Raising Endowed Assets
Many large organizations and institutions work to build endowments through significant donor investments, including the majority of colleges, universities, and hospitals, but smaller organizations and entire rural communities can greatly benefit from building endowments as well. An endowment is a type of asset that is invested and put aside for the future so that the amount increases over time. Most often, these donations are received as gifts in the form of money or other financial assets including property. In some rural areas, gifts may include pieces of land that were previously owned by a community member. Since these assets are invested, the interest from the investments can be used to support programs and strengthen the financial outlook for rural communities and organizations. In most instances, the assets that make up the endowment fund are set aside with certain parameters and limitations made by the donor for how the money can be used.
Rural communities can use endowments in different ways, depending on the needs of the community and whether the endowment is created with specific guidelines and/or restrictions in place. For example, communities can:
- Use a portion of the endowment to fund grant programs for community organizations
- Add to the principal amount of the endowment (the original amount that was donated), to ensure that the endowment will continue to increase over time
- Use some endowment money to pay the person managing these funds
One successful approach for building endowments that benefit rural communities is the creation of rural community endowment funds, which are often developed and managed by community foundations. The purpose of building a rural community endowment is to create a local source of assets controlled by the community that can help residents as well as community organizations in the future.
There are several steps in the process of building an endowment. These steps can take time and effort and involve different community stakeholders. Some of the steps for building a rural community endowment fund include:
- Promoting the idea and need for a rural endowment to community leaders and known change agents
- Organizing local community stakeholders to begin the endowment and connect with the local philanthropic community of individual and business donors
- Donating funds and designating the specific use of these funds by both community organizations and individual donors
- Using funds to create a new community foundation to manage the endowment or using funds from a previously existing community foundation
There are many benefits to rural communities building endowments as they promote the sustainability of programs and initiatives and create a positive outlook for the future. These endowments also create a community-driven place for rural residents to donate gifts of any size and create an incentive for doing so since the donations can be used toward a designated purpose. Another important benefit of endowment-building in rural areas is that endowments help to build non-financial community assets, including developing community leaders who can serve as change agents in other capacities as well as sustaining important organizations that contribute to the general well-being of community members. Similarly, these endowments can create a positive outlook for rural communities that may have struggled financially and previously relied on outside investments. Creating a mechanism for communities to control their own financial future can be empowering.
Examples of Rural Community Foundations Building Endowments
- The Nebraska Community Foundation was founded in 1993 to help communities in the state engage with philanthropic organizations to build resources and assets. The Nebraska Community Foundation aims to empower communities, develop leaders and change agents, and provide tools for growth and sustained change. The foundation works toward these goals by helping communities manage assets and develop leaders, directly funding initiatives, and helping build endowments. The foundation manages a variety of endowments that help organizations throughout the state, including the Brown County Hospital Endowment Fund and endowments from individual donors aimed at benefiting organizations in specific communities, such as Beaver Crossing, Nebraska.
- The Red Cloud Community Foundation Fund is an endowment also managed through the Nebraska Community Foundation. Red Cloud is a town with a population of 1,000 people and has seen significant improvements in community life since the creation of this endowment. These funds were created more than 20 years ago and have grown substantially due to the individual donations of the Sibert family and other resident donors. The foundation fund continues to provide matching grants to a variety of charities throughout the community.
- The North Dakota Community Foundation administers the Community Endowment Fund program. The program has 63 participating communities that are able to reduce administrative and financial barriers to endowment development by working with the foundation. For example, the Casselton Community Endowment Fund is managed by the foundation and administered by a group of local volunteers, who raise additional capital and recommend grants that will benefit the community. Grants given out by the fund are generally small, project-focused and are intended for nonprofit and government organizations, such as public schools and cultural institutions.
- The Bath Community Fund is administered by the Akron Community Foundation in Ohio and was established by local residents with an initial endowment of $250,000 from 85 founding donors. Nonprofit and government organizations in the Bath community are eligible to submit an application for funding. Health-related areas of interest for the fund include improving outdoor and recreational opportunities and improving access to social services.
Considerations for Implementation
Since the performance of an endowment may be based on the specific investments and yearly growth from these investments, rural programs and organizations may want to consider seeking professional assistance and guidance about how best to manage these funds. Communities will want to consider how much money will need to be set aside to pay for professional support if needed and what types of fees can be expected.
In addition, since building an endowment is a tool to promote the future sustainability of organizations and programs, the process for building an endowment can be challenging and take time. Securing donors can be challenging in all locations, but rural locations may experience unique barriers such as smaller overall investments and a more limited number of donors willing to invest their assets in the community. The types of donations provided to build an endowment in rural areas may look different from urban areas, with more small gifts donated toward the endowment fund.
Additional challenges to building endowments in rural communities include:
- Local perceptions and understanding of the use of rural endowments may be limited, making it more difficult to get started.
- Donations may be smaller in rural areas and may be more likely to be donations of assets in the form of land or other non-monetary gifts, which may require more time to manage.
- Sustainability of the funds over time takes dedicated resources and management as well as a strong team of people to lead the charge.
Resources to Learn More
Endowment for a Rainy Day
Describes the history of endowment funds and provides context around the growth and decline of these funds in certain institutions. The article also describes the purposes of endowments, and suggests that these funds should be set aside for future use to provide financial security.
Author(s): Weisbrod, B.A. & Asch, E.D.
Citation: Stanford Social Innovation Review, 8(1)
Provides definitions of commonly used financial and investment terms, including the definition of an endowment fund.
Should your Nonprofit Build
Describes the process for building an endowment and describes how endowments can be useful for the sustainability of nonprofit organizations. Provides insight for organizations considering whether they should work to build an endowment.
Author(s): Hager, M.
Organization(s): Nonprofit Quarterly