Costs That Charity Leaders Overlook in Planning Big Fund-Raising Drives

Setting the budget for a capital campaign cannot be done in isolation from other considerations.

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Putting It All Together

Those factors, on which the success of a campaign often rests, include:

Loans. Charities in capital campaigns often have to borrow money to tide them over until pledges come in, an expense that usually falls into the charity’s operating budget, or the construction budget for the proposed project.

“In most medium-sized institutions, you can’t get all the way through a capital campaign without borrowing,” says Marcia Kerz, director of development at the Missouri Historical Society, in St. Louis.

The historical society has begun construction on a new building and is waiting for the last pledges, which are due in 2002, says Ms. Kerz. In the meantime, the charity will have to borrow to pay some of its bills.

“You need to place all of the expected pledges on a spreadsheet and compare them with your upcoming expenditures so you can see when you will most likely need to borrow,” she says.

Ms. Kerz says the historical society secured a $10-million line of credit from a local bank after calculating that it would probably need to borrow at least $5.5-million. The charity plans to use the line of credit soon and hopes to pay it off by 2002, she says. In all, she expects to pay around $450,000 in interest.

Salaries. It can be risky to shift the salaries of regular staff members from the general operating budget to the campaign budget, says Bruce Flessner, a fund-raising consultant at Bentz Whaley Flessner, in Minneapolis. Putting them back into the operating budget when the campaign is over may not be easy.

“There is a tendency by institutions with very tight operating budgets to say, ‘We can move fund raisers’ salaries into the campaign budget and therefore free up some short-term budget problems,’ ” Mr. Flessner says. “The trouble is, you come to the end of the campaign and you have to put them back into your regular budget. It buys you two or three years of relief, but then you have to face the same problem all over again.”

Unfulfilled pledges. Some experts suggest that small charities on tight budgets add an extra 5 per cent to the campaign goal to account for unfulfilled pledges. During a $10-million endowment campaign for the Funding Exchange, in New York, one donor pledged $500,000 but never followed through.

“She paid nothing. Not one thin dime,” says Kim Klein, the former endowment coordinator. “We didn’t think anybody would do that.”

The campaign goal had not included any extra funds to account for that possibility. In the end, the organization received an unexpected donation that made up for the shortfall, but it was a close call and an important lesson, Ms. Klein says.