The Many Benefits of a Community Foundation Endowment

August 31, 2022

By Jamie Schloegel, Chief Executive Officer

Addressing the benefits of endowment funds

In times of such need I’ve been noticing a growing skepticism around endowments. Before I start addressing some of the concerns, let me first give you a brief explanation of an endowment:

An endowment is a pool of charitable assets that is invested, with a portion made available for charitable purposes annually. The remaining assets and investment returns are retained in the endowment to provide for growth of the fund over time. And over the long term, since endowment funds are usually perpetual, an increasing amount of support will be available from the endowment annually as it grows.

The argument against endowment funds is that investing in solutions now rather than the securities markets so you can help people or organizations in the future is more efficient and of higher impact. Future social problems can be averted through use of funds today. To put it simply (and arguably so): If we spend money to solve problems today, we perhaps won’t need the funds tomorrow because those problems will no longer exist.

Building permanent community stability through sustainability

I’m not sure there is any way to prove that would be the case in all scenarios. And even the argument against endowments includes a pretty big ‘perhaps’ clause.

Our community’s greatest challenges are complex. My experience has indicated that money alone doesn’t solve anything because needs are so diverse and complicated. And philanthropy – including endowments – is still a finite resource.  Creating sustainability plans that rely completely on continued philanthropy have not shown long term success. Especially during times when inflation is high, the markets unreliable, and people are giving less.

Historically endowment funds were defined as funds that only expended their “income” for charitable purposes. This “income” definition is now outdated as it does not reflect current investment management philosophies or could lead to a belief that no or limited funds are available from the endowment.

Rather, modern endowment fund management makes a “portion” (not limited to “income”) of the fund available to support charitable causes every year…forever. And that is exactly what happens with La Crosse Community Foundation’s endowed funds.

Endowment funds at the foundation

At LCF, we have more than 28 endowed funds that provide a source of ongoing philanthropic capital to address charitable needs in La Crosse County through a competitive grant program. The funding is available annually regardless of any new gifts coming in. This source of funding is invaluable in uncertain economic times when other support may no longer be available. During stronger economic periods, our endowment funds can provide funding to expand support and act as seed money to pilot the development of new, innovative programs and services.

Endowment funds also provide intangible benefits. An endowment is a perfect way to create a lasting legacy reflecting support of a charitable cause or of the community by you, your family or your business. A nonprofit organization that establishes its own endowment is announcing to its donors that the organization will be here fulfilling its mission for decades to come. An endowment fund can also provide financial security to those organizations taking on new challenges and seizing new opportunities as they arise.

The other point to remember is that not all charitable gifts are made to address social problems. Charitable gifts are also made to help increase the quality of life in a community through access to arts, culture, and educational opportunities. There are few funding options for these kinds of opportunities outside of philanthropy which makes endowments a very smart tool for charitable organizations with these kinds of missions.

The benefits of endowment funds at community foundations

Community foundations are in a unique position to help diversify and democratize philanthropy through their endowment model. The landscape of philanthropy is shifting, and collective giving models will continue to play a transformational role. Community foundations allow anyone to be a philanthropist, regardless of their capacity to give.

In essence, community foundations are a charitable fund aggregator that utilize economies of scale to provide a cost-efficient investment, administration, and funding vehicle that over time multiples the value of one-time gifts.

Endowment funds truly are gifts that keep on giving.