When the Gift is Not Enough

(Added 09/06/2021)

Q

One of our major donors wanted to establish an endowed fund. We have a minimum of $50,000 to establish a named fund, but for an endowed fund — one where the income, based on our organization’s spending rule, is meant to cover the costs of the fund’s purpose — we have no pre-set amount: it depends on the cost of the program. For example, if a program costs $50,000 to run each year and our policy is to spend five percent of our endowment for operating purposes, we would require a gift of $1 million to fully endow the program. Our donor did not realize this distinction and wanted to establish a fund for $50,000 to pay for a program that costs too much for that amount to endow. My boss did not want to embarrass the donor and so did not get into any of the details with her. He simply okayed the deal. I realize many charities have varying policies about how to recognize donors, but, as I see it, this goes beyond that because the donor wants — as is our policy — annual reports on the progress of the fund. My boss says we can simply report the progress of the program and what he calls the named endowed fund without getting too deep with the donor or in the report. After all, he told me, unsatisfactorily, this is $50,000 we likely would not have had if we insisted on the full million dollars. I am perplexed and angry.

A

I understand. Donor relations can be tough, especially when truth is subsumed by convenience. Yes, you have the $50,000, but what it will accomplish and what it is intended to accomplish are two different things. Your boss painted the organization into a corner. The math simply doesn’t add up. At your endowment spending rate, you will be able to allot only $2,500 (five percent of $50,000) each year — with likely growth to offset inflation — and so very little of what your donor wants to be accomplished will be. This is a situation where honesty is not only the best policy, but honesty at the earliest possible moment is the best policy.

From the outset, it should have been made clear. Many people don’t understand the concept of endowment — other than that, the word is what the media uses to report wealth in large institutions, such as universities — and certainly many don’t know the financial intricacies. But the people who raise money for charities do understand.

Your charity must come clean, and your boss should assign himself the job. Speaking with the donor will likely be uncomfortable but, the way I see it, a meeting to lay out the realities of her gift is necessary. The best solution is to tell her that the income her named gift — yes, it’s named because she gave enough to meet your threshold — will generate each year will be applied to the program she wishes to support. She may be disappointed that it will be such a small amount, given her expectations, but there is no mathematical escape hatch here: the gift either does or does not provide the needed income to support the program in its entirety — and it does not.

Think of it this way: What if the program were a new one, one that you felt would further your mission? And the donor was led to believe that her gift would fund it all? Then, because that amount wouldn’t fund it all, your charity would be on the hook to come up with the needed money from other sources. Instead of providing a way to accomplish more of your mission with a new program, her gift would obligate you — a net negative, at least from the perspective of the business office if not the fundraising office.

Worse, though, is what led your boss to accept the deal in the first place. Saying no to a donor — essentially, in this case anyway, telling her that her gift is not enough — is anathema to a fundraiser’s instinct to satisfy the donor. But avoiding the truth at the outset is almost certain to ultimately disappoint and not satisfy the donor. This inclination goes beyond the specifics of your challenge. Fundraisers need to be certain that what they promise can be upheld by their organizations, now and well into the future. In a way, you are fortunate. In your situation, the consequences of not being able to honor the donor’s wishes are relatively immediate. Far too many examples are arising where donors, or their heirs, are objecting to a charity’s inability or refusal to do what was originally agreed to.

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