Joseph C. Imberman and Donald P. Kent
The authors are former heads of United Jewish Communities and the Jewish Federations of North America’s Planned Giving and Endowments department and represent 30 years of experience in endowment development and management with these two charities. Today Mr. Kent is a Bernstein investment management specialist and Mr. Imberman is a consultant on endowment and foundation management currently acting as Senior Advisor, Federation Combined Jewish Appeal of Montreal (FCJA).
As of the end of 2014, Jewish federations and affiliated Jewish community foundation endowments (collectively referred to as federations), donor advised funds and supporting foundations totaled over 17.5 billion (from initial results of JFNA 2014 Annual Endowment survey). Understanding endowment development at federations requires a special set of eyes and an understanding of the growth of philanthropy in our system. The centralized fund raising and distribution model of federations and United Ways has deep historical and biblical roots. The idea of collective responsibility is a concept that federations act upon each day and must continue to promote to be true to their roots. It is understandable that federations would like to control the distribution process of all funds held internally. But many donors in the Jewish community and beyond want to have as much influence over their charitable dollars as possible. Luckily, in the 1960’s and 70’s, a small group of enlightened professionals, mostly attorneys, persuaded federations into becoming leaders in the emerging world of donor centered philanthropy.
Over the next four decades, federation communities created and greatly expanded their planned giving and endowment efforts but unlike universities, hospitals and other non profits concentrated primarily on building donor advised fund programs and “family supporting foundations”. The founders of this effort probably had no idea how big it would become and what impact it would have on federations and many other charities. Luckily, many large city federations in particular now understand the importance of partnering with enormously wealthy and influential families to help them develop their own concepts of enlightened giving as well as their Jewish legacies to the community. The use of this type of philanthropic power by families is now a fact of life in communities such as Greater Metrowest (NJ) which have used their expertise to drive campaigns which develop very substantial resources for Jewish education and identity from families who care deeply about the subject.
The changes to the laws of federal taxation dating back 40-50 years have helped to spawn the growth of donor advised funds as the single fastest growing philanthropic phenomenon in North America. At the same time, donor advised funds have helped Jewish philanthropy to morph into a more entrepreneurial and less centrally controlled enterprise. With little fanfare, the most mature federations have embraced this opportunity and greatly increased their relevance and impact. Enlightened communities such as Chicago, Baltimore, Cleveland, Los Angeles, San Francisco, Boston and San Diego have created enormous programs to grow and enhance the philanthropy of their wealthiest families. They understand that these new sources of philanthropy (including donor advised funds, restricted and unrestricted funds, trusts, etc.) do not undermine the annual campaign. In fact being relevant with many of these families requires a different kind of partnership. The most experienced managers interact with key donors by being a resource for information and counsel. Doing so helps with the inevitable intergenerational dialogue over the role of the Annual campaign and deemphasizes the role of Federation as a one dimensional charity devoted only to the annual campaign. By providing resources and guidance, far more dollars ultimately are devoted to addressing federation priorities, but not solely through the Annual Campaign.
Note: Thinking this way should remind the reader that the perennial Investment committee conversation about spending rates is really about much more than simply cash flow. It is really a philosophical conversation about the need to balance future community needs against the urgent needs of today.
The complexity of federation endowment programs is better understood when one thinks about the need for balance between both lines of business (see note below describing permanent and participatory philanthropy). Thirty to forty years after the tax legislation mentioned earlier and the growth of donor advised fund portfolios, communities find themselves desperately in need of unrestricted or restricted resources to help grow and respond to change and emergencies every day.
All endowments sources (depending on restrictions and purpose) can be drawn upon as potential resources.
Quick Case study
UJA Federation of New York has proven that devoting sufficient resources over time to the development of unrestricted endowments can make a huge impact. Due to a historical anomaly, New York’s donor advised fund program is housed in a separate charity, the Jewish Communal Fund (JCF). JCF is one of the oldest and largest of its kind in the business. And besides the amazing philanthropy it promotes, each year its “revenue over expenses” pour into the federation annual campaign; over $2 million in 2015. But perhaps even more instructive is the impact this has had on the federation’s endowment program. Without a donor advised fund program to manage, the bulk of the substantial resources devoted to planned giving for decades has focused on building its permanent endowment. As a result, in the last allocation cycle $70 million of the total $205 million allocated came from current and accumulated bequests and endowments.
Selected other communities have created special endowment campaigns in both the U.S. and Canada. These efforts complement the dollars available from the annual campaign currently, and perpetuate the annual campaign of each federation (e.g. the Lion of Judah Endowment program). The vast bulk of donors see their campaign giving as a yearly commitment and literally need to be reminded that they could do for federation what some donors do for other charities….endow their giving for designated purposes.
As interested observers who have spent many years in the system and out, we note the budgetary and philosophical woes of federations as well as the rhetorical flourishes of leadership who indicate commitment to endowment development but have difficulty funding it. Most importantly, we notice innovation over a period of 5-8 years among the federations willing and interested in supporting education about investment activity through JFNA’s Investment Institute, as well as the Harold Grinspoon Foundation’s Life and Legacy initiative now operational in 29 communities (out of 150 plus federated communities) and the JFNA’s Washington office which monitors and works with legislative authorities each time an issue impacting philanthropy arises. It is also reassuring to know that selected legal and investment firms continue to support endowment development in the system. The link between the law and endowment development has never been stronger and the need for endowment professionals to understand the role of gift planning and compliance is crucial.
In order to continue to expand federations’ philanthropic foot print and enhance its impact, all federation leaders will need to embrace the model which some of the more advanced have developed for 15 years. The annual campaign must continue to be a core business of federations (if not all charities), but more can be accomplished by partnering with major philanthropists than by insisting that all philanthropy fit a single model of control.
So what are the teaching points for communities?
-Showcase the benefits of endowment development to the board and agency leadership. Do so with financials and emphasize the power of endowment to significantly impact the budget.
-Provide adequate staff and financial resources for these programs to grow and flourish.
-Get to know and identify each member of the most philanthropic families in your community and engage in long term education and cultivation of these uniquely positioned individuals.
-Develop supportive policies and procedures to assure continuity of the program and as well as staff continuity.
-Develop more effective ways for endowment development to flourish in a culture which still advocates the primacy of the Annual campaign.
-Make sure that senior Annual campaign pros are trained in the basics of endowment development and assure that both Annual campaign and Endowment responsibilities are shared by all.
-Create and support a group of leadership dedicated to working on these issues.
-Educate key federation executives about the benefits of evolving beyond a central planning model reliant solely on the annual campaign to fund the allocations process.
-Introduce a new model combining collective responsibility with participatory philanthropy to broaden the horizons of board members, donors and staff.
-Bring agency leadership together with the federation’s leaders to consider how to develop permanent funds focused on the long term needs of the community.
-Assure that marketing resource is put to the task of branding and developing the endowment product.
Permanent endowment style philanthropy - designed to develop unrestricted or restricted funds created by donors who trust the decision making structure of a recipient charity. Think Harvard, Yale, UCLA, Federations of North America.
Participatory style philanthropy – a system in which a charity manages/owns certain funds in order to guide families to become more philanthropic while developing deeper relationships with donors. In this way, Jewish federations have helped countless families to become active participants in philanthropy for many years.