M arket meltdown, credit freeze, economic Armageddon, financial free fall. It’s an economy so bad that economists have come to sound like English majors as they grope for metaphors to describe its severity and depth. In an economic climate this gloomy, philanthropy is under immense stress. And many of those who traditionally provide humanitarian aid are finding themselves in financial peril.

As organizations at the center of the philanthropic community survey their members, there is, as one would expect, clear evidence of a decline in overall giving. But there are some surprises, and the harsh conditions have inspired creative proposals that may provide relief,and will likely make for a much sturdier structure for giving in the future.

At United Way of America, the largest U.S. charitable organization, a year-end sampling of its biggest 100 affiliates indicated a drop in donations of about 3 percent from 2007 to 2008. That compares favorably with the performance of the stock market.

“Typically, we see an increase. We were hoping it would at least stay flat,” says Sal Fabens, public relations director. “It usually takes a year for us to see a downturn, so we’re expecting another decline in this year.”

One measure of need is the United Way’s 211 phone-based referral program, which links callers to local social services. According to Linda Daily, the program’s director, 9.8 million calls were made in 2007. That number soared to more than 14 million calls in 2008, with a 30 percent increase in calls about housing- and foreclosurerelated services.

“Many are coming from people who say they have never called anywhere for help in their lifetime,” Daily says. “These are people who are reluctant to seek help, who see it as a matter of pride not to.”

The Center on Philanthropy at Indiana University  tracks charitable giving through the Philanthropic Giving Index (PGI), a survey of senior fundraising professionals, with higher overall scores indicating more positive attitudes about the fundraising climate. Between December 2007 and 2008, the PGI dropped by 27 percent, to the lowest level since the first survey in 1998. Like the Consumer Confidence Index, which tends to overreact to good news and bad news, the PGI jumps around more than actual giving. But even in this economy, it’s still a fairly accurate barometer, says Patrick Rooney, the center’s interim executive director.

“Although these are very difficult times, and we want to be respectful of the people who are hurting, this is not a depression, and I don’t think it will become one,” he continues. “Most of the people who are saying we’re in another Great Depression didn’t live through the last one. They’re being provocative and, I think, a little reckless.”

Rooney points out that the Depression brought 25 percent unemployment and a 25 percent decline in gross domestic product. “We didn’t have any of the checks and balances that are in the system today,” he says. He does worry about how deep the economic downturn will be.

The decline in donations at United Way appears to have “affected every level of giving,” according to Fabens, but that’s not the case throughout the charitable system. Rooney and others in the nonprofit arena say that although contributions from foundations, corporations, and major donors have declined, giving by individuals -- especially those making small donations --has actually increased.

“Many people feel fortunate that they still have jobs,” explains attorney Seth Perlman, senior partner at Perlman & Perlman, a New York firm that has specialized in nonprofits for 50 years. “They want to do even more because they see how hard it is for those who are out of work.”

One worrisome issue for charitable organizations: the number of wealthy individuals who made pledges but then incurred significant losses, Perlman says.

“Some people are unable to honor their commitments,” he notes. Another troubling question concerns financial institutions that are receiving government bailouts. “A lot of them have multiyear commitments,” says Perlman. “If they’re receiving a bailout, then basically those commitments are now being made with public funds, by taxpayers. In effect, you have the government taking over what has been the work of charities.”

Valerie Lies, president and CEO of Donors Forum, a regional association of grant makers based in Chicago, believes that things will get worse before they get better. “This is an amazingly resilient sector, but this time I think the damage in curtailed capacity to serve and in organizations forced to fold will be more severe,” she says. “The organizations hardest hit are those serving disadvantaged populations [with] basic human needs. Many of those organizations are suffering from both a loss of giving and government cutbacks, at a time when the demands for their services are way up.”

Lies’ observations are seconded by Paulette Maehara, president and CEO of the Association of Fundraising Professionals, with more than 30,000 members worldwide.

“Organizations that work in concert with government agencies are definitely feeling more pain because the government is cutting back on its services, or late in reimbursing,” she says.

In any economic downturn, arts and culture nonprofits are often hit the hardest. In addition to the decline in overall giving, individuals and grant makers tend to redirect their donations toward groups that provide food, shelter, and other basic needs. They will shortchange the local opera or theater troupe in favor of the food pantry.

“This is a very scary time for artists and arts organizations,” says Ra Joy, executive director of the Illinois Arts Alliance and Foundation. “We do have arts organizations in Illinois that are teetering on the brink of existence, and I’m sure that’s the case in other states. There’s a shift toward health and hunger that may seem understandable, but that puts our sector in jeopardy.

“The arts are not ornamental,” he says. “They are not merely good for our souls and our quality of life. They are a smart investment that fuels economic growth. People tend to underestimate the economic impact of the arts sector.”

According to a study by the nonprofit Americans for the Arts, arts organizations contribute more than $166 billion each year to the U.S. economy and account for 5.7 million fulltime equivalent jobs. In all sectors, survival could be an issue for an increasing number of nonprofits.

“Small regional organizations without name recognition will have it the toughest, and some may end up closing their doors,” says Maehara. Others will hang on through mergers. “I’m an advocate for mergers that are mission based,” she says. “There’s much too much duplication of effort and service. But financially driven mergers are rarely good for nonprofits.” The factor that makes it difficult, she says, is “the emotional investment of your staff and volunteers.”

Perlman agrees. “Merging is a doubled-edged sword,” he says. “It may make some organizations more efficient, but it’s also likely to narrow the scope of their mission.” He would rather they focus on broader solutions. And he believes that some major relief is possible through minor government intervention.

He advocates changes in the tax laws to permit social benefit enterprises to receive tax advantages and allow growth through capital investment. These hybrid companies fulfill the missions of traditional nonprofits while operating under a for-profit business structure. This proposal “would not only provide help to organizations and people in need,” he says. “It could stimulate investment and speed the overall economic recovery.”

“There’s a whole group of social entrepreneurs out there with a lot of pentup demand to do things,” says Perlman. “They believe in a triple bottom line: take care of the community, take care of the environment, and earn a profit. They believe that you can do well and do good at the same time.”

Amidst economic clouds, the search for good news is difficult. Though many nonprofit organizations are suffering hardships, those that best adapt to this crisis will emerge stronger. Some have been forced to make adjustments that will provide longterm benefits.

“The economic meltdown does present an opportunity to look ahead,” says Rooney, the director of the Indiana University philanthropy center. “Just as an individual is best served by having a diversified financial portfolio, you want the sources of your charity’s funding to be diversified as well. Although it may be too late for now, this is a good time to set that up, because now you are preparing for the next challenge.”

“Here’s a positive,” says Maehara. “When we ask our fundraisers about their expectations for this year, 54 percent said they will raise the same or more. Now admittedly, they are an optimistic group, but I draw some hope that more than half of them still feel that optimism.” Once the comeback starts, she adds, it will take off because of the “globalization of giving” made possible by the Internet. “What will help is the world attitude about the economy,” she says. “When there is a belief that the system will work, that is when it will start to turn around.”

Paul Engleman is a freelance writer based in Chicago.