Everywhere you look, the signs of economic malaise are hurting not only average Americans, but the neediest as well. And as the economy suffers, so do charities. Despite a slight uptick in 2010, 2.1% in inflation adjusted dollars, total charitable giving is still well off its levels before the recession, according to the Giving USA Foundation and the Center on Philanthropy at Indiana University.

The total charitable contributions for American individuals, corporations and foundations rose to $290.89 billion in 2010 from $280.30 billion in 2009, the organization said in June. But those slight increases come off huge drops in 2008 and 2009 that were the worst in 40 years. The foundation's contribution figures show a 3.5% decline in 2008 and a 6.5% decline in 2009.

The two-year estimated change from 2008 to 2010 is negative 3% in current dollars. Charitable giving by individuals has declined 1% over the last two years, while bequest giving has declined 27.1% and giving by foundations saw a 2.9% decline.

Meanwhile, state and federal budget cuts are having a chilling effect on organizations that aid the homeless, the elderly and the sick, not to mention cultural organizations. Massachusetts and other states have seen their funding for AIDS health services slashed by the feds. Michigan, facing a budget gap, is considering getting rid of $200 deductions for individuals ($400 for couples) to give to community foundations, food banks and public radio. In Rhode Island, social services charities helping the disabled and the elderly say they are hurting from state spending cuts. In Minnesota, funding has been rerouted for homelessness programs, meaning certain nonprofits are losing grants.

And arts funding in particular has been slashed in many states. In August, The New York Times reported that 31 states have cut their arts budgets for fiscal 2012, and there's been a 42% drop in arts aid over the last ten years.

The Gates Foundation captured the general sour mood for charities when it told the Chronicle of Philanthropy that it had cut back on grant making for 2010.

But there's also a silver lining to that: The software mogul's foundation is so big, that if it were removed, foundation giving actually rose for the year. And charitable giving by individuals, who by far and away make up the most in philanthropic dollars, rose by 2.7% in 2010 from the year before.

It's not so much that giving is rapidly declining so much as it is changing, says Daniel Connolly, the director of development at Quality Services for the Autism Community in New York City. While his organization, QSAC gets most of its money from the government, Connolly has also worked with other organizations helping AIDS patients, and he has seen the battle for dollars.
"I think money from corporations has been on the decline," says Connolly. "But giving from foundations and the high-net-worth community and individuals has not only recovered, but that community really got together and filled in the gaps for what government and corporations [weren't giving]. The big foundations, Ford and Rockefeller, got together when the market declined several years ago and said we have to collectively help, so our endowment can decline somewhat, but it's important to provide the safety net that we had long been providing."

Connolly also said that the reason many charities are struggling is that there are many more competing for the pool of dollars. "If you look at the nonprofit field in the past 15 years, you see a staggering increase in the number of nonprofits dedicated to serving the same field. Now there's 300, where ten years ago, for the exact same mandate, there were 30."

And those charities who haven't stepped up their fund-raising acumen are those most at risk, says H. King McGlaughon, the new chief executive officer of Foundation Source, a firm that offers services to 1,000 client foundations. According to McGlaughon, who until recently led philanthropic efforts at Wells Fargo and Wachovia, charitable contributions in the U.S. have continued to hover around $300 billion every year because giving is still a core value of Americans. But he acknowledges that the last 18 months have seen erratic giving as donors ride out the stock market rollercoaster.