Lately, I seem to be running into conversations about endowments everywhere I turn. This weekend I was with a group of denominational leaders who were grappling with policy around establishing and drawing down on endowments. This coming week I’ll be at the Consortium of Endowed Episcopal Parishes in Austin, TX and the planned curriculum has lots of options for participants to explore endowment issues. Many of the client congregations I’m working with are operating with provisional budgets for the first several months of 2010 while they come to terms with the economic outlook and get clarity on how much of their endowments that are going to draw down during the upcoming fiscal year.
Almost all of the conversations I’m dropping in on are exploring whether or not it’s okay to dip into endowment reserves in an economic downturn like this one. Some church leaders are highly resistant to using any part of the endowment beyond the investment income generated by the fund. Others are arguing that the endowment was created for seasons like this and the funds should be used to protect the integrity of the ministry and our buildings. Everyone seems to be grappling with two basic questions: How large of an endowment would be enough for us? What is an appropriate plan for spending now vs. protecting our future?
The current issue of the Stanford Social Innovation Review has a thought provoking article entitled, “Endowment for a Rainy Day” by Burton Weisbrod and Evelyn Asch out of Northwestern University. Here are some key points from the article that I found interesting:
- Instead of husbanding money for the future, nonprofits should treat at least some portion of their endowment as a rainy day fund, a source of money that is available to make up for those unexpected, yet predictable, times when income drops or demand for services increases.
- The holding, let alone the expansion, of endowment is a matter of weighing the relative importance of today’s and tomorrow’s users.
- The basic rationale for adding resources to endowment rather than using them to achieve immediate goals is simple; to save for a rainy day when revenue falls sharply.
- The current economic crisis certainly constitutes a rainy day.
- Some organizations have substantial endowments that would allow them to ride out the current economic crisis with little or no cuts, if they choose. But instead of drawing down their endowments to cover the rainy days, they have focused on cutting budgets in ways that are seriously damaging the infrastructure of the organization, and demoralizing their staff teams.
The article presents some compelling arguments for using endowment monies more liberally, but in the world of congregations the issue isn’t quite this black and white. The problem with many of our congregations is that we’ve been over relying on endowments for some time now. So, when a period of serious economic decline hits, like this one, we are left wondering just how much more our endowment’s can bear. Rainy day or not, there has to be a limit to how much of our operating budget we allow ourselves to finance through endowment income or principle.
Where is your congregation settling in on this argument?
Photo Credit: nikkinoguer’s photostream at flickr.com