Recently there have been some conversations around my organization and town in general about whether it is worthwhile to try to bolster an existing endowment. People have mentioned that there has been a trend away from establishing endowments in recent years. I started wondering what the thinking behind that was and what the alternatives might be.
It just so happens Non Profit Quarterly reprinted a piece that talks about the pros and cons of establishing and endowment. On the con side is the issue is the idea that you are locking up money the organization could use now and disbursing it in the future when the same dollars don’t buy as much. Thirty years ago it may have seemed really attractive to learn that the organization would be receiving $25,000 a year from the endowment. In 1989 that could cover the salary for a position, but that money doesn’t go as far today. (Though there are plenty of places offering $25,000 as a salary.)
Current needs is the one that at least one of your board members will bring up, and is very possibly the reason why your board will vote not to have an endowment. “Why should we put a million dollars in a bank account when we can use that to serve a million more lunches?” Or buy a hundred thousand more books. Or facilitate a thousand more adoptions. Or renovate the façade of the theater. Many nonprofits are in dire need of more money, and most can at least think of an immediate way to use more….Some people go so far as to say it’s not ethical to lock money in the bank when there are so many necessary ways to spend it now. Before you know it, you have bad press and declining donations—and you wish you’d never thought of raising an endowment.
You may look jealously upon organizations receiving large payouts from their endowments, especially universities, but by and large these groups have a staff that is actively managing an endowment. A staff is required to grow an endowment to the size it yields enough to support your activities. But you need to have started with a large enough endowment to support a staff in the first place.
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