was collected -- $1-million more than in 2003.

Government Cuts

For many charities, the loss of government funds is creating new pressure
to raise money from private sources.

In Colorado, for example, 76 percent of charities that receive state money
to provide job training, family planning, mental-health treatment, and
other services saw cuts in government aid last year, according to a study
by the Colorado Association of Nonprofit Organizations. Meanwhile, more
than half reported increased demand for their services.

YouthZone, a Glenwood Springs group that helps troubled children, has
already lost a third of its budget because of state and federal cuts. The
charity has reduced the number of youngsters it serves from 1,500 to 900
annually, even though it says demand for its services is rising.

The charity has tried to make up for a loss of $92,000 in government funds
last year by charging fees to its clients, but it does not want to go too
far in that direction because many people cannot afford to pay. YouthZone
also stepped up its efforts to raise money from private sources, but the
depressed local economy and competition from other charities made that
difficult. The organization brought in $403,000 in 2004, $110,000 less than
it raised in 2003.

The budget woes forced Debra Wilde, YouthZone's executive director, to
place a freeze on hiring, and she is now doing three jobs -- her own, as
well as that of the former program director and the financial officer.

"We are feeling the strain," says Ms. Wilde, "but we had to get leaner."

Other charities are also taking a cautious approach to spending on
employees and other administration expenses -- even those organizations
that achieved fund-raising increases in 2004.

"I will aim high and budget flat," says Peter Thomas, senior vice president
of United Ways of New England, which raised $22.4-million last year, about
$100,000 more than in 2003. "It is just prudent business until we see a
real economic turnaround."