West Michigan foundations cope

October 19, 2009
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The dismal investment year of 2008 reduced assets by millions and will impact grant-making into 2013 and beyond, West Michigan community foundation officials say.

Assets for Grand Rapids Community Foundation dropped by $49 million in fiscal year 2008-09, for example. Others also saw setbacks in total assets for fiscal 2008, according to their annual reports: Fremont Area Community Foundation, $76.2 million; Kalamazoo Community Foundation, $74.5 million; Community Foundation for Muskegon County, $35.7 million.

While improvements in the 2009 markets have helped to restore some of the luster, foundation officials said reverberations will be felt for several years to come, both in funds available for grants and belt-tightening administrative costs.

“We are anticipating grants in a very similar amount to last year,” said Libby Cherin, FACF’s president, noting that unused funds from 2008 were moved into 2009 to offset the effect on the 50 Newaygo County nonprofits it helps. The last grant round of 2009 is expected to be awarded within the next few weeks, she said.

“We, however, depending on what our 2009 ultimately is like, are concerned for 2010 and 2011, because the market will be substantially lower for a longer period of time,” Cherin said. Assets had bounded back up to about $160 million by the end of September, she added.

To determine the amount available for grants, under nationally accepted best practices, foundations average a certain number of quarters, usually over the past three to five years, and base their grant-making funds on a percentage of that amount. For example, GRCF looks back at 16 quarters, while the Kalamazoo Community Foundation uses a 20-month average.

That means that while investments are going up, so is grant-making. When investments go down, so does the money available for grants, and the effect can last for the four or five years that the negative quarters are part of the equation.

During the 2008-09 fiscal year, GRCF’s total assets dropped from $239 million to $190 million, and that has squeezed grant-making dollars in the current fiscal year, CFO Lynne Black said.

She said the amount for grant-making from all funds dropped by $1.3 million to $9.4 million this year, from $10.7 million in the fiscal year that ended June 30. That was mitigated by moving $820,000 that wasn’t spent last year into this year’s budget, she added.

While GRCF’s investments totaled $225 million for the fiscal year that ended in 2008, that amount had dropped to $175.5 million by the end of June. Investment gains headed north by 5.6 percent in July and by 2.2 percent in August, while September figures are not yet available, Black said.

“I know that we’ve suffered through, all of us, for the last 12 months or so,” GRCF President Diana R. Sieger said. “At least now we know what’s going on. It just doesn’t feel as shaky.”

Yet the pressure on grant funds occurs at the same time that the poor economy is placing more demands on nonprofits, Sieger noted, leading to the decision to forward money into the current fiscal year.

“Anticipating the fact that we were going to continue in this very volatile economy and trying to anticipate that while the grant-making dollars that are available are down, we also added to them with some money that we carried forward from the previous year,” Sieger said. “We knew the demands on us were going to continue to increase.”

“The other thing that comes into play is new dollars that we raise,” added Black, which was $8 million for the 2008-09 fiscal year.

“We can capture some new dollars for gifts, which helps us when investment returns aren’t so favorable,” Sieger said.

Community foundations, which are governed by long-term investment guidelines, had little choice but to hang on for the dramatic ride their investments took in late 2008 and into 2009.

“We’re not going to change for the sake of trying to chase a return or a better niche in a down market,” said Wes Freeland, assistant to the president and CEO at KCF. “We’re very firm in maintaining our discipline, our long-term discipline, our asset allocation and diversification.”

KCF saw its portfolio ride from a high of $305 million to a low of $195 million and climb back up to the $260 million mark over the course of 18 months, he said.

“We use a 20-quarter rolling average here,” Freeland said. “As it makes us more conservative, it drags out the length of time it takes for our spending through endowed funding to go down. It’s not immediate like the market; it stretches out over four or five years.”

Foundations have been trimming administrative expenses, as well. The foundation in Fremont, for example, has axed travel to out-of-state conferences, and through attrition trimmed its full-time equivalent staff from 15 to 12.5, Cherin said.

“Steady but cautious,” was Sieger’s take on GRCF’s current 2009-10 fiscal year.

“As of the end of September, we were above $160 million. Things are coming back up,” Cherin added.

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