From the NYTimes.com By ISABEL KERSHNER
An Israeli family sought help recently from Yad Sarah, a group that says that it lost about $1.5 million in the Madoff scheme.
The aftershocks are still being felt here, but it appears that the scheme created losses in Israel amounting to at least hundreds of millions of dollars. It also damaged dozens of organizations, from the venerable matriarch of the American Zionist movement, Hadassah, whose hospital employees in Israel are taking pay cuts, to lesser known groups, like one that works with runaway Jewish and Arab teenagers and is weighing layoffs.
The Madoff scheme’s collapse has forced educational institutions and organizations that aid the sick and the needy to reassess their investment strategies, and Israel, which depends heavily on the nonprofit sector to provide such services, has been forced once again to confront its dependence on American donors’ largess.
The crisis “has exposed a very substantial weakness†among nonprofits here, said Eliezer Yaari, executive director of the New Israel Fund, an advocacy organization that promotes equality and social justice in Israel.
Some Israeli philanthropy experts say the crisis, compounded by the recession, could force the large and unwieldy array of nonprofit groups to streamline and consolidate. Others think it could help spur a redefinition of Israel’s financial relationship with the Jewish diaspora, which, since well before the establishment of the state in 1948, has been based largely on Jewish giving and Israeli taking.
“Everything could change,†said Hillel Schmid, director of the Center for the Study of Philanthropy in Israel at the Hebrew University of Jerusalem, noting that young American Jews in any case identified less with Israel than their parents and grandparents did. “The crisis is also an opportunity to rethink.â€
Mr. Madoff’s intricate and overlapping ties with the American Jewish community and its organizations make it difficult to assess the damage precisely. Some groups, like Hadassah, invested directly with Mr. Madoff, while many others depend on the philanthropy of people and organizations that did.
Hadassah, the Women’s Zionist Organization of America, which supports hospitals and other institutions here, said it lost $90 million that it had invested with Mr. Madoff. The group is going ahead with a $300 million project to build a tower at the main Ein Kerem hospital campus near Jerusalem. But because of the financial crunch, hospital staff members are being asked to accept temporary reductions in pay and vacation days.
The American branch of Elem, also known as Youth in Distress in Israel, a nonprofit organization for runaway, homeless and neglected Jewish and Arab youth, invested $850,000 with Mr. Madoff about six years ago. That was an endowment fund for a “rainy day,†said Zion Gabai, Elem’s Israel director. “Our safety net has been erased.â€
Elem has already reduced staff salaries and is considering laying off employees and closing programs, not least because donations from Israeli businesses have dropped 50 percent as a result of the recession.
Yad Sarah, a volunteer organization that aids sick, disabled and elderly Israelis, said it lost about $1.5 million. The money had been invested by J. Ezra Merkin, a New York financier with close ties to Mr. Madoff. Mr. Merkin is a cousin of the wife of Uri Lupolianski, the group’s founder and a former Jerusalem mayor.
The money invested with Mr. Madoff was meant for buying respirators, said David Rothner, a spokesman for Yad Sarah. “We were shocked and we felt betrayed,†he said.
Mr. Rothner said the organization, whose $17 million operating budget comes largely from donations within Israel, had continued its regular operations. The donations from overseas are generally for expansion. “If we could skip 2009 we would,†Mr. Rothner said, “but our clients cannot.â€
In addition, several foundations have shut down or frozen all operations because of losses with Mr. Madoff. They include the Chais Family Foundation, which worked on educational projects in Israel, and the Yeshaya Horowitz Association, which financed applied research projects here.
The effects of such closings are particularly acute because of Israel’s heavy reliance on the nonprofit sector, which is the world’s fourth largest as a proportion of national economy, according to a Ben-Gurion University study. Israel has at least 12,000 active nonprofit associations, which employ more than 10 percent of the work force.
While most of the nonprofits’ revenues come from the government and from services they provide, about 20 percent of their overall budgets come from philanthropy, and about half of that from abroad, an estimated $1.5 billion a year. But some Israeli nonprofits, like Haruv, which specializes in detecting and treating child abuse and neglect, depend entirely on a single private American foundation.
Mr. Schmid, who directs Haruv, favors a reduction in government financing of nonprofits, arguing that their ties with state bureaucracy stifle innovation. But he said that huge private donations were no longer out there and that his university, for example — some of whose donors had invested with Mr. Madoff — would have to seek out a larger number of smaller grants.
One organization that aims to change the traditional relationship of giving and taking isTaglit-Birthright Israel, a program that has brought more than 200,000 young Jewish adults on free 10-day educational trips to Israel. Established nearly a decade ago, the organization pioneered a partnership among individual philanthropists, the Israeli government and the organized Jewish community federations in the United States.
Gidi Mark, Taglit’s chief executive, said he wanted to show Americans the successful side of Israel, to present it “not as a small, weak, miserable sibling but as an equivalent partner.â€
“We want to introduce them to potential partners, not potential beggars,†he said.
Unfortunately, that costs money, too.
Mr. Mark said that none of the organization’s major donors were directly hit by Mr. Madoff, but that many were experiencing difficulties. Sheldon Adelson, the American casino mogul who has donated tens of millions of dollars to the program, has seen the value of his company, the Las Vegas Sands Corporation, plummet in recent months.
After bringing a record 40,000 young adults to Israel in 2008, Birthright will limit this year’s beneficiaries to around 25,000. An additional 40,000 applicants will be waitlisted for lack of money.
The Madoff effect is likely to be long term. While many philanthropists may ride out the general economic crisis, the trauma of the Madoff case has made them more cautious and conservative in their giving, said Ahava Zarembski, founder of Yesod, an Israel-based consulting group focusing on social change in Israel and the rest of the Jewish world.
Ultimately, though, the shock may lead to a more balanced relationship. “You have wealthier Israelis, and American communities that are more in need,†she said. “It evens out the playing field.â€
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Takeaway point to consider:
If your non-profit’s budget relies too heavily on one or two big donors giving large amounts of money, now is a good time to diversify your donor base. Â Direct mail, email and telemarketing campaigns help you reach a wider Jewish audience, so that the loss of one donor is more easily absorbed.
Yoav