A year ago Amy Bressman, president of the UJA-Federation of New York, had a lot of grim news for her fellow volunteer board members — but also a pitch.
Passover was approaching, but local food banks were closing their facilities due to Covid-19, requiring a revamp of how they distributed meals. Other nonprofits supported by the federation that provide an array of critical services were in danger of closing down entirely, and some weren’t sure they’d be able to reopen, creating a permanent hole in the safety net for people in need.
Bressman’s pitch? Dip into the organization’s $950 million endowment to immediately boost giving to the nonprofits the federation regularly supports. The organization’s fundraising was holding up, but the needs were so much greater amid the pandemic.
The request was for $3 million in grants and $21 million in interest-free loans. The board discussed how the money would be used and the financial impact on the federation’s ability to support services in the future.
The federation has 156 board members. When the time came for a vote on whether to approve the proposal, Bressman stared at her checkerboard Zoom screen with tears welling in her eyes.
Every hand was raised.
“I felt unbelievably proud and privileged to be president of this organization in this moment,” says Bressman.
And that was just the first of six times that board would vote unanimously to dip into its endowment, she says. The amount approved so far totals $53 million — $27 million for grants and $26 million for interest-free loans.
“This is what our endowment is for,” Bressman says. “This is why we’ve worked so hard and raised this money for all those years.”
Bressman says the federation will probably need to tap into the endowment again. The impact of the pandemic will linger for years, she says, adding that needs for mental-health services will be particularly acute.
“There’s very troubled waters ahead. I don’t think we’re done yet,” she says.
Source of Stability
Nonprofits with endowments usually are loath to dip into them. Endowments provide a long-term sense of stability, and organizations come to rely on the income generated by investment returns.
There are also legal constraints. Most states have adopted some version of the Uniform Prudent Management of Institutional Funds Act.
As the name implies, it requires nonprofits with endowments to carefully safeguard those funds and limits the circumstances in which endowments can be spent. Those standards apply both to restricted funds, in which a donor specifies the investment returns be directed to particular needs, and unrestricted funds that are supposed to stay in reserve unless a crisis erupts.
Ann Novacheck, a lawyer who represents nonprofits, said multiple clients asked her about dipping into endowments a year ago, when “the market was tanking and everybody was panicking, and there was so much need.”
Novacheck says that laws governing endowments make it hard to figure out when a nonprofit can safely dip into funds without getting into trouble. “It’s dangerous territory,” she says.
Novacheck says she advised all of her clients against tapping their endowments, and none of them did, in part because the stock market recovered quickly. In addition, donations held up better than many nonprofits had expected, and the government provided substantial assistance to nonprofits through the Paycheck Protection Program and other efforts.
Shannon McCracken, chief executive of the Nonprofit Alliance, an advocacy group that represents nonprofits and for-profit organizations that provide services to nonprofits, says the decision whether to tap an endowment is a balancing act between maintaining an organization’s long-term financial health and carrying out the mission, which is why nonprofits exist. Sitting on money at a time of great need “can be a disservice to mission,” she says.
Tapping into reserve funds that aren’t technically an endowment is a different calculus legally, experts say, but philosophically the balancing act is the same — weighing current needs against the long-term goals of the organization.
Chris Speron, senior vice president of development and membership at the Human Rights Campaign, says his organization used about $1 million of its reserves last year to distribute to nonprofits that assist LGBT people. The funding was used to cover the group’s program and operational budget.
The organization’s total reserves were “several million dollars"; he declined to provide an exact figure. A generous pool of donors, increased corporate support, and a large foundation grant has the organization well on its way to restoring its reserve fund balance, Speron says.
‘Need to Act’
Officials at the UJA-Federation of New York are confident their donors will more than rebuild their endowment — fundraising in fiscal 2020 hit a record high — but for now, the organization remains focused on community needs. Tapping into the endowment wasn’t a new thing for the federation; it also did so following the 9-11 attacks, the global financial crisis in 2008, and Hurricane Sandy.
Greg Lyss, treasurer of the federation and COO of Advanced Merger Partners, and Eric Goldstein, the federation’s chief executive, both said they are confident the federation is in compliance with legal guidelines, which allow endowments to be tapped in certain circumstances.
“There is an emergency and a need to act,” says Goldstein. “It will take years for the impact of the pandemic to be addressed.”
Bressman, the federation’s president, adds: “If we don’t come through in this moment, are we true to who we are?”
