Focus, Economic Development, and Nonprofits

West Michigan community foundations return the investment

In the field of philanthropy, ROI means more than a number.

October 23, 2015
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Mike Goorhouse
Mike Goorhouse juggles the “people side” and “dollar side” of philanthropy along the lakeshore. Photo by Johnny Quirin

Community foundations are catalytic engines in West Michigan, seeking to create lasting positive change through charitable giving, and evaluating their return on investment can be difficult to quantify in terms of social impact.

The Community Foundation of the Holland/Zeeland Area and the Grand Rapids Community Foundation both leverage permanent endowments and provide personalized services for donors to lead and partner in community-wide initiatives designed to meet current and future needs of those who work and live in the area.

Mike Goorhouse, president and CEO of CFHZ, said in the nonprofit sector of philanthropy there is a “people side” with individuals interacting with each other, and there is a “dollar side” since the organizations need resources to do their work.

“We operate in the financial, philanthropic capital side and we do two things in that space. One, we build a permanent community endowment, meaning we build and manage the endowment of dollars that are dedicated to the Holland/Zeeland area,” said Goorhouse. “We have the second part of work, which we call the donor services, and this is where we facilitate giving on behalf of a donor. We help process the financial transaction.”

CFHZ currently has a $15 million endowment fund that allocates nearly $600,000 each year in grants to a variety of causes, ranging from youth and seniors to arts and economic development.

On the donor-services side, Goorhouse said complex gifts such as non-cash assets, stock, land, portions of businesses and scholarships represent nearly $40 million in assets, with about $3.5 million distributed each year.

During the last 20 years, CFHZ has received on average a 6.5 percent ROI in the financial market, which in turn allows the foundation to allocate grants every year without shrinking its overall endowed fund.

“Oftentimes, return on investment is talked about in the financial world of investing dollars, which is how we operate as an endowment,” said Goorhouse. “So we invest those funds, and the idea is we are giving away a portion every year, and over time we are not dipping into the principal of the fund because we are earning enough in the market to pay out the grants.”

Grand Rapids Community Foundation managed nearly 670 funds approaching $327 million in assets. It received $9.2 million in gifts for 2015 and authorized $9.8 million in grants for the fiscal year ending June 30, 2015.

Diana Sieger, president of GRCF, said most of the foundation’s assets are preserved, and it has a spending rule of 5 percent of a 16-quarter rolling average market value to mitigate the highs and lows of volatile markets.

“Some of the things we are seeing in discussions with congressional staff and others is the perception there is not enough money being spread out into the communities. All foundations, while we are regulated differently in terms of how much we (give) out, many of us are right to the max of what is allowable,” said Sieger. “In other words, money is getting out into our communities.”

A report by The Philanthropic Collaborative, From Grand Vision to Grand Action: Revitalizing a Downtown and Demonstrating Philanthropy, evaluated the impact of endowed philanthropy’s long-term investments managed by Grand Action in Grand Rapids to renew the community.

Grand Action is a not-for-profit organization comprised of more than 250 people from throughout the community. Its primary objectives have been to identify downtown building and revitalization projects, galvanize public opinion and support for these projects, and design and implement funding strategies for each project, including securing enough private-sector support to guarantee funding from existing public funds.

“It is a compilation of how philanthropy in Grand Rapids has really helped revitalize our city, and it is a demonstration that all of philanthropy, at least in Grand Rapids, is not hoarding money,” said Sieger.

The report also highlighted findings from 2008 and 2012 studies conducted by the TPC indicating that, for every dollar spent by foundations, more than eight dollars is generated in economic and social benefits, and short-term results of U.S. foundation grant-making result in more than 973,000 jobs and $63.6 billion in GDP.

GRCF indicated the funds it distributes in the community are a “direct result of investment performance,” and the foundation’s investment objective is to preserve the “real purchasing power of the assets after all withdrawals by earning a total rate of return over full market cycles,” according to its website.

“We are very careful with how we invest our money. Our fiscal year ended June 30, which was regrettable because it was not a very good time, so we did see a reduction in our rate of return from the previous year, which was at 16 percent,” said Sieger. “We did have a downturn, but when you are investing for the long term, that is to be expected.”

The FY2011 rate of return was at 21.3 percent; FY2012 was 3.1 percent; FY 2013 was 13.1 percent; FY2014 was 16.1 percent; and FY2015 was 1.2 percent, according to a statement.

During FY2015, GRCF allocated more than $3.2 million for education, $2.26 million in arts and social engagement, roughly $2 million for health, $1.12 million in neighborhoods, $958,000 for economic prosperity, and more than $230,000 for environmental efforts in the community.

While the financial rate of return is one way to view ROI, Goorhouse said another way is looking at the impact the dollars have in the community.

“It really shows the human side of giving — and it is also the frustrating part because it would be so much easier to say, if you invested $10,000 in Apple stock 10 years ago and $10,000 in Microsoft 10 years ago … what was the better investment?” said Goorhouse. “You have to decide what kind of change do I want to make in the world, and what are the particular types of people I want to impact?”

CFHZ recently launched its Today. Tomorrow. Forever: A Campaign for Our Community’s Endowment to generate $5 million in “today” gifts to secure future growth or about $20 million by 2050 through a pipeline of 100 “tomorrow” gifts. Since the announcement in September, Goorhouse said the response “has been nothing short of amazing.”

“We have had 31 people commit to ‘tomorrow’ gifts or estate gifts of a minimum of $50,000. Each of these commitments is matched by $20,000 we will receive now from matching donors. We have also received $425,000 in ‘today’ gifts,” said Goorhouse.

“People are really rallying around the vision of building our community’s endowment so the Holland/Zeeland area always has the philanthropic resources necessary to respond to future unknown needs and opportunities.”

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