Community Colleges: Endowments & FOUNDATIONS. Insights on Fundraising and Endowment Strategies

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1 Endowments & FOUNDATIONS Wilmington Trust, N.A. New York-based Endowments and Foundations Team 33rd Floor, 520 Madison Avenue New York, NY Walter J. Dillingham Jr., CFA Managing Director Leigh H. Weiss Managing Director, Investment Advisor John M. Lawson Managing Director, Investment Advisor Community Colleges: Insights on Fundraising and Endowment Strategies

2 Rising costs and high debt levels at fouryear colleges are putting significant financial pressures on families, and not just middle income families. As the Wall Street Journal reported in its August 9, 2012 article, College Debt hits Well-Off, higher net worth families are beginning to feel the burden as well, and are seeking more cost-effective options. 1 The Wall Street Journal article discusses a prominent South Carolina family that originally planned to send their daughter to the University of Tucson until they realized just how expensive an education at a four-year institution had become particularly out-of-state. The family changed their focus to an in-state two-year community college for their daughter, with the plan for her to transfer to Clemson University, also in-state, to complete her education. For many families, this has become a much more viable option in managing education expenses, and is one of the reasons why community colleges have seen record enrollment levels over the past decade. However, for public community colleges, the benefits do not come without their challenges. Even with increased enrollments, state and local governments have to reduce their funding levels, causing community colleges to review their financial and strategic plans in order to enhance their private fundraising and endowment management efforts to better fill this gap. This article provides an overview of community colleges and examines today s fundraising and endowment management trends for these institutions. We also discuss the benefits of using separate foundations as part of a community college s development efforts. Finally, we share the results of our independent research study of 207 community colleges in the mid-atlantic and Northeastern United States, using a universe of colleges that is consistent with the list maintained by the American Association of Community KEY POINTS 1. Community colleges will continue to be an important educational option, and despite slower recent growth, they have record enrollments over the past decade. 2. Community colleges will continue to experience government cutbacks and will need to review their strategic plans as they experience greater scholarship and infrastructure needs. 3. Community colleges will need to assess and maximize their fundraising plans as four-year colleges do. 4. Community colleges will need to assess and maximize their endowment investment strategies and spending policies as future returns are expected to be lower. 5. Community colleges, especially public colleges, utilize separate foundations as important fundraising vehicles, and these foundations will need to continue to maximize both their fundraising and investment strategies in the new normal. Community colleges traditionally see growth during recessions. As businesses close and/or employees experience layoffs, workers return to community colleges to upgrade skills or retrain altogether into emerging or growth employment sectors. Many recent high school and four-year college graduates are simply skipping the job search and heading instead to a community college. Additionally in today s environment of escalating higher education costs, many students and families are finding it more cost effective to start an academic career at a lower cost community college, then transfer to a four-year institution. Polly Binns, Executive Director of the Council for Resource Development page 1 of 13

3 Colleges (AACC). Our study included looking at the use of separate foundations by community colleges as both fundraising and long-term investment portfolio vehicles. For our study, community colleges are defined as public, private (not-for-profit), and for-profit institutions that offer two-year, associate s degree programs. OVERVIEW, TRENDS, AND THE USE OF FUNDRAISING FOUNDATIONS Community College Facts and Figures Community colleges have always been an important part of the U.S. educational system since the first community college, Joliet Junior College (Illinois), was founded in Up until the 1970s, community colleges were commonly referred to as junior colleges, however that term has evolved to mean a private, two-year institution, while a community college has evolved to describe publicly funded two-year institutions. Community colleges primarily attract and accept students from the local community, have an open admissions policy, and are often supported by local tax revenue. According to the AACC, community colleges have a fundamental mission: to ensure that millions of diverse and often under-served students attain a highquality college education. The AACC reports that approximately 44% of all U.S. undergraduates are community college students. Recent data provided by the AACC (2012 Community College Fact Sheet) shows that there are approximately 13 million credit and non credit community college students, with approximately 58% being full-time students. Average annual tuition for a public, in-district community college is $2,963 versus $8,244 for a 4-year public, in-state school. 2 According to the AACC, there were 1,202 community colleges in the U.S. in late 2006 and the majority, 82%, were public community colleges. There were also 180 private community colleges located in the U.S. as of that time. (See Figure 1). figure 1 Number of Community Colleges in the U.S. (AACC Data as of 2006) Type # of Schools % of Total Public % Private % Tribal* 31 3% Total 1, % Data: AACC 2006 State-By-State Profile Book * Colleges whose governance is through a Native American tribe, thus not country or state controlled. figure 2 Community College Revenue Sources AACC Data as of Community colleges have a unique revenue structure, with about 34% being funded by the state, 20% being funded by the local county, 16% by federal funds, 16% by tuition and fees, and another 13% related to other sources. (See Figure 2). State funds Local funds Federal funds Tuition and fees Other page 2 of 13

4 figure 3 Voluntary Support by Type of Institution: 2011 (000s) All Institutions Reporting Average per % Change Type of Institution # of Schools Amount Institution in Average Research/Doctoral 214 $19,333,899 $90, % Master s 332 $2,257,764 $6, % Baccalaureate 250 $2,566,124 $10, % Specialized 49 $1,351,161 $27, % Associate s 164 $193,334 $1, % Total 1,009 $25,702,282* $25,743* 8.0% * This table includes only institutions that responded to the survey. The national estimate ($30.3 billion for 2011) accounts for both respondents and non-respondents. Source: Council for Aid to Education, 2012 While enrollment has grown substantially over the past few decades, even reaching historic levels, recent reports show that community college enrollments are on the decline. In a report by Community College Week titled Community College Enrollments Beginning to Recede from Historic Highs, community college enrollments were lower in the 2010/2011 period versus the 2009/2010 period. 3 Why this decline, then, when more families are seeking community colleges as an alternative to fouryear institutions? According to Kent Phillippe, associate vice president at the AACC, the economy and local funding may be to blame: While community college enrollments have been at record highs, several factors may cause enrollments to remain flat or decrease slightly in the coming years. In particular, reductions in state and local funding to community colleges, due to the slow economy, will cause colleges to decrease the number of students they can enroll. Trends in Higher Education and Community College Giving In the Council for Aid to Education s February 15, 2012 annual Voluntary Support of Education survey report, which includes responses for approximately 1,000 institutions, it was shown that colleges and universities raised $30.3 billion in fiscal year This was an 8.2% increase from the prior year, and represents 4.8% adjusted for inflation. 4 A closer look at the figures shows that giving for capital purposes, such as buildings and endowments, grew 13.6%, while giving for current operations (the annual fund) increased 4.7%. It was also reported that the top 20 institutions showed sharply higher giving. The 20 institutions that raised the most in 2011 received $8.24 billion; they represent 2% of the number of institutions but raised 27% of the funds. Another way to look at the giving data: the top quartile of institutions raised 85% of the dollars reported in the survey. The two largest fundraising universities were Stanford University ($ million) and Harvard University ($ million). As shown in Figure 3, the data also included some information on community colleges (Associate s). According to the survey, 164 public community colleges responded, representing approximately 14% of the colleges. For fiscal year 2011, these colleges reported total fundraising of $193 million, which is an average page 3 of 13

5 Excerpt from a New York Community College Foundation Executive Director s Letter to Donors: It doesn t take a crystal ball to predict [our college s] future. The major trends are clear: State aid will continue to decline. When I began my career at [our college] in 1981, New York State provided nearly 80 percent of our operating aid. Today, it s plummeted to 20 percent. Tuition and fees will continue to rise in the face of declining state support. Over the last decade, tuition has increased by 55 percent and fees have risen by 95 percent. Rising costs at the State University of New York will make it even more challenging for students and their families to finance a [our college] education and that is my greatest concern. of $1,179,000 per school. The data also showed that the average giving dropped 1.1% in the fiscal year, which was the only category to show a decline. The report also showed a core group of two-year colleges that replied for two consecutive years; for this sample the average perschool fundraising was up 3.1%, which was much lower than any other increases from other types of institutions in the report. This sample for community colleges is relatively small and we would need to understand the respondents (i.e., size of school and region, etc.) to better reflect on the data. Ann Kaplan, director, Council for Aid to Education, who leads the Voluntary Support of Education survey, comments: Community colleges play a vital role in North American higher education and are vital to the economic health and cultural vitality of the surrounding communities where they are located. They have an excellent case for charitable support from a range of constituencies, therefore. They are and should continue to assert that case for contributions. Essential to this endeavor is that leadership at these institutions and their supporting foundations recognize the crucial role the advancement function plays in the future of our nation s community colleges. The advancement function must be staffed and adequately funded as community colleges assume an increasingly important role in the higher education system. The Use of Fundraising Foundations How, then can community colleges effectively increase their fundraising numbers? One strategy that public community colleges have employed is to establish a separate fundraising foundation to lead their development efforts. Most public community colleges have set up these foundations for this purpose, while some private and forproft colleges have also followed suit. According to Roy Muir, a senior consultant at Marts and Lundy, since 1990 community colleges across the U.S. have begun a slow, but steady, increase in building philanthropic programs both for support of current budgets, and also to begin building up endowment funds. Muir states: Overwhelmingly, these are launched by and in tandem with the creation of separate 501(c-3) foundations. As with other public educational programs, the dramatic increase in such programs is driven by the rapid disinvestment in education by state legislatures and local school districts. There are a variety of reasons why these foundations can be beneficial to community colleges: Increasing Board Directors Opportunities: a separate foundation creates additional board leadership and volunteer opportunities for board directors, who in turn can be substantial donors. Some foundations have been increasing their board directors memberships. Maintaining Focus/Control: this is a way to keep the fundraising, operations, and administration in a separate area away from the core operations of the college. It enables the board directors to be focused on fundraising rather than the operations of the college. In turn, it also allows the management and trustees page 4 of 13

6 of the community college itself to focus on the complexities of running the day-to-day operations of the organization and not the fundraising. Marketing: this allows the college to have a more focused marketing and branding strategy. Many colleges maintain a separate website to highlight their upcoming special events as well as to communicate about different ways to give. Donor Choice: separate 501(c-3) organizations are often set up since donors prefer to give to a separate foundation versus an entity that is controlled by the local or state government. It also can permit for a charitable donation in some cases. Investing Endowment Funds: most community colleges utilize this structure to manage their investment portfolios, which often represent restricted endowment funds, endowed scholarships, and planned giving vehicles. Limiting Liability: the funds that are in a separate foundation may be protected from any college-related litigation. In addition, any board directors of the foundation may be viewed as separate from the college with respect to their liability exposure. Separating Finances: this is a way to keep college finances separate from any fundraising efforts. For example, if the foundation is having a capital campaign, any significant inflows would impact the financials of the parent if they were not separate. Keeping the funds separate gives a better picture of the parent financials, and would not have implications for grants or government support. Borrowing: it provides another separate pool of funds that can be used as collateral for loans. Fundraising Vehicle for Foreign Colleges and Universities: Not-for-profit organizations based in foreign countries often use U.S.-based foundations to help fundraising efforts with U.S.-based donors. The funds are then funneled back to the parent organization. Real Estate Management: some colleges set up real estate foundations, a separate 501(c-3) organization to acquire, develop, and manage real estate projects for the college. RESEARCH STUDY: KEY FINDINGS AND OBSERVATIONS Now that we ve provided an overview of community colleges and their fundraising trends, and discussed the benefits of fundraising foundations, let s take a look at the results of our independent study. As stated earlier, we conducted a study of 207 community colleges in the mid-atlantic and Northeastern United States, using a universe of colleges that is consistent with the list maintained by the AACC. Total portfolio assets for the colleges in our study were approximately $1.1 billion, with 25 community colleges having investment portfolios greater than $10 million. We looked at colleges in the 12 states listed on the table in Figure 4 (see page 6) to better understand the current fundraising strategies and to offer some insights. We reviewed the Form 990s and websites of each school and, in some cases, had dialogue with school representatives. As indicated in Figure 4, of the 207 community colleges we studied, we found that 163 of the schools have separate fundraising foundations. The top ten largest community college foundations are listed in Figure 5 (see page 6), representing 28% of total foundation assets in the region we studied. Most public community colleges have a separate foundation, with one public college in Maine planning to start one in The public colleges in New Hampshire are unique in that they offer a state foundation called the Community College of New Hampshire Foundation, which handles the endowment management for their seven public colleges and complements their fundraising page 5 of 13

7 figure 4 Community College Foundations by State # of Community # of Separate # without a % with Separate State Colleges Foundations Foundation Foundations New York % Virginia % Massachusetts % New Jersey % Pennsylvania % Maryland % Connecticut % Maine % New Hampshire % Vermont % Delaware % Rhode Island % Total % Sources: AACC Data; Form 990s, most as of 6/30/2011; websites figure 5 Ten Largest Foundations/Endowments in the Study College Foundation/ $AUM Rank College Name State Endowment MM 1 Culinary Institute of America NY Private $ New England Institute of Technology RI Private $ Northampton Area Comm. College PA NACC Foundation $ Harrisburg Area Comm. College PA HACC Foundation $ Dean College MA Private $ Westchester Comm. College-SUNY NY WCC Foundation $ Montgomery College MD MC Foundation $ Norwalk Comm. College CT NCC Foundation $ Landmark College VT Private $ Broome Comm. College SUNY NY BCC Foundation $14.80 Source: Guidestar; various Form 990s, most as of 6/30/2011; websites Asset levels include a combination of long-term investments and savings (not cash). Total: $ page 6 of 13

8 efforts. Virginia also has the Virginia Foundation for Community Colleges, even though each community college has its own foundation. However, most private community colleges do not have separate foundations and typically utilize a development department. One private college in Vermont does have a separate foundation and we found one for-profit school in New York with a stand-alone foundation. Another school in Maryland utilizes three separate foundations that focus on specific regions. Some community colleges also have real estate foundations, especially in Virginia. Summary of Fundraising Findings: Almost 80% of the community colleges have separate foundations A majority of these foundations are managed as longterm endowment structures Average annual contributions are $771,823, which is 8.1% lower than prior 5-year average of $839,396 Wide range of foundation board directors size with an average of 22 directors Fundraising Findings and Strategies On an overall basis for the region we studied, total fundraising for the most recent reporting period is about $146 million, with an average of $771,823 per college. The five-year average was $839,396 per college, which shows that the recent fundraising totals are down 8.1% from the prior five-year average. On the other hand, Giving USA reported in July 2012 that giving for 2011 to education was up 4% overall, which was boosted by strong growth to higher educational institutions. 5 The lower level of giving reported by community colleges shows the importance of reviewing and strengthening fundraising plans and strategies for the future. On a state-by-state basis, Pennsylvania and New York have the highest per-college average fundraising amounts at $1,278,356 and $992,506 respectively, while New Jersey has one of the lowest fundraising amounts among the larger states, with an average of $470,668 per school. Diversified Fundraising Strategies Most of the community colleges we reviewed have moved towards diversified fundraising plans. While most still focus on their annual fund campaigns and special events (golf and galas), many of them have improved their planned giving, technology plans, and communication strategies. Planned Giving Most foundations mention planned giving on their websites, which include bequests, endowment funds, insurance, charitable trusts, and in some cases, charitable gift annuities, just to name a few. We saw some situations where community colleges are also showing an interest in perpetual trusts. Overall, we found that 74% of the colleges mentioned planned giving as part of their offering. Many of the colleges offered endowment options as well as endowed scholarship options, but there were some colleges that did not market planned giving options, especially bequests. Planned giving strategies, especially bequests, are key strategies that four-year colleges utilize, and are key ways to grow the endowment. (80% of all planned giving assets are bequests.) Planned Giving Legacy Societies Legacy Societies, in which society members are recognized for their intentions to support the college through their Wills or other planned giving vehicles, are an important extension of planned giving. They provide a crucial means of recognizing planned giving donors and staying connected through various events. We found that only 31% of community colleges mentioned legacy societies on their websites and marketing materials. page 7 of 13

9 Technology Every community college should develop a strategic technology plan for fundraising, which encompasses many areas including communications, donor data bases, websites, social networking, , and online giving. This area is evolving quickly and each school should develop a comprehensive written plan. Development, marketing, and communications teams should work together for a unified approach. One area we observed during our study was the use of the website to market the foundation. In most cases, it was very easy to see information related to donors through a Donate Now button or a Ways to Give page. On the other hand, there are still a number of websites that require much hunting to find a donor/ foundation page. Some websites have planned giving pages that are not accessible. Most of the websites are effective and list ways to give, but there are still several sites that are more like simple brochures and should be updated as online communication becomes more important over time. It is very important to have a well structured giving page that includes foundation background information, case statement, board leadership, upcoming events, ways to give, testimonials, and online giving options. Online giving is a basic option for all college websites and we observed that 72% of foundation websites offer this option. This option is very important, especially at the end of the year when donors seek to make their donations efficiently, and can help to increase donations. It can also be used as part of an campaign where the online giving page can be linked to the . It was interesting to note that only 50% of the community colleges in Connecticut offer online giving. strategies and often leads to increased fundraising dollars. It s a well known fact that people give to people, and so there is great impact in someone asking his or her family, friends, and colleagues to support a cause that he or she cares about deeply, comments Ruthellen Rubin, director of development for the Louis August Jonas Foundation. Further, there is nothing as effective as a peer-to-peer approach when trying to get a critical mass together in a reunion year or around a special scholarship. Peer-topeer software is easy to use and has never been more affordable. It can also be extended to campus clubs or fraternities/sororities when they wish to promote a particular school-related cause. Communications We also reviewed the overall communication options that community colleges are using to reach potential donors. Some of the examples that we noted include: Foundation Annual Report Foundation Newsletter Form 990 Planned Giving Brochure Testimonials List of Donors List of Staff with Roles and Contact Info List of Board Members and Events Personal Letter from the Executive Director List of Upcoming Events Alumni Association Activities Alleghany College in Maryland offers peer-to-peer fundraising options, which allow class fundraising leaders to customize their school s website as part of their annual fundraising strategies. Peer-to-peer fundraising is one of the fastest growing fundraising page 8 of 13

10 Investment Findings and Strategies As part of our research on foundations, we also reviewed the investment strategies that these foundations utilize. In the mission statements of most of these foundations they discuss their goal of maximizing the impact of their investment programs. Overall results show endowment growth For the community colleges in our study that had information on their investment portfolios (from Form 990) we learned that the average portfolio size is approximately $5.8 million (most data is fiscal year as of 6/30/11), which we calculated to include both long-term investments and savings. Most of these long-term funds represent individual endowment funds and scholarship endowment funds, as well as charitable trusts. The average growth rate of these funds over the prior fiscal year was 23%, which was driven by improved capital markets and increased fundraising. A few college foundations mentioned on their websites that their goal was to grow their endowment. High cash allocation can impact future results While most foundations are invested in longer-term strategies over 93% of the time, ten community colleges still have most of their funds invested in cash only, and many of those with longer-term investments still hold very large savings accounts that seem much higher than necessary. If the funds are comprised of endowment funds, the board should develop a longer-term strategy. Also, some have large CD investments as part of their balances, which has the potential to lower long-term returns for a foundation. Asset allocation and investment policy are key decisions While community college foundations provide an effective fundraising tool, as with any long-term pool of assets, making sure the appropriate objectives, spending and liquidity requirements, and risk tolerances are defined and considered is of great importance. Creation or revision of an up-to-date investment policy statement codifies this work. Further steps related to Investment/Governance Observations: One small college endowment under $500,000 had an allocation to hedge funds Two boards disclosed that a director managed the endowment One college commented that they were compliant with Uniform Prudent Management of Funds Act (UPMIFA) Two colleges invested their funds in the city college system commingled pool One college invested its endowment with the local community foundation asset allocation and the specific investment choices that comprise portfolio construction round out an effective and comprehensive investment program. An investment policy statement (IPS) provides the foundation for all future investment decisions and serves five basic purposes: 1 Setting realistic goals and objectives 2 Defining the asset allocation policy 3 Establishing performance measurement standards 4 Establishing roles and responsibilities 5 Setting communication procedures The IPS documents anything relevant to the governance of an investment program and is intended to keep investors focused on their objectives during short-term swings in the market, while providing fiduciaries (boards, advisors, et al.) with context for stewardship of the overall portfolio. Each state has a legal and regulatory framework for its resident nonprofits that have investment implications. An example is New York s Prudent Management of Institutional Funds Act (NYPMIFA), which has the specific requirement that all nonprofits adopt a written investment policy. These topics will be covered in greater detail in a future article. page 9 of 13

11 Two Endowment Spending Approaches: Income and Total Return An income approach: In the past and under previous law, organizations were limited to focusing only on income for the cash flows that could be generated from their restricted endowments. Reflecting that prior standard, some still describe their spending policy as based only on the level of interest and dividends. For example, one Massachusetts college said to potential donors: When you designate an endowed fund for your gift, the principal is invested in perpetuity and the earned interest is used as the donor intends. This traditional approach may still be perceived as a conservative way to provide support. However, aside from no longer reflecting the current standards of prudence under the Uniform Prudent Management of Institutional Funds Act ( UP- MIFA ), this approach also presents unique challenges during periods like today, with generationally low levels of interest rates. Income alone simply may not be sufficient for colleges or donors in providing the sought after level of support. Today, current standards of prudence under UPMIFA promote a total return approach for spending from restricted endowments. A total return approach provides more flexibility for colleges and advisors, and reorients the focus toward growth and appreciation over income as the way to meet current obligations. A Virginia-based college said: Funds contributed to endowed scholarships are maintained in endowed accounts. The funds are invested, and only earnings on the gift(s) are released to students in the form of scholarships. Because the donation(s) are not expended, and only the earnings in the accounts are released as scholarships, endowed scholarships continue through perpetuity. A gift of $25,000 or more creates a fully endowed scholarship, which typically yields 3 5% per year in scholarship awards, depending on the financial markets. Low current interest rates are less of a cash flow hurdle as the liquidity need is not required to be satisfied only through income. At the same time, asset allocation and diversification play critical roles in protecting against interest rate risk and the negative long-term effects of inflation. Endowment spending should be assessed One key challenge for boards is balancing the conflicting goals of spending policy. On the one hand, they must maintain stable operating support to meet the demands of today. At the same time, boards have a fiduciary responsibility to protect the purchasing power of the endowment over time to meet the longer-term needs of tomorrow. Spending rates that are too high favor the present generation s claims (operating budget) over the future generation s claims (preservation of capital in real terms) and vice versa. Keeping spending policy simple and easy to calculate permits timely budgeting and can be helpful to boards faced with difficult decisions on how to allocate resources. (See sidebar for two approaches to managing endowment spending an income approach and a total return approach.) For more information on spending policy, please contact us to receive a copy of a recent article by our colleagues at Wilmington Trust Investment Advisors, Sustainable Spending in an Era of Low Financial Market Returns: Guidance for the Modern Not-for-Profit. Major Gift Donors today are more interested in the college s investment strategies While we studied the colleges, we observed situations where additional investment information was provided. This could be a result of how major donors seek greater information on how their donations are being managed today, and their expectations of high due diligence and oversight. Some observations of information that was included: Investment policy statement Mentioned compliance with UPMIFA Willingness to provide customized statements List of Investment Committee members Mention of investment strategy Mention of the trust company page 10 of 13

12 LOOKING AHEAD The community college arena will continue to be impacted by both demographic and economic forces, but enrollment at community colleges is expected to increase as more families consider the benefits of starting at a local community college and then transferring, versus attending a traditional four-year program. In order for community colleges to succeed, they need to continue to look at private philanthropy as fouryear traditional colleges have done for many years. Philanthropic dollars will be even more important in the future, and separate foundations will be a key strategy for enhancing and managing a robust fundraising plan. The strongest community college foundations will be those that can maximize their fundraising efforts while effectively managing their endowment funds over the long term. See Appendix B for a profile of a community college foundation that has both a robust fundraising plan and a well-structured investment program. Ways to maximize the benefits of a stand-alone foundation: Fundraising: Diversify your fundraising plans Review Planned Giving and have a Legacy Society Institute a strategic technology and donor communications plan Engage college leadership in fundraising Endowment Investing: Set an endowment goal and review and compare on a regular basis Be diversified in all ways and watch your cash position Consider a total return spending policy Be vigilant on your spending rate f o o t n o t e s 1: Wall Street Journal: College Debt Hits Well-Off August 9, 2012, page 1 2: American Association of Community Colleges: 2012 Community College Fact Sheet 3: Community College Week: Community College Enrollments Begin to Recede from Historic Highs, November 28, : Council for Aid to Education: February 15, : Giving USA 2012: July 2012; page 5 This publication is not designed or intended to provide financial, tax, legal, accounting, or other professional advice since such advice always requires consideration of individual circumstances. If professional advice is needed, the services of a professional advisor should be sought. This publication is for information purposes only and is not intended as an offer, recommendation, or solicitation for the sale of any financial product or service or as a determination that any investment strategy is suitable for a specific investor. Investors should seek financial advice regarding the suitability of any investment strategy based on their objectives, financial situations, and particular needs. Wilmington Trust is a registered service mark of Wilmington Trust Corporation, a wholly owned subsidiary of M&T Bank Corporation. Investment management and fiduciary services are provided by Wilmington Trust Company, a Delaware trust company, and Wilmington Trust, N.A., a national bank. Loans, retail and business deposits, private banking services, and other personal and business banking services and products are offered by M&T Bank, member FDIC. page 11 of 13

13 Appendix A Important Questions that Community Colleges Should Ask About their Endowments What should an investment policy statement (IPS) include and how often should it be reviewed? The IPS is a very important document and serves as an architectural plan for the organization. A number of important areas covered within an IPS include the foundation s goals and objectives, the asset allocation policy/strategic ranges, roles and responsibilities, and communication procedures. It should be reviewed every year as a committee. What is an appropriate asset allocation for a community college endowment? It depends on the community college s specific objectives and circumstances. In general, the asset allocation should provide for an appropriate level of growth and diversification. One of the areas that may be appropriate to focus on is the amount of very low risk, low return assets such as cash. How important is fundraising as it relates to the endowment? The endowment increases in value through both investment performance and fundraising. Many community colleges realize they must go beyond investment performance and enhance their fundraising plans if they seek to grow their endowments. Planned giving is a fundraising strategy that can help grow an endowment. Should we be reassessing our spending policy on our endowment funds? The spending rate is a key consideration for investment committees. The average spending rate for colleges and universities in the NACUBO Study (National Association of College and University Business Officers) was 4.6% for 2011, which is lower than recent years. Many colleges are reviewing their spending rate in light of lower expected returns. Should we invest in alternative investments, such as hedge funds? Many larger four-year colleges/universities invest in alternative investments such as hedge funds, private equity, and real estate. The decision to do so is based on each college endowment s specific situation, which relates to the size of the endowment, risk profile, liquidity needs, and other investment policy requirements. Often, the relative lack of liquidity of some of these alternative investments can be an important issue. What is the Uniform Prudent Management of Institutional Funds Act (UPMIFA) and does that impact the way we manage our investment funds? UPMIFA is a uniform act that provides guidance on investment decisions and endowment expenditures for nonprofit and charitable organizations Most states have enacted UPMIFA and some have their own requirements. For example, New York State has the New York Prudent Management of Institutional Funds Act (NYPMIFA), which has a number of refinements which set out some specific additional requirements. Do I need an outside investment advisor? Each community college needs to assess whether an outside advisor can be a valuable resource. Generally, the inability of a board or investment committee to continuously monitor and make adjustments to its investments suggests that most can benefit from having an outside advisor. An advisor can provide the day-to-day oversight and management of the portfolio and other valueadded services that enhance the endowment. How often should we issue an Request for Proposal (RFP) and review our investment advisor/managers? It is important to occasionally review your relationship with all of your vendors to make sure you are receiving competitive products, client service, and fees. Some colleges issue an RFP on a regular cycle, such as every three or five years. page 12 of 13

14 Appendix B Foundation Profile Westchester Community College Foundation Westchester Community College (WCC) is an example of how a community college effectively uses a separate fundraising foundation. WCC was founded in 1946 as the New York State Institute of Applied Arts and Sciences in White Plains. In 1957, the County of Westchester bought the 360-acre John Hartford estate in Valhalla and designated 218 acres for the community college. There are approximately 12,000 full- and part-time college credit students. Continuing education students bring the total number served by the college each semester to more than 24,000. Westchester Community College effectively utilizes a separate foundation to maximize both its fundraising plans and endowment management strategies. The Foundation, which was established in 1969, has a goal to raise funds to meet college and student needs not covered by public funds; it does this through the development of voluntary and supplemental support resulting from gifts, bequests, and fundraising activities. It currently maintains an investment portfolio of $26.7MM, which it manages for long-term balanced growth. The Foundation has a strong website page which includes a Donate Now button on its home page, a tag for Alumni and Friends, as well as an option to view Giving to the College under the About Us option. The Foundation offers a number of ways to give including an annual fund, online giving, and planned giving. Under the planned giving page, there is also mention of their Legacy Society. The site also carries information on upcoming special events as well as the contact information for nine staff members. The Foundation has raised $3.6MM in the past fiscal year (8/31) and almost $24MM over the past 5 years. During the difficult 2008 fiscal year, they raised $6.8MM. Organization Profile Foundation: Westchester Community College Foundation Foundation structure: Separate 501(c-3) organization Founded: 1969 Staff: 10 Board: 56 board members Donor targets: Individuals, local businesses, corporations, foundations Ways to give: Annual appeal, special events, tribute gifts, special project gifts, leadership gifts, planned giving Legacy society: Yes, Hartford Hall Society Recognition: Lists names of society members on website and annual report Foundation fundraising trend (8/30 Fiscal year): 2010: $3.7MM (includes $1.1MM in stock gift) 2009: $6.8MM 2008: $4.4MM 2007: $4.5MM 2006: $4.7MM Website: Alumni, Donors, Parents and Foundation tags; separate Foundation page Planned giving details: Stock, bequests, charitable gift annuity, life insurance, real estate, endowments, retirement plans Online giving: Yes Social Media: Yes Newsletter: Yes Capital Campaign: mentions capital projects Gateway to the Future Fund: Their successful capital campaign was highlighted in the Chronicle of Philanthropy along with their relationship with their fundraising advisor, Community Counselling Service Co. (CCS) Communication: Annual Report is available Total Portfolio Assets: $26,661,196 Permanent Endowment: $14,463,111 Strategy: Long-term investment strategy page 13 of 13