The Road to Sustainable Funding: A Community Foundation's Journey

1. Sustainability Journey Community Foundation of Southern Indiana Indiana Philanthropy Alliance Statewide Conference June 7, 2016 Linda S. Speed, J. D. President & CEO Kenton Wooden Director of Community Outreach Community Foundation of Southern Indiana

2. Sustainability The ability of a community foundation to fund its operations over time with predictable and reliable sources of income.

3. But How? One Community Foundation’s Journey on the Road to Sustainability

5. Sustainability Requires… • An understanding of the “business model” of a community foundation • An institutional decision making process that considers sustainability as a factor • It’s not an accident – • It’s a Decision and a Process 8

6. Revenue Sources • Best • Administrative Fees on Endowed Funds • Payout from Operating Endowment • Good • Administrative Fees from Pass-through Funds • Annual fundraising for Operating Funds • Not So Good • Grant from Unrestricted Fund • Draw on Operating Reserve

7. The Big Myth About Community Foundation Sustainability Sustainability is NOT Determined by Asset Size It’s All About Asset Mix Asset Mix = Number, Type and Size of Funds

8. Asset – Expense Mismatch Total Assets Revenue Asset Mix Workload Expenses

9. CF Southern Indiana Fund Mix 81%

10. Sustainability Formula Sustainable Revenue Operating Expense “Sustainability Number”

11. August 2012 Sustainability Calculations 72%

12. 72% Sustainability Means. . . • 28% of our operating expenses must be funded by something else • Reserve • Grant from unrestricted assets • Annual operating campaign Not acceptable!

13. What Our Board Said • We need to make a policy decision as to the appropriate balance of sustainable and other revenue and make decisions that, OVER TIME, will move CFSI in that direction • We need to create an intentional long term planto achieve sustainability

14. Background • In 2012, Strategic Plan made Ensuring Financial Sustainability a priority • In 2013, Sustainability Task Force created • Used the process suggested by Nonprofit Sustainability (book by Bell, Masaoka and Zimmerman) • Major focus was looking at true operating costs and taking the emotion out

15. How Did We Get Started? Task Force Created in October 2013 Time & Cost Study

16. Step 1:Identify our Core Functions • Staff “brainstormed” list of core functions • From the myriad activities performed each day at CFSI, it boiled down to these core functions: • Establishing a New Fund or Acquiring a New Gift • Operations • Making Grants • Providing Non-Grant Services to the Non-Profit Community • Other Staff Activities

17. Step 2:Determine Profitability (Time & Cost Study) • Time & Cost study performed by all staff • Covered every activity, program, service, etc. • PROFITABILITY NUMBER calculated using: 1. Amount of time spent on each 2. Revenue generated by each 3. Direct/Indirect cost of each

19. GIFT Cost Tool

20. Step 3: Determine Relative Impact(Mission Impact and Financial Impact) • All NPOs have a dual bottom line • (1) Profitability and (2) Mission Impact • We looked at both • “Profitability Number” calculated from time/cost study • “Mission Impact Rating” for each product/program/service based on • Overall impact on the community • Alignment with mission and strategic plan objectives • Staff and Task Force collaborated on this rating

21. Sustainability Cont. • Info

22. Step 4: Matrix Mapping • Staff plotted each product/service/activity/program onto a grid for a visual guide showing where each falls based on mission impact and profitability • The information helped inform strategic decisions about activities, programs, products.

23. Impact High Mission Impact, High Profitability High Mission Impact, Low Profitability Invest and Grow Keep, Contain Costs Profitability Low Mission Impact, Low Profitability Low Mission Impact, High Profitability Close or Give Away Water/Harvest and Increase Impact Source: Bell, Maosaka, Zimmerman, Nonprofit Sustainability

24. In-Home Events Donor Cultivation Activities Community Grant Awards 3 1 Youth Grant Awards (10,000) 10,000 20,000 (20,000) (30,000) 30,000 Youth Program -1 Impact Volunteer Dinner Annual Operating Campaign -3 Profitability

25. Step 5:Making Business Decisions 1. Evaluating Programs: Typically, programs may • have relatively low mission impact • have actual costs in excess of perceived costs • have received initial funding from outside grant dollars but have been maintained long after funding is exhausted • operate under the Foundation’s umbrella and therefore carry a significant amount of liability – the IRS views the Foundation as the responsible party

26. Step 5:Making Business Decisions 2. Evaluating Fees: Are we charging an appropriate fee for our services? • Over ten years since a fee increase • What does our current fee schedule look like when plotted on the matrix map? • What would change if we changed our fees? • Looked at 10 different fee “scenarios” • Chose the one that moved things closest to midline • Backed up by data, only covering costs

27. Step 5:Making Business Decisions 3. Evaluating Fund Types: Is our “asset mix” sustainable? • Is it feasible to continue to offer pass through funds? • if so, what type? • Are project funds or fiscal sponsorships sustainable? • Do we have the right minimums in place? • Endowment ($5,000) • Pass through ($1,000) • Grants ($100) • Applied to all funds, including scholarships

28. Sustainable Fees

29. Sustainable Funds • Pass through funds • Only accept Donor Advised Funds going forward • All existing pass through funds grandfathered in • No change to current administrative fee (2% one time) • Endowment funds • New endowment fund minimum set at $15,000 • Endowment funds with balances below the new fund minimum ($15,000) were not grandfathered in How do you handle these small funds?

30. Sustainable Funds • “Small Fund Clean Up” program implemented • “Build and Grow” option using Lilly Endowment GIFT Phase VI matching funds – three years • Roll fund balance into another endowment • Terminate fund and pay out a single distribution (for funds < $5,000) • “Pool” similar funds administratively (designated, agency, scholarship) • Communication, communication, communication • Six month communications plan approved by Board • Required numerous contacts with fundholders

31. Sustainable Programs • To address shortfalls in programs: • New Programs – First year, minimum fee of $250 per month for its costs of supporting new approved project/programs • Second year & after - fee charged based on actual calculated costs incurred • Current Programs – continuing programs assessed a reasonable fee based on actual costs OR funded by CFSI discretionary grant (made the board take notice)

32. Before Fund 1 Program 2 Program 1 Service 1

33. After After Fund 1 Program 2 Service 1

34. Step 6:Adopt Sustainability Policy • Adopted by CFSI Board May 2014 • Documents the importance of long term sustainability • Addressed shortfalls from programs and services and identified reasonable solutions: • Administrative fee schedule adjusted • Fiscal sponsor policy adopted • Fund balance & grant minimums increased • Imposed reasonable fee for services • Included six month communications plan for existing fundholders • Makes sustainability a focus for all future Foundation business

35. Key Points • Our imperative was and is to find a way to continue our work but address the shortfalls some of our funds, programs and services incur • Programs and services can be a tremendous drain on resources and you have to address those head on by knowing what your true costs are – knowing the data drives all the other decisions • Have the hard conversations – they are worth it to your sustainability

36. Results What did this all mean for the Foundation?

37. Results • 2 years of sustainability work resulted in over 380 contacts to endowment fundholders • Very little negative feedback from current fundholders with funds over $15,000 • Individual relationships with small fundholders matter • Small Fund Cleanup Completed

38. Results:Small Fund Cleanup • 67 Endowments were below the new $15,000 minimum • 12 Closed, total of $16,581 • 29 Pooled, total of $224,805 • 9 Agency Funds – $67,545 • 5 Designated Funds – $47,076 • 15 Scholarship Funds – $110,169 • 4 Converted to fund with similar purpose, $29,454 • 9 Converted to Board Advised Fund, $39,696 • 13 Chose to Build and Grow, $131,708

40. Step 7:Communication July 2014 Communication Plan Begins July 2014 New Fee Schedule Goes into Effect December 2014 – March 2015 Individual Work with Fundholders to Resolve Any Issues May 2014 Board Accepts Sustainability Policy March 2015 Indiana AG Notified by Letter of Plans May 2014 March 2015

41. Step 8:Finish Up • New fees were effective for existing funds as of January 1, 2015 – except Build & Grow funds • Build & Grow funds - new fees effective when balance reaches $15,000 • Wrap up all fund close-outs, mergers/pools, etc. • Build and Grow funds will be notified each October of their progress

42. Timeline 4 Staff Completes Time/Cost Study Staff Begins Communications Rollout Plan and Small Fund Cleanup 9 Board and Staff Attend Sustainability Info Meeting hosted by GIFT 6 Task Force Begins Fee Analysis 2 2015 2012 2013 2014 7 1 Task Force Approves Plan/Makes Recommendation Sustainability Work Completed, Board Approval Given. Indiana AG notified. Actions Implemented. Sustainability included in strategic plan Board Approves Creation of Sustainability Task Force in May 2013, First Meeting in August 2013. 3 Board Approves Sustainability Policy Mission Impact and Profitability Maps Completed 10 5 8

43. Sustainability Moves the Needle% of Sustainable Income

44. Bottom Line? • This is an exhaustive process – but so worth it! • Provides economic clarity • Justifies/validates the true costs of what you do • Makes the funding conversation easier • Relatively small changes can make a significant impact on sustainability • You’re never really done – it’s a journey, not a destination.

45. Questions?