The endowment

[Michael]

Friends - here is my first provocation.

I'm not sure how our endowment fund stands at the moment, but I am
sure that it is not providing any income to support human services. I
think the time has come either to support it vigorously or to close it
and include the funds in our allocations .

I propose, in order to support it vigorously, that half of the income
from Love Notes be placed in the fund. That would be between $8-10k.
If we did this for a sequence of years we would begin to generate
funds that did not depend so intensively upon our fundraising event,
and as we grow older this might be a good thing. It would also allow
ticket purchasers to deduct a portion of the cost of their tickets.

What do you think?

Michael

[Lorraine Desrosiers]

Michael, that certainly is provocative. I would have to see more numbers,
for example, how much the endowment might grow with interest over some
reasonable amount of time given x dollars over that time each year. Not too
difficult to generate. I'm not that attracted, in any case, to the idea of
sending our hard-won profits from Love Notes to a fund that does not
immediately provide benefits to the community. I take a short-term view of
the money generated for needs that are also short-term, for needs that can't
really wait. Perhaps a smaller amount from proceeds would make sense.

I like the idea of a tax deduction incentive for ticket buyers. But that
brings to mind another option in connection with generating endowment funds.
When selling tickets, we can ask for an endowment contribution that would be
tax deductible just in case someone is open for such a thing. I don't think
we offer, as other fundraising events do, a sliding scale of contributions
along with the option of a separate tax deductible contribution.

Along with you, I have watched as the endowment fund languishes. And even
as it has fristratomg;u lost ground. Let's think about this some more.
Maybe it's time to have a smaller fundraiser just for the endowment fund.
Our two in-house auctions have generated significant amounts in the past.

Lorraine.

[Arthur Kinney]

Michael and other bloggers,

I like raising the endowment fund, of course, since I helped to start
it, but it might depend for me this year on what the needs are. Having
just heard a report from the Amherst Survival Center noting that
homelessness is going up in Amherst, however, the needs may be dire.
And then this is not the year endowments are paying much out--perhaps we
should actually inquire what our balance is and what we are likely to
get--and what would happen if we contributed $8-$10K a year. It is true
that planning a firm endowment will insure the well-being (or
weller-being) of our community which, I think, is finally what the
Amherst Club is about.

Arthur

I

[Flo Stern]

Hi all,
I am not sure how I feel about the endowment fund - have to think about
it longer. I am sure that Human Services in Amherst is suffering this
year. The town has not given any funds to most groups and they are
hanging on by a hair. Let's decide what we are going to do and then give
the money to the endowment or to human services, but to split it means
that there is little money for all.
Peace,
Flo Stern

[Michael Greenebaum]

I'm sure that Flo is right. The argument for concentrating on the
endowment is that it has a long, long, long, long way to go before it
will produce useful income. The argument for funding human services
in the here and now is that they need funding so badly.

I will also say that I am worried that our capacity to hold big
fund-raisers may be compromised if we do not get active younger
members and that concentrating on the endowment is a way of assuring
funding indefinitely.

I don't know who in the Club is maintaining contact with our fund
manager. I have no idea how the fund stands or whether there is any
hope in maintaining it. Would we ever want to consider making a
concerted effort to encouraging the community to include the fund in
their estate planning?

Michael

[Lorraine Desrosiers]

Michael, just a note in response to your concern for active younger
members -- we seem able, at least for now, to get the jobs done that are our
mission. But it can last only so long as a status quo, so your concern is
not misplaced. The endowment fund is one way of ensuring a kind of
longevity. I agree that we might consider dedicating at least some amount
from Love Notes' proceeds each year. A tithe? Still, focusing on
membership in the present might be the best way and I hope we are thinking
along those lines with some concentration.

Lorraine

[Hubbard Smith]

The Endowment Fund is managed by The Community Foundation of Western Massachusetts because Kent Faerber used to be President there.  They send quarterly reports to the Treasurer, who is the Club's chief contact.  When I was Treasurer, our account went over $10,000 for the first time, the threshold for our being able to make directed contributions to charities of our choosing, but the Fund took a large hit last year, and Roger will have to tell us where we stand today.  I agree in principle with the concept of having an endowment, but I agree today with those folks who are saying that there are immediate community needs which should be supported with whatever funds we have.  Once the Club is healthy and vibrant again and we think that it might have a future, then we can start adding to the endowment again.  Or we could do so in the meantime via smaller fundraisers, perhaps such internal ones as auctions or whatever.   ---Hub

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From: future-of-the...@googlegroups.com on behalf of Michael Greenebaum
Sent: Wed 10/7/2009 3:18 PM
To: future-of-the...@googlegroups.com
Subject: Re: The endowment

[Michael Greenebaum]

Thanks, Hub. Perhaps the treasurer has been including that in his
report and I just have not been paying attention.

Michael

[Roger Webb]

Let me as treasurer give some factual information, and hopefully some
unbiased estimates.

Hub correctly outlines where our fund is and how we receive quarterly
reports. I do pass those on at board meetings, but have only done so
as a quick verbal summary and offered hand-around of their report. I
haven't included it in my email report (perhaps I should, when
available), and with the way the funds have been going I think
everyone has been happy to move on as quickly as possible. It takes a
month or so for them to send us a report after the quarter ends, so we
would have the September 30 numbers for either our November or
December board meeting. When I took over as treasurer, we had about
$10,400. That rapidly dropped to about $7,800 in March of this year,
despite our club contributions which recently have run at around $600
per year (in earlier years we used to contribute somewhat more, but
enthusiasm has waned). June saw a recovery to about $8,800, and I
would expect September to be close to $10,000.

Opinions vary slightly, but it is generally considered that an
endowment will earn somewhere around 7-8% per year, long term.
Subtracting 2-3% per year for inflation, that allows distribution of
about 5% per year (perhaps a little less) if you wish to maintain the
effective value of the endowment. Which means, ignoring the current
ups and downs of the market, we could now distribute about $500 per
year if we wanted the endowment to remain relatively unchanged, not
counting any new amounts we add to the endowment.

If we were to not distribute any funds, and instead aggressively add
to the endowment at (to use Michael's original provocation) 9K per
year, we might expect to have about $65,000 in today's dollars after 5
years. That consists of 10K currently, 45K additional funding, and 10K
investment return over 5 years. Which gives us the ability to then
distribute $3,250 per year. If we continued the aggressive funding for
another 5 years (10 in total), we would then have about $135,000
(again, in today's dollars). Keep in mind that these are very
approximate figures - we don't know what the investment returns or
inflation will be, or how much ($600 per year?) we are adding from
members.

It is also possibly to treat the endowment as a "rainy day" fund, to
be built up in good periods and used when it is raining (such as now).
Or some part of the endowment could be treated this way, leaving the
remainder as a long term investment. I'm not sure whether or not the
Community Foundation, which manages the funds and doesn't really want
to incur the expense of managing small amounts (hence the $10,000
limit before we can start distributing), requires us to maintain 10K
at all times while distributing grants. Clearly we can withdraw all
the money and terminate our relationship with them, but I'm not sure
whether we could now withdraw half and continue with them.

Roger

[Roger Webb]

. . . and here is a purely biased suggestion to consider for Love
Notes.

It was suggested that we might consider giving the Love Notes tickets
a sliding scale, or leaving the amount completely open. Interesting,
but somewhat of a gamble! But how about making the regular concert
tickets $20, concert+party $40 (or they could be $25 and $50), and
having reserved seating available for Cupids who make an additional
tax-deductible donation (any amount) to the endowment. I very much
doubt anyone would try to give $1 for a reserved seat. And tickets for
$20, $40, $40+?? would probably bring in more than $20, $40, and $50.

Alternatively, if we consider that this year the community needs money
now (rather than at some future time), we could use the same scheme
but have the additional Cupid donation go directly to Love Notes funds
for distribution in the normal way. But sending it to the endowment
does serve to publicize the endowment, and does have the selling point
of "tax deductible".

Roger

[Michael Greenebaum]

Thank you, Roger - that is very helpful.

I think this issue deserves some serious consideration. We all know
how endowments have fared in the vicissitudes of our current economy.
Presumably, things will get better, but that is not the issue in my
mind. If we are serious about the endowment, we have to be serious
about funding it to a point where we can make significant
distributions from it even if our other fundraising efforts become
diminished. We are talking, I imagine, about a significant six-figure
fund, and we are far from it now. Auctions and other kinds of minor
fundraisers cannot begin to approach that level, and if we cannot
approach that level I wonder if it is worth having it. I wonder, too,
what kind of management fees we are paying and whether those fees are
in fact depleting our principal.

The endowment is a wonderful idea and perhaps we should wait for good
times to consider these matters. But in my mind this is not just a
matter of degree but of kind. We cannot possibly fund the endowment
adequately under our current approach.

Michael

[Arthur Kinney]

Michael,

The Treasurer should keep in touch with the endowment, as Hub did in his
time.

Arthur

[Arthur Kinney]

To All you Googlers:

I love Roger's idea of increased prices for concert and reception and
for all the Cupid money to go to the endowment. One of my original
hopes with the endowment was not that it would draw money only from
Amherst Club members but it would be an open fund that any Amherst
citizen could give part or all of his/her estate to. That is a fund the
community builds which the Club oversees. I would still hope we could
do that.

Arthur

[els...@umext.umass.edu]

Good Morning,
Could anyone explain to me why the Amherst Club isn't a non-profit 501c3?
In that way, we would not have to pay any management fees and when we sell
tickets for Love Notes, we could let them know that their contribution IS tax
deductible.
Elsie

[Lorraine Desrosiers]

Roger, your idea about ticket pricing and tax-deductible donating is very
good and we still have time to do this for our next Love Notes. We would
have to act fast to make that decision and I'm all for it -- $20, $40, $40+.
We can decide what to do with the additional donated amount depending on how
much Love Notes brings next year. I realize that if the donation is to go
to the fund it is tax deductible and that means the money must go to the
fund, but just a question -- why can't extra donated money be tax deductible
even if it goes to into allocations rather than the Fund? It is a donation
beyond the ticket price and therefore does not receive anything in return,
so should be deductible.

Arthur, I agree wholeheartedly with your hope for the endowment fund
becoming a contributory destination for all community citizens who are in
accord with our purposes. Having such an option on our tickets with a brief
explanation of the Fund would promulgate its existence and our intentions
for it in the future. Bravo.

Lorraine
----- Original Message -----

From: "Roger Webb" <roger....@comcast.net>
To: "Future of The Amherst Club"

<future-of-the...@googlegroups.com>
Sent: Wednesday, October 07, 2009 9:09 PM
Subject: Re: The endowment

>

[Lorraine Desrosiers]

Roger, I realize that donations above the ticket price of $40 do have a
value return of preferred seating. We could put a $10 value on that and
anything above can be justified as tax deductible and can go wherever we
choose for the year. Is this possible? Gives us flexibility when we don't
know how much we will raise.

Lorraine
----- Original Message -----
From: "Roger Webb" <roger....@comcast.net>
To: "Future of The Amherst Club"
<future-of-the...@googlegroups.com>
Sent: Wednesday, October 07, 2009 8:55 PM
Subject: Re: The endowment

>

[Hubbard Smith]

An excellent summary, Roger, and some creative good thoughts.  Thank you, --- Hub

---

From: future-of-the...@googlegroups.com on behalf of Roger Webb
Sent: Wed 10/7/2009 8:55 PM

To: Future of The Amherst Club

Subject: Re: The endowment

[Susan Lowenstein]

HI, MAYBE BILL HART CAN GET US THE 501C3  I AM ALL IN FAVOR OF THAT.  SUSIE

[Roger Webb]

Elsie asks: "Could anyone explain to me why the Amherst Club isn't a non-profit 501c3?"

We are a 501(c)(4) non-profit, as defined by IRS regulations. This summary of 501(c)(3) and 501(c)(4) is extracted from Wikipedia:

"501(c)(3) — Religious, Educational, Charitable, Scientific, Literary, Testing for Public Safety, to Foster National or International Amateur Sports Competition, or Prevention of Cruelty to Children or Animals Organizations

501(c)(4) — Civic Leagues, Social Welfare Organizations, and Local Associations of Employees

501(c)(4) exemptions are given to civic leagues or organizations not organized for profit and operated exclusively for the promotion of social welfare, or local associations of employees. Net earnings are devoted exclusively to charitable, educational, or recreational purposes. Characteristics that set these organizations apart from a 501(c)(3) organizations include limited membership (i.e. limiting membership to the employees of a designated company or persons in a particular municipality or neighborhood), an unlimited ability to lobby for legislation, and the ability to participate in political campaigns."

Unfortunately for us, these regulations put us in the 501(c)(4) category, and donations from an individual to a 501(c)(4) are not tax-deductible, unlike donations to a 501(c)(3). But donations from a company are, which is why Love Notes sponsors can deduct their contributions.

Elsie also asks: "In that way, we would not have to pay any management fees and when we sell tickets for Love Notes, we could let them know that their contribution IS tax deductible."

Money paid for regular Love Notes tickets would not be tax-deductible, even if we were a 501(c)(3), because people get equivalent value (concert and party) in return for their money. They could only deduct any part of the ticket price which is in excess of the value they receive.

See my next post for information about management fees, which Michael also asked.

Roger

[Roger Webb]

The management fee we pay to The Community Foundation of Western Massachusetts is 1.25% per year, with a minimum of $125 (at our current level of about $10,000 the 1.25% comes to $125, but the dollar amount will increase as our endowment increases). This fee covers their administrative costs, tax preparation, etc. It does not pay for investment fees, which are additional. But since our investments are mostly at Vanguard, these investment fees are minimal. The investment allocation is overseen by the Community Foundation, but rarely changes, and is currently approximately:

        50% in Vanguard Total Stock Market Index Fund (US stocks - expense ratio 0.18%)

        20% in Vanguard FTSE All-World ex-US Index Fund (foreign stocks - expense ratio 0.40%)

        15% in Vanguard Total Bond Market Index Fund (US bonds - expense ratio 0.22%)

        15% in "alternative investments" (real estate, private equity, etc)

So our average investment expense is probably between 1/4 and 1/3 of 1% of assets (or around $30 per year with $10,000 invested) - pretty minimal.

We could easily do the investment ourselves if we were willing to omit the alternative investments. But the $125 we now pay gets our taxes done for us (our Amherst Club taxes cost us $250), plus we didn't incur any filing costs to set up a fund (which I think would be several hundred). It also provides some protection against a corrupt treasurer (who, me?), which would perhaps become more relevant as the funds we control get larger.

Roger

[Arthur Kinney]

Lorraine,

Humbly, thanks. Applewood, for instance, ought to know about the
possibility and perhaps we could even make up forms.'
'
Arthur

[Carlton Brose]

Here's another vote for increased prices for "Love Notes" and the Cupid

money to go to the endowment.

It is always a hope that the fund would attract further "investments".
Might we indicate that possibility in our February 14th program, pitching
the invitation as a special "Love Note" to community agencies in need?
NancyB.

-----Original Message-----
From: future-of-the...@googlegroups.com
[mailto:future-of-the...@googlegroups.com] On Behalf Of Arthur
Kinney
Sent: Wednesday, October 07, 2009 11:39 PM
To: future-of-the...@googlegroups.com
Subject: Re: The endowment

[Michael Greenebaum]

Thanks, Roger, for this very interesting and useful information.

Michael

[Roger Webb]

The discussions seem to have moved on from the endowment, but let me re-visit that subject.

 

First, a correction in my role as treasurer (unbiased adviser?). I said earlier that the endowment could distribute about 5% of net assets long-term without depleting its principal. But that is incorrect, because it fails to account for the 1.25% management fees (something which, as I explained, it is hard to get away from). The fee reduces the effective amount we can distribute to about 3.75%. Unfortunately, that means reducing the distribution amount by a full quarter – or to put it another way, we would need one third more in assets. $40,000 in assets with a 1.25% management fee is worth about the same as $30,000 in assets and no management fee. One more example of the importance of reducing management/investment costs over the long term.

 

Now for some mere opinions. I am undecided about the merits of having an endowment. On the one hand, if we could build up a significant endowment that would be a wonderful thing. But if all we can manage is a couple of thousand a year (or less), I don’t think the endowment is worth the effort. Even if we had $100,000 in assets, that would still only allow us to distribute between 20% and 25% of what Love Notes currently achieves – which I would regard as a minimum level of effectiveness. And at the current rate, we will all be dead before the endowment reaches 100K.

 

When the endowment was first under discussion, David Scott discussed targeting individuals who might consider donating 50K or 100K in their wills. That has the potential disadvantage of making us view potential club members for their financial worth rather than their worth as individuals, but it’s one good way of achieving a realistic endowment. But getting such commitments is something of a Catch 22 – people are unlikely to donate large sums to an endowment that isn’t going anywhere much. So I prefer to see the current endowment fundraising activities as mainly useful for publicity – the longer the endowment has been going, and the better known it becomes, the more likelihood of attracting donors.

 

The other alternative is Michael’s original “provocation” of putting half of the money raised by Love Notes into the endowment. That is not something I would support this year or next, while the current needs are so great. Possibly in 2 or 3 years, but I think better would be to devote whatever is raised by “the other fundraiser” (the one in the summer that we sometimes talk of). That is, if we had the ideas and energy to run another significant fundraiser.

 

Roger

 

[Hubbard Smith]

To me, Roger makes good sense, not an unusual occurrence.  ---Hub

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From: future-of-the...@googlegroups.com on behalf of Roger Webb
Sent: Sat 10/24/2009 5:21 PM
To: future-of-the...@googlegroups.com
Subject: RE: The endowment