October 31, 2016; Portage Life

In Indiana, the Porter County Community Foundation will be offering an endowment matching grant program in effect until March 31, 2018. The program is intended to enhance the sustainability of local nonprofits by either helping them further build an existing fund or start a new one. It will be a dollar-to-dollar match up to $50,000.

We love the idea of a community foundation giving to support to the sustainability of nonprofits, but we are a little disappointed that this foundation has chosen only to give endowment money, which is at its core deeply illiquid and for many organizations a bad use of capital—the last kind of capital they need. An endowment provides no liquidity of any use until it gets quite large, and many do not. In fact, a drive for an endowment when the rest of the capital structure is unhealthy may tie up and confuse valuable fundraising capacity and confine new donor dollars in an unusable state when they could, for instance, be used as badly needed cash flow, to build a healthy reserve, or for a strategic investment in the organization’s future. Also, the message of an endowment campaign may inappropriately signal to a nonprofit’s constituency that the organization’s operating needs are fully met.

There is still a long way to go in helping funders understand the capital structures of nonprofits. To help teach yourself and your board about them, please make active use of Clara Miller’s “Hidden in Plain Sight: Understanding Capital Structure” and Claire Knowlton’s “Why Funding Overhead is not the Issue: The Case to Cover Full Costs.” In particular, read the case of Mrs. Glitterbosom in Miller’s piece, It is an excruciating look at what can occur with even the most well-meaning endowment gift, badly timed.—Ruth McCambridge