An endowment is perhaps the most misunderstood, yet critically important component of the financial health and future of a charity.
The confusion begins in that an endowment calls for a perspective on investing that is unlike anything you face when handling your own money. We humans have a defined life expectancy. When we’re young we tend to be more aggressive with our investments because we don’t need to draw any income off our assets. Our concern is appreciation. We want our principal to grow.
As we get older and retire, we become more conservative with those investments because we need them to produce a healthy income stream. Late in life we’re not as concerned about growing our portfolio. We aren’t going to live forever so we don’t need our assets to last forever.
A charity has completely different perspective on investing its endowed assets. By definition, an endowment is a pool of money that is perpetual. It’s supposed to last forever. It has to grow over time so that inflation doesn’t degrade its purchasing power. But an endowment fund also must provide a steady stream of income for the charity to use to further its mission. Combining those two objectives are unlike anything most of us do with our own assets.
Yet many folks don’t even get this far in their thinking. They question why a non-profit should have an endowment in the first place. The truth is that an endowment fund is an essential component of the health of any charitable organization.
For some charities, the endowment is the most valuable source of operating income because it doesn’t require any effort to fundraise every year. While this income is useful to organizations in any community, it can be absolutely critical in Door County.
Many of our restaurants and retail shops shorten hours or close down completely during the off-season. Yet this is often the busiest time of year for Door County’s human service charities. Unemployment climbs and incomes fall, thereby dramatically increasing stresses on families at the bottom rungs of the economic ladder. Food pantries, healthcare clinics, and any kind of organization that provides for basic human needs gets busy during colder times of year.
Charitable giving slows during the first few months of the year in every community. But in Door County, donations absolutely fall off the cliff as even many of our most affluent residents head south for a few months to escape the cold. It’s during this time of year that an endowment can be critical to an organization’s ability to continue to serve its clients.
HELP of Door County has five endowment funds, each created to support a different aspect of their work. “We are fortunate to have this monetary cushion during the months when [shrinking] cash flow makes us all cringe,” says Ursula Bunnell, Executive Director. “I strongly encourage organizations to invest in endowment funds. It has certainly made my job as the director a bit less stressful.”
Organizations like HELP of Door County draw their annual payouts from their endowment funds when donations and cash flows are at their lowest. Without an endowment, many human service charities would have difficulty meeting community needs during Door County’s off-season.
Of course there are other non-profits that generate ample revenue during the season to meet their operational costs throughout the entire year. But for those with large physical plants to maintain, an endowment might be all that stands between a collapsed roof or failed HVAC system and the charity shutting its doors forever.
The Door County Humane Society is one of those charities. They house and feed as many as a few hundred animals 24 hours a day, 7 days a week. For the Humane Society, the endowment fund is an essential tool in ensuring that their operating budget is never overwhelmed by an unexpected facility expense.
“We look at endowment funds as long term care,” says Carrie Counihan, the Humane Society’s Executive Director. “While the funds are not immediately accessible, with proper management, endowment funds can mean the difference between a non-profit that is around for the long haul, as opposed to ones that, in difficult financial times, are no longer able to sustain themselves.”
Rather than taking an annual payout from the endowment and using it for operational expenses, many charities with large facilities to maintain leave their endowment untouched for several years in a row. When they’re finally hit with the large facility expense, their endowment fund provides the resources needed to address the problem.
An endowment fund can also be a source of revenue to address a future community need that we cannot even imagine today. Twenty-five years ago there was no such thing as an automated external defibrillator. Laptop computers weighed 25 pounds and were so expensive few people could afford them. And most Americans had never heard of autism. Yet the Door County Community Foundation has made grants from its endowment funds to support work in all of these areas in recent years.
Think about how much of a problem invasive species has become over the last 25 years. “I remember when we found garlic mustard for the first time,” says Coggin Heeringa, Executive Director of Crossroads at Big Creek. “There were these two or three plants with cute little white flowers. At the time we believed the best way to handle it was to let nature take its course.” Today we know better. And because of the endowment funds created years ago, the Door County Community Foundation is able to fund invasive species eradication and research at places like Crossroads.
“A gift to an endowment is a gift to the future,” says Jane Stevenson, co-founder of the Women’s Fund of Door County. “But we need to be prepared to meet tomorrow’s needs, whatever they may be. That’s what our endowment allows us to do.”