A Billion Here, a Billion There …

We’re talking in this blog about putting assets to work to make an impact on the world.

A million dollars is not enough. Let’s talk about twenty-five or fifty billion.3736209363_73e36f1fce_q

My friend Dan, who has an annoying habit of cutting to the heart of the matter, asked me, “How much money is in endowments? What kind of difference would it make if half of that was put to work fulfilling missions the way you suggest?”

So I did a little research. Most of the numbers I’ll cite in this blog today and in the future, unless I say otherwise, come from Giving USA and the National Center for Charitable Statistics, which may have the best single page of data right here.

It’s kind of difficult to tease out some of these numbers because of definition of terms, but by and large the numbers I’ve found all support one another.

There are 1.5 million non-profits in the United States, not counting almost 320,000 church congregations, which, thanks to the First Amendment, don’t have to file financial reports with the IRS. The congregations receive almost one-third of the $330 billion in donations made by American individuals and organizations each year, and that is almost their only source of revenue in most cases. But not all non-profits are charities — that total includes entities like lobbying organizations and country clubs that don’t generate wealth for their share-holders, but also can’t give you a tax-deduction for your dues payment.

All told, about two-thirds of these 1.5 million non-profits are registered public charities and only 286,000 of these are large enough (annual revenues of more than $50,000) to have to file. The $1.6 trillion that these charities spend each year represents about 10% of the $16 trillion US economy. That’s almost half of what the federal government spends each year on everything from national defense to social security. So it’s real money.

These 286,000 charities also have almost $3 trillion in assets. Some of that is property, but most of it is investments, endowment or otherwise.

Philanthropic foundations have a trillion dollars in assets. They give away 5% of that a year to other charities — $50 billion a year. Higher education institutions have almost a trillion; and everything else (primarily hospitals) have the third trillion. The $100 billion in income that that last $2 trillion produces accrues back to the institutions that own the assets, but still gets spent on charitable missions next year.

(Interesting side question: is there any relationship between the fact that colleges and hospitals have almost a trillion dollars in endowments each, and that college degrees and health care are the two things in America that are growing fastest in cost?)

But Dan’s question was what if HALF of the endowments in America were put to work the way I describe?

Well, if they liquidated half of their assets and spent them on mission immediately, that would be an extra $1.5 trillion going to doing good in the world. It could double the current annual impact of the charitable sector next year.

But I’m not advocating spending all of the charitable sector’s assets. I’m just suggesting that there’s a better way to use it than keeping it forever and only spending the five cents on the dollar that prudent strategy dictates.  My pet idea is the self-liquidating generational annuity, which essentially generates a return of 10% of the original principal for about twenty years.  I wrote about that here.  Next I’ll get around to answering Dan’s question, here.

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A million dollars for YOUR organization…

Since I learn more from listening than from talking, today I’m going to ask another question.

The question is, what would your church or your favorite non-profit do with one million dollars?

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I’m interested in specifics. Do you have a policy in place for accepting and putting to use unrestricted gifts of this size? Do you NOT have a policy, but feel like there would be a consensus around one need or one approach?

In fact, let’s make this a little more concrete by doing some role-playing. What would you do if the church or non-profit you represent was approached by an attorney for an anonymous donor, who informed you that she was doing research for her client as he prepared his will. He’s thinking about some significant bequests, and you’re on the list for consideration. He wants to know, though — what would your organization do if it got an unexpected, unrestricted gift of a million dollars?

While you’re thinking about your answer, I’m going to write next about a question that I was asked off-line here.

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Churches Don’t Retire

My last couple of posts on this blog revolved around inviting readers (most of whom are personal friends at this point) to share what they would do, personally, with a windfall of a million dollars.

The responses — some whimsical, some serious, some over-the-top in their attention to charity — carried forward a consistent theme (second only to that do-good stuff) of debt reduction and saving for retirement.

It wasn’t until after my follow-up post that it dawned on me how little was said about leaving inheritances for children. There were many references to paying for education for children and grandchildren — teaching them to fish, as it were, as opposed to stockpiling fish for them.

9546293234_bf2db1ed27_zThat is going to lead to a whole separate thread on the Biblical and anthropological foundations of inheritance. Later.

Meanwhile, this conversation has reminded me of an early experience in the psychology of non-profit boards.  My first major development assignment was managing a capital campaign in the late 1980s to raise $2.5 million to build a museum for the Indiana Basketball Hall of Fame. Prior to and during that campaign, we were able to meet all the recurring annual operating expenses of the organization through the revenue streams from two existing special events, a banquet and a tournament. That allowed 100% of every outright charitable donation to go to the actual construction of the museum — although we had never made that explicit promise in our solicitations.

Once the museum was open, we suddenly had two significant new streams of recurring operating revenue — museum admissions, and gift shop proceeds. When combined with the old revenue programs and the fact that campaign pledge payments and even new gifts to “underwrite” naming opportunities continued to come in, we found ourselves in the enviable position of running a $200,000 operating surplus in our first year in the new building.

The board took to calling that balance “our endowment.”

As is always the case with new museums, attendance in the second year dropped, although we still banked another $100,000 operating surplus. By late in the second year, I was working on the operating budget for our third year, and grew frustrated at the board’s reluctance to re-invest any of the surplus — or even the interest it was earning — in new exhibits or programs or marketing expenditures that might draw enough new visitors to pay for themselves.

It took me a thoughtful conversation with my then-chair and mentor Tom Wallace to understand what was happening. The majority of the board — a great group of committed and hard-working guys (yes, all men) who were almost exclusively retired or nearly-retired basketball coaches and public school administrators — was telling me, “You’ll never build a retirement program if you don’t keep rolling the interest back in to it.”

I don’t mean to belittle that board. “Across the board,” they were the most equally-invested governance body I’ve worked with to this day. But they were projecting their own personal situations onto the organization. They saw our operating surpluses as a retirement fund, to be built up against that future day when other forms of “income” would go away.

As a group, their efforts had turned a $40,000-a-year operation into a $250,000-a-year operation. They feared that that six-fold increase might not be sustainable. I never did “win” that debate, but 25 years later the organization is still solvent and that “endowment” is now at $1.5 million — enough to be a significant contributor to future operating budgets. Only in the past five years have they had to start to tap into even the interest that that fund generates.

But I’ve also never forgotten that dynamic, and I’ve seen it at play in other organizations, especially churches. Perhaps it is “only human” to project our own personal financial concerns on to the organizations for which we are responsible.

But organizations — especially churches — should not plan for retirement. (Actually, some organizations do plan for self-liquidation. I’ve already mentioned the Nina Mason Pulliam and Herman Krannert trusts, and I’ll be coming back to them.) Churches, however, should have as a core part of their mission the constant recruitment and baptism of new generations into their membership.

For my Episcopalian readers, we are only days away from our annual meetings, when new vestry members are elected. I’m delighted, at Trinity Indy, to see that we have four younger candidates putting themselves out there for the risk of “rejection” that comes from standing for vestry and not being elected. It happened to me the first time I ran, and it was hard not to feel deflated by not being selected. It didn’t change my commitment to my church; and I’m sure the same will be true for any of these young people who don’t get elected this year.

But I also think it is very important that vestries and governing boards of any organization be balanced, with representatives of all their constituencies. Just as my daughters were more likely than my 50-something friends to look at a million-dollar windfall as a means of financing dreams, I think it is healthy for a governing body to have some representatives who are personally still looking forward to their peak earning years, and who project the same attitude of limitless possibility onto the assets of their congregation.

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Your responses to “what to do with one million dollars”

Thanks to everyone who responded to my first question on this blog, either here or on my Facebook page.

I shouldn’t have been too surprised at how generous the instincts of most of my guest posters were. After all, most of you, at this point, are friends, and being a friend to me requires a substantial act of generosity to begin with. But seriously, I wasn’t fishing for testimonials for philanthropy.

dollarsStill, anonymous benefactors who are reading this blog, be advised: give your next eight million dollars to key readers of mine, and somewhere around three and a half million dollars of it will be given away to medical research, animal welfare, world hunger, youth mentoring, and faith-based ministries.

Saving for retirement, paying off debt, and paying for college for children and grandchildren will take up most of the rest of these windfalls. A fair amount will be spent on world travel, but no one who responded is buying new homes. I have one friend young enough to be considering starting a new for-profit business. And fortunately for me, I have at least one friend who will have a new sailboat upon which to entertain me.

I can’t argue with the retirement savings angle. Because so many of my friends are (ahem) middle-aged, a few hundred thousand dollars can look, for many of us, like the final piece of funding a retirement that may be less than ten years away. It might be the difference between achieving what we’ve always hoped for, and settling for less. And this is America, where individual financial independence is expected, even if few attain it. Not wanting to be a burden to our children is a fairly peculiar and recent vanity in human history.

But that’s why I wanted to involve my twenty-something children in this exercise. They are young enough, but savvy enough, to realize that even a million dollars, even without accounting for taxes, isn’t enough to retire on and pursue a life of leisure. I was pleased to hear both of them say that they would first retire all their own debt, and that of their other family members.

Both of them right now are making decent livings in restaurants while pursuing their passions in art and music on the side. Interestingly, neither one said they would use the influx of cash to walk away from their day jobs, the social aspects of which they enjoy. Both would simply work LESS for a paycheck, so they could spend MORE time writing and painting.

I’m actually a little embarrassed to admit that it didn’t immediately occur to me that, in my own fantasy, this would be the perfect opportunity to put into practice some good spiritual principles to which right now I only aspire — literally tithing a full ten percent of my income, and doing so on the basis of giving back the “first fruits” of whatever money comes my way, from any source (including the interest off of “my own” savings) from now on.

But yes, with my million dollars, I can do that first. I can do that even BEFORE paying the taxes that I might owe. And I can retire all my debt and that of my adult children, and set aside the money so that our last child doesn’t have to borrow money as part of funding his college education. And mostly, my wife and I can start thinking about spending a retirement consisting of volunteering, travel, and working when we want to, sooner rather than later (or never).

But that’s because I’m a finite, mortal human being that can’t keep working forever.

Churches, and most other non-profits, don’t have that reality of impending mortality to deal with (or embrace). So, what would your church, or your non-profit, do with an unexpected and unbudgeted extra million dollars? That’s the next question.

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Your turn: what would you do with One MILLION Dollars?

What is so resonant (and funny) about a million dollars?

I used to open many of my presentations on non-profit fund-raising with a riff on the old Steve Martin Saturday Night Live monologue about how you could make a million dollars, and never pay taxes:  “First, get a million dollars…”

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And that was before Dr. Evil made it one of the funniest ransom demands in movie history (with accompanying gesture).

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A million dollars isn’t what it used to be, as Dr. Evil learned, but it’s still enough money to make a transformational difference in most of our lives; and, probably, in the budgets or outlooks of most non-profit organizations.

For today’s blog, I’d like to invite you to do a little exercise and maybe share your results in the comments section.

What would you do with a million dollars?    If you won the lottery (with a scratch-off ticket that someone gave you as a gift, of course); or if a long-lost uncle left you an unexpected sum in his will?

Last night I did this exercise with my family, including my young adult daughters who were home for the holidays.  Asking this question of different generations adds some interesting and illuminating perspective to the value and purpose of money.

So before I share my results and start to tie it back into the purpose of this blog, I’d love to hear from you – in as much or as little detail as you want – what would YOU do with One MILLION Dollars?

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Surviving the Famine Years (continued)

(Continued from here.)

I decided to name this blog after the story in Genesis 47 because it is instructive in a way that we don’t often consider, in our efforts to turn years of plenty into futures of plenty.    Pharaoh was told to set aside 20% of the income from seven abundant years to use it, to spend it, over the next seven years — to meet human need, not to produce interest income as an additional revenue stream for the palace.

Most churches and most non-profits do a pretty good job (although we all can do better) at talking to their members and supporters about the importance of regularly supporting their annual operating budget with a recurring gift or pledge out of the member’s income. Churches have the extra advantage of a common language about giving back to God.

Very few churches or non-profits are anywhere near as systematic about talking to their supporters about ALSO supporting their mission with a significant one-time gift out of their estate.  Many endowments that do exist came as unexpected surprises, or as the result of extensive targeted cultivation of a few significant prospects.

And yet if churches – or non-profits in general – succeeded in making their case for the second kind of gift at the same conversation rate that they do in making their case for the annual kind, they could transform themselves within a generation.

If every household in your church would endow their pledge – would commit to a gift out of their estate of $20,000 or so for every $1000 they pledge on an annual basis – then within 60 years, your endowment would be producing as much as your current annual appeal does; you could double the resources available to pursue your mission.  And, probably two-thirds or more of your pledge revenue comes from people over age 50; so there is a chance that you could increase your budget by 70% in just a generation, even without increasing pledging.

Excited yet?  No, me either.  This is going to take too long, and the benefits are too far down the road.

But Pharaoh’s Dream offers one other bit of advice for making a case for that legacy gift. Joseph didn’t tell Pharaoh to store up seven years’ worth of surpluses to invest it at 8% so he could spin off 5% per year while reinvesting the other 3% as a hedge against inflation forever.  The plan was to use it over the course of a seven-year famine.

Maybe we need to change, or at least add a new dimension to, the paradigm of how to use estate gifts.  Maybe putting a million dollars into an “investment vehicle” that spins out $50,000 a year until the end of time isn’t the only or the best way to inspire giving or plan your organization’s long-term future.  Perhaps other donors – particularly those whose estate gifts will be four or five figures instead of six or seven – can better visualize the meals served, the people clothed, the lives changed if their gifts, pooled with others like them, were spent down over a given number of years – perhaps a generation, during which time the next generation of donors are cultivated to replace the gifts that preceded them.

There are and have been charitable foundations, such as the Herman Krannert Trust and the Nina Mason Pulliam Charitable Trust, designed to self-liquidate in this manner.  How many individual institutions are beginning to plan at least a part of their legacy giving and asset management programs in this way?  Trinity Episcopal Church in Indianapolis is at least exploring it.  In posts to come, I’ll share what we’ve experienced, and what I’ve found in talking to others across the country.

We may survive this famine yet.  We may even come through stronger.

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Surviving the Famine Years …

After a year of thinking about it, I’ve decided to name this blog Pharaoh’s Dream.

The purpose of this blog is to talk primarily and specifically about church finance, but also about non-profit finance in general.

My primary intended audience is the lay leadership of churches like the  Episcopalian congregation of which I’m a member; although much of this will also pertain to all non-profits.

The central theme of this blog is reconsidering how to use one of our main pillars of financial support — those larger sums of capital which usually come from people’s estates, and which typically have been used to create perpetual endowments.   I’m going to argue that, unless such an endowment is the only thing the donor wants to do, a better way to use legacy gifts is to liquidate them and invest them in fulfilling your mission.

The Bible, whether read as the sacred word of God or simply as one of the foundational historical documents of Western civilization, talks a lot about money and wealth — depending on who’s counting, perhaps more than any other subject.

One of the earliest instructional episodes for institutions considering how to handle assets occurs way back in Genesis 47, in the story of Pharaoh’s Dream.

Joseph, the great-grandson of Abraham, had been sold into slavery in Egypt by his jealous brothers, but emerges as an advisor to Pharaoh when he is able to interpret a troubling dream.  In Pharaoh’s dream seven fat, sleek cows are eaten by seven scrawny cows; and then seven full and heavy heads of grain are devoured by seven withered plants.   Joseph  indicates that the dream is a weather forecast of seven years of plenty, which is to be followed by seven years of famine.

Joseph offers a plan from God, which Pharaoh empowers him to implement, to prepare Egypt for the coming disaster by setting aside 20% of the harvest from each of the seven years of plenty in great warehouses.   When the famine years begin, enough grain has been stored to feed the people of Egypt and their neighbors through the times of trouble.

For 3400 years, this story has been used to demonstrate the wisdom of prudence and thrift, of setting aside money for a rainy day.  It is, in fact, frequently cited in books and essays about the need to create endowments.

I’m no Pharaoh, but I am often troubled, sometimes in the middle of the night, by concerns that lean years may already be upon us.  I serve on the vestry of a church that is blessed (and challenged) with an endowment that can support more than half of our current operating budget — if that’s how we continue to choose to use it.  On the other hand, I’ve spent nearly 30 years working with dozens of non-profits that only aspire to having more assets than annual expenses.

I spent those 30 years planning to create endowments, and telling others that estate gifts were the best way to build one, and that building one was the best  way to use estate gifts. Helping Trinity Episcopal Church in Indianapolis figure out how to rethink an endowment that had become a set of handcuffs is what inspired this set of essays.  More to follow.

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