Taking It to the Bank

Taylor Callery, for The Chronicle

Hundreds of nonprofits across the country are amassing huge endowments as they collect money far faster than it is going out the door, according to a Chronicle analysis.

For 253 of the more than 1,600 nonprofits studied, the dollars flowing into their endowments over six years exceeded the dollars flowing out by a ratio of more than four to one.

Colleges continue to dominate the top ranks of large endowment holders, but some religious organizations, medical centers, and other types of nonprofits also added far more money to their reserves than went out.

The data comes amid renewed criticism — including by some members of Congress — of the large and swelling sums of untaxed money parked at some nonprofits. Senate Finance Committee Chairman Orrin Hatch, a Republican from Utah, said in April that he would include college endowments in a review of the tax code this year. Ninety-three colleges and universities have endowments of at least $1 billion, and past ideas floated in Congress include imposing a payout rate on those assets, like the 5 percent required of private foundations.

Other types of nonprofits might warrant scrutiny, too, some critics say.

“I think it is good policy to take a look at some of these large endowments and say, ‘Hey, if you’re not putting this to productive use, why are the American taxpayers subsidizing your giant bank account?’ " said Michael Fricke, a lecturer at the University of Illinois College of Business who has called for taxing endowment investment returns.

So what would lawmakers find if they widened their gaze to include other tax-exempt endowments? The Chronicle’s analysis shows that keeping them growing is a priority for senior staff and donors at many types of nonprofits. Over the six-year span that was studied, more than two-thirds of the nonprofits reviewed added at least $2 to their endowments for every $1 that went out due to spending or investment losses. Some added hundreds of dollars for each $1 that left their funds.

The study looked at the growth of endowments from the start of fiscal year 2010 to the end of fiscal 2015. It included more than 1,600 nonprofits with endowments of at least $35 million.

Among the findings:

• The median ratio of money added versus money disbursed over the six years studied was 2.4, meaning half of the organizations added at least $2.40 for every $1 disbursed and the ratio was lower for the other half.
• Disbursement rates varied widely. At the top, New England Law, Boston, added $818 for every $1 going out. At the bottom, Albuquerque Academy was among the handful of shrinking endowments; it spent $1 for every 30 cents coming in.
• As a group, children and youth organizations handed out more than half of what they brought in, keeping their overall endowment growth at 33 percent, the lowest of any group of nonprofits.
• Private colleges together hold more than $350 billion in endowments — more than twice all other groups combined. That figure went up 61 percent over the six-year period, during which those institutions disbursed about a third (36 percent) of the money they brought in ($133 billion).
• Of those with the biggest endowments, the NCAA’s incoming and outgoing numbers were among the closest. It brought in $5.3 billion over six years while disbursing just under $5 billion.

Long View

To be sure, most nonprofits have no endowment at all. And a large or fast-growing endowment is not evidence that an institution is needlessly hoarding cash. Even vocal critics say endowments must be considered on a case-by-case basis, taking into account an organization’s mission, business model, and goals or capital projects. And there is no consensus on how big a nonprofit endowment should be relative to its budget, they say.

“If an organization runs a historic home and museum, then creating an endowment makes a lot of sense,” said Alan Cantor, a nonprofit consultant who has studied and written extensively about endowments. “The mission of the organization is perpetual — the preservation of the building and its artifacts.”

But nonprofits that provide medical care or food for poor kids would have a hard time justifying holding significant endowments, he said.

Leaders who manage some of the biggest nonprofit endowments in the country defend them. These funds aren’t all liquid cash that can be easily tapped, they note — donors often place legally binding restrictions on how the money can be used. And they say that the tax-deductible donor contributions and tax-free investment returns will sustain valuable work for decades to come.

“If there were a senator or congressman asking about endowments, I’d say, ‘Well, look at the purpose of it and see why it is established. And is it something that makes sense or not?’ " said John Elbare, director of philanthropy at the Special Operations Warrior Foundation, which has $103 million in two endowments. “I think in our case, it does.”

American taxpayers subsidize the building up of endowments in two ways: Gifts are tax-deductible for donors at the time they are made, and endowment-fund investment income is tax-exempt.

Endowment Cash Flow at More Than 1,600 Nonprofits

This searchable table lists all the nonprofits that were part of The Chronicle’s endowment study, which includes data from the start of fiscal 2010 through the end of fiscal 2015. These nonprofits had endowments of more than $35 million at some point during that time period and had at least four years of data available. The table shows how much they added to their endowments through contributions and investment earnings over all years studied (total cash in), how much was deducted through grants, scholarships, expenses, and investment losses (total cash out), the ratio of those figures, and the change in endowment value over that period.