It's time to set up your endowment

    As someone who attends many local cultural events, I increasingly hear that there is much more going on in Whatcom County than ever.
   This growth in opportunities is hardly confined to cultural events; there is just more of everything these days. Without going into detail on them all, let me suggest one area in which I believe that there is too much going on and offer a partial long-term solution that has several benefits.
   Rare is the week in these parts that does not include fundraising events for a broad variety of nonprofits, some on the same day or evening. This is one of those classic glass half-empty or half-full situations.
   On one hand, we should be happy that there are so many good people out there knocking themselves out to secure support for our local nonprofits.
   Hundreds of hours and thousands of dollars go into the creation of a major fundraising event of the type often held at our larger indoor public venues, and many local businesses and individuals donate products or services to the event so that attendees can bid on those items to benefit nonprofits.
   On the other hand, every fundraising expert worth his or her salt will tell you that these events are not the best way to support the activities of the nonprofit sector. Some call them “friendraisers,” because they can broaden public awareness of the existence of certain organizations. What they don’t do well is explain the true nature and purpose of the organization in the depth needed for a meaningful connection with potential donors.
   Event-based fundraisers also sap a lot of the organization’s staff and board energy away from the core work for which it was set up in the first place. Often, the true costs of putting on a fundraiser are never completely tallied. There is also the growing question of how long the generous businesses that provide auction items year after year will continue to do so as the requests mount from a growing number of nonprofits.
   In addition to the real costs of doing these fundraisers, another downside to them is that they foster the notion that the only way that people will invest in the work of charities is if they get something tangible in return for themselves.
   How many people would give, say, $1,700 to a local nonprofit if there were not a cruise for two as a reward for the gift? What does this say about the generosity of the donors? What does it teach our children about giving back to their community as they start making their own way in this world? What about the value of knowing that your gift has in a very tangible and demonstrable way made your community better? Shouldn’t that satisfaction and sense of civic engagement be reward enough in this era of growing disconnection from our neighbors and communities?
   Julie Salamon’s book, “Rambam’s Ladder: A Meditation on Generosity and Why It Is Necessary to Give”, is an interesting look at the various levels of charitable giving from a spiritual or religious perspective.
   “OK, Drake,” I can imagine some of you saying, “if benefits are not that cost-effective and we should be a little bit more pure in our motives for giving, then what brilliant alternative do you have?” My alternative is hardly brilliant, and it is certainly not my original idea. We need to create more endowments in this community if we hope to ensure a great future for all the nonprofits that provide so much real value throughout our communities.
   True endowments are straightforward: we set money aside for good, invest it for the long term and spend only a modest amount of the income annually (say 4.5 percent to 5 percent of the principal) to support the nonprofit activities of our choice.
   The bedrock principle of true endowments is that we must never spend the cumulative gift amount, which, when invested prudently, allows it to support the nonprofit work in perpetuity.
   An endowment fund of $1 million would produce about $45,ooo to 50,000 annually, an amount only a very few nonprofits in Whatcom County achieve with individual fundraising events. Roughly the same amount would come to an organization each year, without the huge amount of work entailed in having a successful fundraising event.
   Paying more attention to creating endowments also would provide long-lasting non-monetary benefits to nonprofits. Endowment fund gifts will happen only when the potential donors have a strong reassurance that the soliciting nonprofit will be around for a while.
   This demands that the nonprofit gives its future the careful thought that leads to serious, understandable and credible long-range plans based upon a well-run and transparent organization that welcomes scrutiny.
   We live in a culture that pays too little attention to the future, as evidenced by the fact that our current personal savings rate just hit zero. This means that while individuals and families in other countries put much more away in savings, U.S. families collectively spend everything we make.
   In our present-oriented environment, the best way to secure future nonprofit funding streams is to create as many endowed funds as possible. This, in turn, means putting more emphasis on estate plans as sources of significant income, preferably endowment gifts.
   Once the commitment is made to build an endowment, it is very important to build and maintain bridges between donors and nonprofits. Building donor relationships over time is really the only proven way to attract large endowed gifts that do not come easily.
   A carefully constructed bridge to potential donors by a nonprofit is far more likely to succeed than the risky leap of faith unplanned giving offers. With increasingly sophisticated donors asking hard questions, “trust us” is simply not going to be a very solid foundation upon which any nonprofit should expect to build its future.
   Given the year-to-year, hand-to-mouth fundraising by which most nonprofits support their operations, they cannot expect to sustain the healthy communities we all want.
   Think endowment the next time you contemplate your legacy in this community.

Don Drake has spent 20 years working in executive roles in philanthropy. He served as president of Whatcom Community Foundation from 1997 until September 2005.

 

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