With Donors Riding Stock-Market Highs, More Charities Look to Capture Some of Those Gains for Endowments

The strong stock market is inspiring many charities to mount aggressive campaigns to raise money for their endowments, under the assumption that donors may be feeling flush and ready to give.

At the Monterey Bay Aquarium, earned revenue from 1.8 million annual visitors covers the aquarium’s core operating costs. The aquarium wants to increase its endowment so it can expand its other programming—like Seafood Watch, one of the best-known services for advising consumers about the environmental impact of their seafood consumption.

Another program provides free admission to the roughly 100,000 children who visit the aquarium each year with school groups. The aquarium concluded a $125-million campaign in 2013 and transferred $20-million to its endowment.

That transfer, coupled with a 17.2-percent investment return in 2013, led to one of the biggest jumps in endowment value among the organizations in The Chronicle’s survey. The value of the Monterey Bay Aquarium Foundation rose 40 percent in 2013 and is now worth $129.6-million.

The aquarium recently received a planned gift from Betty White, the 92-year-old actor and a big fan of its sea-otter exhibit. Ms. White has also endorsed the aquarium in a planned-giving brochure.

“It’s never easy to raise money for endowment—it’s not top of mind,” says Cristina Fekeci, the charity’s chief development officer. “But it’s one of the most important things to do for any organization.”

One group not entirely persuaded by the benefits of endowments is Congress. Last spring, Dave Camp, the Michigan Republican who chairs the House Ways and Means Committee, introduced legislation that would levy a 1-percent excise tax on investment income at private-college endowments with more than $100,000 in assets per student.

That proposal alone would raise an estimated $1.7-billion in tax revenue over 10 years. Members of Congress have taken aim at large private-college endowments in the past, and momentum seems to be building again as the economy grows and the market booms.

Proposals Studied

In September, Ray Madoff, a law professor at Boston College, and two colleagues organized a conference that explored possible changes to the tax code to insure that charitable incentives are doing the most good for the country.

Ms. Madoff says that even without imposing an excise tax, much could be accomplished by simply phasing out the tax exemption for endowments of a certain size.

“It’s really a matter of subsidizing these things,” Ms. Madoff says. “Is this the way that we want to spend our education subsidies, or would we be better off spending the money on community colleges?”

Mr. Camp also has proposed requiring that contributions to donor-advised funds be paid out within five years. That proposal could end up benefiting the endowments at smaller and medium-size nonprofits, some experts say. Even the threat of such action may prompt increased spending from donor-advised funds, creating an opportunity for nonprofits that can articulate the case for endowment gifts.

“The money is there,” says Tom Wilson, a fundraising consultant at Campbell & Company. “A lot of nonprofits have a real opportunity. You just need to ask.”

$100-Million Campaign

Donor-advised funds and their supporters insist the funds are already doing enough. A November 12 report by the National Philanthropic Trust found that payouts from the funds increased by 12.6 percent in 2013, to $9.66-billion. Payout rates averaged 21.5 percent, down slightly from 22.5 percent in 2012.

The trust is a charity that advises wealthy philanthropists and receives a large share of its funding from donor-advised funds.

The United Way of Metropolitan Dallas will announce in February a campaign to raise $100-million for its endowment, which is currently valued at around $40-million. With donors increasingly interested in giving to a specific cause, the United Way chapter’s annual fundraising campaign has stalled.

Jennifer Sampson, the Dallas United Way’s chief executive, is hoping that a much larger endowment will produce enough income to help support the United Way’s traditional grants program, which funds a variety of local nonprofits. That will allow the chapter to put more emphasis in its annual fundraising on efforts that may be more enticing to younger donors, like GroundFloor, an “accelerator fund” started by the United Way that supports local social entrepreneurs.

One of GroundFloor’s most successful investments is in Café Momentum, which works with incarcerated youths to give them social skills through restaurant training.

“We have not focused on the endowment in the past, but growing the endowment is compulsory for our future,” Ms. Sampson says.

At some smaller charities, particularly groups that are focused on meeting the current needs of low-income people, an endowment is often an afterthought. The Northeast Iowa Food Bank created an endowment last December, but only after longtime donors approached the charity and expressed interest in making endowment gifts. The State of Iowa subsidizes endowment gifts by providing a 25-percent tax credit to donors on top of the federal charitable deduction they receive.

The food bank’s endowment will also get a boost from the Community Foundation of Northeast Iowa, where the endowment is held. The community foundation has promised to chip in an additional $10,000 when contributions to the endowment fund total $90,000 or more.

“Our endowment is very small at this point,” says Barbara Prather, the food bank’s executive director. “But it’s something to grow.”