Creating Institutional Financial Priorities in Unusual Situations
By Joseph C. Imberman and Donald P. Kent
[Note: The authors are experienced endowment and foundation professionals who have written from time to time for eJP on topics related to history and policy of Jewish Federation endowment funds. They served the national Jewish Federation system for 30 years. Mr. Kent is a Financial Advisor at AB Bernstein and Mr. Imberman is a private consultant working for two Jewish community foundations. In this piece, they shed light on some of the difficult but important issues posed by donors wanting to make major gifts to any charity. There is no right answer to the situation suggested by the conversation between four voluntary leaders of this particular imaginary charity.]
Four lay leaders have been confronted with the unusual situation of a donor proposing to make a gift of $100 million dollars to their charity. This organization manages a variety of planned giving vehicles (totaling $10m) in addition to a major annual campaign (totaling $10m).
The donor in this scenario is 70 years old and had felt connected to the Jewish community his entire life. Though he was capable of giving back before, his contributions had been small for a variety of practical reasons. He suggested that his gift could come partially during his lifetime and partly at the time of his death but he came to us for counsel because of his high level of trust in the leaders who have been associated with this charity for many years.
David: “Look. Obviously, the current needs of our community come first. Not only do we have unique challenges posed by an aging donor base, but our next generation efforts have borne fruit in a much slower way than we thought might occur and in fact we still have many routes to explore in terms of our long-term approaches to this cohort. They are largely disinterested in “umbrella giving” and we don’t know how to become something we are not. So I would suggest putting the money in our annual campaign and developing a policy which allows us to spend it all over five years.
Donna: The annual campaign needs to stand on its own feet every year and should not be dependent on large one-time gifts. Each generation should be responsible for itself. Creating a supporting foundation in partnership with the local Jewish Community Foundation (JCF) would give the donor and his family a vehicle to support the priorities of the Jewish community now, while he and his wife are alive. I bet that he would love the idea of sitting around the table with leaders of the Jewish community annually to decide what priorities to fund.
Perhaps more importantly for the donor, the Support Foundation would open the door for creating a deeper relationship with his son and daughter, neither of whom is very engaged in the Jewish community; both having married non-Jews. The daughter recently sold her start-up tech company for over $1b. There is a good chance that by inviting them to sit around the table with the leadership of the Jewish community once a year they will be moved and become more inclined to support Jewish causes.
Donald: I agree that the annual campaign needs to stand on its own feet every year and should not be dependent on large one-time gifts. Each generation should be responsible for itself. Creating an unrestricted permanent endowment, which will supplement the annual campaign, allows us to make yearly decisions separate from the annual budgeting process. It provides a source of risk capital or infrastructure investments or could be used to enhance the dollars available for communal priorities, shielded from the political influences on the budgeting process. It would level out the financial impact on the community and allow us to respond to needs as they emerge. It seems to me that as our economy and the nature of our own donor base changes, these kinds of remarkable one-time gifts will be fewer and fewer. This is a once-in-a-lifetime situation, and we need to set the dollars aside for current and future expenditures.
Liz: Despite our current positions of senior leadership, perhaps we should be convening a knowledgeable group to thoroughly review what we know about the donor and his family, and see whether there might be clues not only from community needs about best ways to work with the donor but also to benefit the community. We need to be more and more conscious of the ways in which our next generation of leaders would see such an opportunity. And by the way, I want to make sure that we help the donor to make decisions that are financially wise. We should chat with our gift planning team and donor’s counsel, as well as our own counsel, about the challenges for all parties concerned with the gift. And we should remember the really terrific performance of our Investment Committee in terms of our Endowment Fund.
David: Don’t forget, by the way, that we have enormous obligations that don’t go away. Repeatedly campaigning among the same families could lead to exhaustion for us and them. I want to emphasize the current use of the funds as much as possible over a five-year or perhaps even a ten-year period. In addition to boosting our annual operating budget, this annual infusion could be used to address our deferred maintenance crisis and even enable us to consider the expansion of our facilities. We could also use some of the annual distribution as a challenge grant for the much-delayed but coveted capital project, and name the building after the donor. And if you insist, we could put some of the money away to create an Endowment Fund for the campaign.
Donna: By funding a Support Foundation, we can accomplish all the objectives outlined by David. The only difference is that we will need to convince the family annually that in each case it is the best way to deploy the money. And with a Support Foundation, unless the family wants to create a self-liquidating Foundation, the grants won’t all be used up in five to ten years. One of the main drawbacks with the five to ten year model is that we will be in deep trouble the year after the extraordinary grants end.
Donald: I agree with Donna, it would be a disaster for us to spend all this amazing gift in five to ten years. We must ration it out for a bright and sustainable future. And we cannot take the chance that the donor’s kids will cooperate with us and support our priorities. It could lead to lawsuits and bad PR for us. An unrestricted endowment, that allows for distributions of principal for extraordinary needs such as capital projects, is the best solution.
Questions posed by the dialogue
- How do we best balance today’s “urgent” needs with tomorrow’s challenges and dreams?
- How do we develop an internally strong process for making decisions around complex gift planning scenarios?