Some Nonprofits Can't Touch Their Money

Dale said that while some donors may have intended for the principal to remain intact, others may be asking "Was it my intent that the students I want to help won't get any help?" Dale said that most donors, if asked, would probably agree to loosen the strings attached to their gifts.

Since early 2007, 26 states and the District of Columbia have passed laws that give nonprofit organizations more flexibility in using money from endowments that are underwater. Because of the economic meltdown, 12 other states are considering such laws, according to the National Conference of Commissioners of Uniform State Laws.

Still, some nonprofits aren't willing to dip into their endowments even when the law allows.

The American Conservatory Theater in San Francisco has watched its endowment, with a historic dollar value of about $22 million, drop to $18 million. It decided to focus on raising money to rebuild the endowment, rather than draw it down to pay salaries.

Two theater employees were laid off in January and four other positions remain unfilled, said theater executive director Heather Kitchen.

"Making the endowment even smaller wasn't the key," Kitchen said. "It might be worth $13 million when the recession is over, and it would take even longer to get it back where we want it to be."