Non-profit organizations dream of being able to establish an endowment to give security to their financial futures. Ironically, the average person's understanding of an endowment can turn that blessing into a curse.
"People have the misperception that when an agency receives a $1 million endowment, that's $1 million to spend. An endowment means you can use the interest on the $1 million," said Patrick Poulin, director of Travelers Aid Society, which operates Salt Lake's largest homeless shelters.A recent gift by philanthropist Jon Huntsman of $1 million endowments each to the homeless shelters and St. Vincent De Paul Center, as well as a smaller endowment to LDS Hospital for cancer detection programs points out the misconception.
Joe Winterer, director of the St. Vincent De Paul Center, hails the endowments as "an incredibly generous gift. We always wanted to build an endowment. Over the long haul and in years to come, that is the only way for an organization like ours to ensure survival."
Poulin described Travelers Aid Society as "honored and excited to have the endowment. It is a wonderful example of how the private sector helps the homeless. It is a wonderful gift and over many years it is going to generate far more than $1 million, so it really will help the agency become more secure."
Unfortunately, Poulin said, many people don't understand that the endowment will allow the shelter to become more secure, but it will not pay for all the operating costs. "Some of our normal funding sources are assuming that the million dollars are taking care of shelter problems. They can't possibly. We're running the shelter with a $500,000 funding gap. It costs about $1.3 million by year's end to run the shelter. Even with the endowment, we will be cutting back services in the spring. It's great to have the money, but to assume the shelter is funded now is a misperception."
If a $1 million endowment is invested wisely - whether it endows a college or a shelter, a center for poor people or a charity - it might receive 8 percent interest - or $80,000. An agency that wants to protect itself against inflation usually puts about 3 percent - $30,000 - back into the investment. So the endowment would provide about $50,000 toward operating costs in a given year.
Colleges are not impacted by misperceptions the same way charitable organizations are, according to a telephone sampling of colleges and universities in the Wasatch Front area. People who donate to colleges and universities are usually more used to the concept of an endowment. And because endowments have been part of university and college funding much more often and for much longer than they have been a part of charity funding, it isn't usually an issue for the schools.
"I've had some inquiries on why we might need more money," Winterer said. "People don't know that the principal is not to be touched. This income is going to go a long way, but it costs more than interest income to provide services to hundreds of homeless people."