Written by Brandon Allen
Executive Director | Fortify Foundation
In last month’s newsletter, we had an article relaying the challenge of establishing an infinite strategy when it comes to the development of your school. We know that God has called our ministries into existence. As long as we continue to focus on Him in our calling, we can assume that He wants our ministries to not only survive but thrive. This particular article is going to use this infinite mindset and focus on presenting a case study in the area of endowments. Maybe you have heard the term endowment before but have never really examined the impact that it could truly have on your school. Hopefully, in this brief article, you will gain further insights into considering this as part of your long-term development.
Oftentimes endowments are considered only from the vantage point of a donor. A donor that is truly passionate about an organization is likely to give either a major or planned gift that can often be set within the parameters for an endowment. If you were to take the time to research the history of endowments, you would find that a lot of the prestigious universities started off their endowments this way. But why would a donor give in the form of an endowment and is there any additional benefit? When donors give large sums of money, they want it to make the greatest impact. With that impact, they also want something that is going to last and generate greater returns which, in essence, creates a legacy. What greater legacy is there than having a fund that creates infinite and perpetual returns toward your beloved institution? An endowment fund creates a continual source of meaningful impact well after the donor is deceased. There wouldn’t be a single institution that would turn down such an opportunity if it availed itself.
The next question is, does it make sense for you to start an endowment fund apart from a donor? Really, we can ask this question in a more personal fashion: Does it make sense to start a retirement fund to help sustain you during a period of life when you may no longer have the ability to work? And, if you’re really prudent in this area, provide you with some flexibility to do some bucket list items that you’ve always wanted to do but haven’t had the time for. The difference in this outcome is often correlated to the present. Is spending that dollar today truly more beneficial than saving a portion of that dollar for the future? I don’t know that anyone would argue with this premise. Even every financial advisor would mutually agree and strongly encourage this! We assume it on a personal level but for whatever reason, we often miss it when it comes to our God-given ministries. This is often why some schools are not financially stronger today than what they were 10 years ago. Financially, year over year, they are always chasing their tails rather than building their future. I truly hope you haven’t found yourself in this situation, but if so, it is never too late to change! An endowment creates an aggregated asset that supports your school in perpetuity. There is no other method by which an institution can experience a gift over the life of its existence than through endowment.
Have you ever heard of the term “Trust Fund Baby?” An individual that received an inheritance by way of a trust fund that guarantees an income for the remainder of their life. While there can be some negative responses to a trust fund if a child isn’t trained to handle the money properly, ultimately, it often places them in a status of independently wealthy and gives them the flexibility to utilize their time and financial resources in other areas. This is what we want to create for Christian education. The assumption is that future generations will be more prosperous than students today based on what they’ve learned from previous generations. In essence, we are building blocks for one another.
Consider this… If our aim is to achieve both academic and spiritual excellence, how can we accomplish that if our budget is the one thing that continues to hold us back from accomplishing greater things? Will it take some re-strategizing on our part to get us there? If this isn’t something you have already been actively doing then it most certainly will be. The beautiful thing is we can learn from the experience of others and see how their disciplines got them to where they are today. Since endowments have been around for decades, there has been quite a bit of information and perspectives relayed around them. In January 1990, Henry Hansmann stated that “one important reason universities accumulate endowments is presumably that their managers regard this course of action as good policy.” Ok, easy, and fair enough. An institution obviously isn’t going to put much consideration if it proved otherwise, right? Now let’s take it back a bit further and consider what James Tobin said on the subject in 1974. “The trustees of an endowed institution are the guardians of the future against the claims of the present. Their task is to preserve equity among generations. The trustees of an endowed university… assume the institution to be immortal. They want to know, therefore, the rate of consumption from endowment which can be sustained indefinitely.” Hopefully, as an institution, your board of trustees has been developing a strategy for the long game. We often get caught running sprints when in reality we are actually running marathons.
Most of us have been taught from an early age that it is wise to be actively saving money. Our first efforts in this new arena was probably holding back some funds for an even greater possession. My son recently wanted to purchase a Lego set. If you haven’t recently priced Lego sets in today’s market, well, let’s just say it’s a bit more than what I remembered. So we set the goal for my son to save up for this particular Lego set. As you can imagine, he was so excited when he finally reached that dollar amount! Sure, it took some discipline on his part to say no to a few smaller less exciting items in the meantime, but at the end of the day, even he would agree it was worth it.
“The accumulation of endowment is, in effect, a form of saving, presumably for expenditure in the future. In a college or university, each dollar added to endowment represents a dollar less for current research or for educational services to current students, or a dollar more in tuition that must be charged to current students in order to provide them with the same level of services. The amounts thus saved will presumably be used to provide more research, more education, or lower tuition in the future. Why, then, do universities save rather than spend so much of their income?” These last two sentences capitalize on what we want to relay. Saying no to a small portion of today in order to establish a better and stronger tomorrow.
In other words, yes it makes sense for us to build an endowment regardless of what donations may be received throughout the life of your school. It is our aim as a Foundation to give you the tools and resources to capitalize on major and planned gifts, but that does not necessarily mean that your endowment will solely grow on that premise. The main postulation here is that accumulating in the area of endowment creates intergenerational efficiency. Notice the word efficiency. We are focusing on flexibility for future generations, not just a transfer of wealth (ie – the good vs bad in the area of a trust fund baby). This is why true endowments are the focus. If a future generation starts to see dollar signs in the present rather than expandability in the future, then all would be lost. We don’t want your hard work and effort to end with someone who may not be as financially apt as you are in the present. We are planning a payout to cover both constant and even future escalation in expenses year over year. Think of that multimillion-dollar facility you recently built or are currently planning to build. It’s one thing to build it, but it’s another thing to maintain it. Do you think those utility bills will remain the same? If there’s a downward fluctuation in future enrollment, how will future administrators feel about taking care of those expenditures? We all know situations where things were over-bought or over-built and the dream to fill them was never realized but the expenses were still there.
Utility isn’t always an exciting focus, so let’s also present the dynamic of tuition. As it increases year over year to keep up with expenses, will there be a time in the future when the salary increases no longer match the tuition increases thereby foregoing students’ ability to pay in the future? What is your plan to offset those increases? Additional fundraising? Do you know that just since the pandemic, the donor base in the United States has decreased substantially? It’s always been a well-known fact that church members are often some of the greatest financial contributors. Unfortunately, as that donor base has shrunk further with the lack of return to church on many people’s part, so has the number of donors contributing. So we know that fundraising won’t always be the answer.
Another consideration is the debt-to-asset ratio for the average household. Through the years, has that been an increasing or decreasing factor? Seeing as the national debt average is sitting at $93,870 per person, not to mention the average household has less in savings than it ever has, the answer is fairly simplistic to come by. While I know many of us know that it is a biblical mandate to work for what we have, at the same time, knowing the exponential rate at which this thinking is shifting, can we not strategically position ourselves to have a greater impact in the future with proper planning today? Fortunately, post-pandemic, a lot of parents that perhaps were raised in a public school finally came to understand that the present institution is different than that of yesteryear. However, thinking of education as an investment is still something that we all are competing to share with current families. The cost of education vs. the cost of a certain standard of living is something that has been at odds as of late. This is why it’s so crucial that we create as much value as possible with every student God entrusts us with. That’s not to say that once the value is created in a parent’s mind it will be maintained. There are always economic recessions that impact people’s ability to pay. Do we really want this to be a factor in not providing a stronger base for a Biblical worldview in the upcoming generation when a little planning on our part could have potentially changed that?
Perhaps your school has been presently maintained in each of these areas due to some wonderful God-given relationships with either certain individuals or businesses. What happens when those relationships shift? Maybe it has nothing to do with a willingness to give but an ability to give that halts your current operations. Would being a little more frugal with what was provided afford us a more stable future?
This is the financial buffer that an endowment can create. This provides some liquidity to sustain us through this temporary financially adverse situation. What if other donors caught the prospect that your institution is financially unstable due to this change? Will that increase the likelihood of them further connecting with and giving towards your school? An endowment provides further assurance that there has been and continues to be a plan in place to continue your school’s existence. There is nothing worse than having to transition your children to another school due to the lack of competency in the area of finance on the current administration’s part. Again, what is your trustee’s role?
It’s easy to get large gift donors if you’ve provided them with a strong sense of community in your organization. The power of tradition is an amazing force that sometimes supersedes our ability to produce in other areas. Past graduates and staff will do what they can to maintain what they remember (assuming it was a wonderful experience). With this, we are also creating a buffer for our institutions to unapologetically maintain Biblical principles. This one should be obvious and no doubt should fall in conjunction with the person’s integrity. However, have you ever made a poor decision? Ok, that’s an easy one. What about a poor decision due to peer pressure? That’s sometimes where it gets more difficult. I recently heard a testimony of someone working in Washington DC that personally witnessed our congressman changing their minds on issues solely based on who they were surrounded by. Even in-house staff converted them solely on what they thought should happen despite their conviction proving to be the exact opposite! I know it’s frustrating to hear, but it happens. Think of the potential financial bind that could happen in the future in the area of finances. If a donor is willing to help keep your doors open but is only giving the funds based on your school making some fundamental changes, what would you do? It’s easy to talk about it (and hopefully never experience it) but the truth is it would be a temptation.
Imagine the pressure that a future board might experience in the area of finance. An endowment fund can be a valuable insulator from needing to take advantage of those kinds of donations or grants. Speaking of grants, I wonder how many considered the recent PPP loans or ERCs? Fortunately, it has afforded a wonderful opportunity for a lot of schools. However, hopefully it created room for pause, especially not knowing what the outcome of that would be. Might there be some governmental interference as a result? With a little bit of research, you’ll find that there have been instances of that already happening. Most would anticipate this temporary structure followed by an extraordinary circumstance would be uniquely different. To an extent it was. The question implicated now is when will it happen again? How will our school handle future options when it comes to assistance of this nature and will we be able to maintain the core of what our Christian school is all about? It is no secret that Christian education is becoming less popular as a whole. Hopefully, we are all personally praying for a spiritual awakening in our country. But as the ol’ saying goes, we ‘hope for the best and plan for the worst.’ There is enough outside pressure that we most certainly don’t need to add finances as a greater burden than what is necessary. It would be wise to make one of your aims to continually strengthen the autonomy of your local ministry. And what is the trade-off for that? Saying no to a little extra today for the sake of building a more secure tomorrow.
The next question is, is your school worth investing in? It may take some initial discipline to commit to endowment, but you and I both know that if given the opportunity, we would have loved to have received one.
- Hansmann, H. (1990). Why Do Universities Have Endowments? The Journal of Legal Studies, 19(1), 8. http://www.jstor.org/stable/724411
- Tobin, J. (1974). What Is Permanent Endowment Income? The American Economic Review, 64(2), 427. http://www.jstor.org/stable/1816077
- Hansmann, Why do Universities Have Endowments? The Journal of Legal Studies, 9.