To best serve their stakeholders (parents, students, alumni, faculty, professional staff, and volunteer leaders) at Jewish day schools, nonprofit professionals must continually evaluate endowment-building programs. As you are involved with a Jewish day school, have you and other leaders prioritized endowment-building efforts? If not, you are committing a serious and dangerous strategic error; ignoring this critical component of the school’s development strategy can have dire consequences!
Put simply, endowments represent the capacity and the intent of an organization to function for the long term. Endowments are a critical venue for institutional funding, and can provide the type of permanence that creates the space for, and fuels, stability and innovation. At schools where a robust endowment provides financial stability, leaders are unleashed to “think outside of the box” and consider a variety of unique opportunities, as opposed to always scrambling just to “make ends meet.”
Every endowment gift represents an investment in the future of a school. Donors make restricted and unrestricted endowment gifts with the expectation that the funds will be managed well (conservatively), and funneled to oftentimes specific channels for definite purposes and will be available for many years to come. Concurrently, some donors delegate uses of endowments to the school leaders.
In many cases, a healthy endowment is a benchmark for “bragging” and a measurability of viability. It is a way for donors to understand the impact of an organization. Savvy donors use it as a guide to determine an organization’s level of sophistication as well as their wealth management expertise. From an organizational perspective, a strong endowment is a way to showcase that school management is well–qualified and capable of cultivating additional support and responsibly leveraging existing resources.
PEJE understands the vital importance of endowment and has launched a pilot program that encapsulates the above mentioned beliefs about endowment and legacy funding. Generations, an AVI CHAI/PEJE collaboration, is operating in four communities: Los Angeles, Baltimore, New York, and Boston, with a total of 25 selected schools. I am fortunate to be participating in this program, serving as a coach for a school in Baltimore. Since the work began with Los Angeles in 2011, Generations has raised just over $7 million.
One of the most important areas for Jewish day schools to focus on is the growth of their endowments, period. For an endowment to be most effective in providing financial security, it must be sized proportionally to the school’s operating needs, both present and future.
As consultants to Jewish nonprofits of all shapes and sizes for many decades, we constantly receive questions about what represents an “adequate” size for an organization’s endowment. Our steadfast response often shocks Jewish day school professionals: today’s best practices dictate that a school’s endowment should exceed five times, but at least three times, its annual operating budget. One of the troubling factors today is that too many Jewish day schools are not considering this crucial ratio, and instead focus only on their current operating needs, and are not necessarily being creative in the approaches they are taking in establishing and encouraging endowment gifts.
Because of financial pressures, some Jewish day school leaders have even dipped into their organization’s endowment when times seem economically dire and have not replenished the corpus, thereby perpetuating “the slippery slope” of economic difficulties. This is not only bad practice but it also often violates instructions set forth by generous donors. Consider these two scenarios as examples of best, and worst, practices:
A SUCCESSFUL APPROACH: BUILDING STUDENT SCHOLARSHIPS
A community day school that EHL Consulting worked with recently told potential donors that a large portion of its restricted endowment would be utilized to provide more scholarship assistance to students in need. This objective resonated well with donors, especially those who value Jewish education, and the school’s endowment received substantial support. One donor even stepped forward with a dollar-for-dollar challenge to others!
A DISASTER: INVADING THE PRINCIPLE OF THE SCHOOL’S ENDOWMENT
A community day school that waged a capital and endowment campaign several years ago withdrew substantial funds from its unrestricted endowment to meet annual needs. As a result, the school’s endowment hit drastically low levels and the school’s leaders are red-faced because of their fiscal policies. Rebuilding the endowment is a priority but bad financial transparency and habits have damaged the school’s reputation.
We believe that all nonprofits must be prepared for the next downturn in the economy, and the best way to do so is to responsibly grow and safeguard endowments. Thoughtful endowment management builds capacity both internally, by ensuring that core programs have reliable funding streams, as well as externally, by reassuring donors that the school is aggressively and thoughtfully planning for the future.
In that way, an institution’s commitment to endowment development creates confidence for prospective major donors who, doing their due diligence, will become more apt to give generously in our competitive and recessionary environment. The marketplace demands it; an aggressive posture compels it.
Jewish day school volunteers and professional leaders must commit to continually evaluating and growing their endowment programs. By continually reviewing investment policies, regularly assessing investment allocations, and engaging in professional development to ensure that financial best practices are utilized, Jewish day schools can responsibly build their endowments to a size that will benefit their constituents for many years to come.
This guest post is by Robert I. Evans, the founder and managing director of The EHL Consulting Group, a fundraising consulting firm located in suburban Philadelphia. The EHL Consulting Group is one of only 38 member firms of The Giving Institute. EHL Consulting works with dozens of nonprofits on fundraising, strategic planning, and nonprofit business practices and strategies.