The Foundation Payout Puzzle

This paper examines public policy toward American philanthropic foundations. We find that the major regulation bearing on foundations -- a mandated minimum endowment payout rate -- has had the effect of repressing foundation giving. Interviews with foundation trustees and presidents point to a number of significant obstacles to proper conceptualization of the payout decision in foundations. In the face of these obstacles, our survey of foundation payout behavior over 25 years reveals that most foundations simply pay out the mandated minimum amount each year, regardless of other relevant considerations. We argue that the minimum rate has gone from being a floor when it was enacted decades ago to a ceiling today. The paper concludes with an exploration of how the payout policy could usefully be reformed.This publication is Hauser Center Working Paper No. 9. The Hauser Center Working Paper Series was launched during the summer of 2000. The Series enables the Hauser Center to share with a broad audience important works-in-progress written by Hauser Center scholars and researchers

Balancing Margin and Mission: Nonprofit Competition in Charitable versus Fee-Based Programs

Competition in the nonprofit world has intensified in recent years, and nonprofit managers are challenged to devise strategies that will serve both organizational needs and public interest. We propose a framework for thinking about nonprofit competition based on the intersection of two dimensions: the domain of competition, which can be either fee-based or donative activities; and the competitive strategy, which can be either price- or differentiation-based. The experience of the American Red Cross, a prominent nonprofit organization facing competition in both fee-based and donative domains, provides data for the elaboration of the framework, and for tentative conclusions about the implications of nonprofit competition for both margin and mission.This publication is Hauser Center Working Paper No. 11. The Hauser Center Working Paper Series was launched during the summer of 2000. The Series enables the Hauser Center to share with a broad audience important works-in-progress written by Hauser Center scholars and researchers

The Art Institute of Chicago and the Decision to Start Building

This case was prepared for a class discussion rather than to demonstrate either effective or ineffective handling of an administrative situation, and is based on interviews with 12 current and former members of the staff and board of the Art Institute of Chicago, as well as financial documents and the public record. The authors would like to thank all of the people who graciously agreed to be interviewed

Can Roanoke, Virginia, Become the Next Bilbao? Taubman Museum of Art

In November 2008, after a $68 million project to build a new museum building in Roanoke was complete, the Taubman Museum of Art reopened. The$15 million needed to fund the new building was still to be raised, and by the end of the 2008 fiscal year (FY) in July, $14.4 million had been borrowed. Before the move, the museum was provided with its space free of any rental, maintenance, security, custodial, and utility fees by a local operating foundation at its Center in the Square. After the move, the costs of staffing and maintaining the facility far exceeded estimates, while the revenues proved far below expectations. In the first year, the museum's operating budget before depreciation was$5.5 million. In fiscal year 2009, an additional $2.8 million had been borrowed and$945,000 paid in interest. This debt expense alone was larger than the entire pre-expansion operating budget. For the grand opening, the Taubman Museum had hired additional staff for a total of 52, but the financial pressure forced four rounds of layoffs, during which the staff was trimmed to 17. At the same time, the admission fee increased, from nothing before the project's beginning to $3 during the capital campaign to$10.50 after opening. Even after these drastic measures, the museum is still struggling, fighting for its very survival. Moreover, other arts organizations complained that the museum had become a drain into which cultural funds were being sucked from foundations and philanthropists in Roanoke Valley.Why did the Taubman Museum's fortunes change so drastically after its move? To what extent was the new building -- rather than the depressed economy -- to blame for the severity of its crisis? What measures during the planning process could have been taken to prevent this catastrophe

AT&T Performing Arts Center: Fundraising and Uncertainty

This case was prepared for a class discussion rather than to demonstrate either effective or ineffective handling of an administrative situation, and is based on interviews with 14 present and former volunteer board members, senior staff, and community leaders, as well as press coverage, annual reports, and internal documents. The authors are deeply grateful to their interviewees for their hospitality and collaboration

Small is Beautiful: Scaling Down the Long Center for the Performing Arts in Austin

This case was prepared for a class discussion rather than to demonstrate either effective or ineffective handling of an administrative situation, and is based on seven interviews with staff, board members, and community leaders involved with the Long Center for the Performing Arts project as well as internal documents and the public record. The authors would like to thank all of the people who graciously agreed to be interviewed

Reengineering Nonprofit Financial Accountability: Toward a More Reliable Foundation for Regulation

Today, the annual IRS Form 990 tax filing is the principal annual disclosure mechanism of nonprofit organizations. Over time, considerable thought has been put into finding ways to improve access and use of the 990 Form, with only scant attention focused on whether the 990 is the right data source on which to build a system of nonprofit accountability. This paper takes a broader perspective, assessing not only the quality of the financial data and its availability, but also the entire financial reporting model. The paper begins with a framework for thinking about organizational accountability. It then examines the current structure of nonprofit financial reporting and contrasts it with alternative systems developed for publicly traded firms and credit unions. The paper concludes with recommendations for improving nonprofit accountability by reengineering the reporting and oversight systems in the sector.This publication is Hauser Center Working Paper No. 4. The Hauser Center Working Paper Series was launched during the summer of 2000. The Series enables the Hauser Center to share with a broad audience important works-in-progress written by Hauser Center scholars and researchers

The Price of Doing Good: Executive Compensation in Nonprofit Organizations

This article examines whether nonprofit executive pay patterns are consistent with the espoused social mission of these organizations. We find that nonprofit CEOs are paid a significant fixed component, and many CEOs also receive additional pay associated with managing larger sized organizations. Our analysis indicates that nonprofit executive compensation is not significantly related to CEO performance, as measured either by improved fund-raising results or better administrative efficiency. This weak pay-for-performance link may be due in part to nonprofits concern about violating the non-distribution constraint in the sector, which prohibits the distribution of excess earnings. While nonprofits may not be breaching the letter of the law, some organizations appear to challenging its spirit: We present evidence that CEO compensation is significantly higher in organizations where free cash flows is present, as measured by commercial revenues, liquid assets and investment portfolios.This publication is Hauser Center Working Paper No. 8. The Hauser Center Working Paper Series was launched during the summer of 2000. The Series enables the Hauser Center to share with a broad audience important works-in-progress written by Hauser Center scholars and researchers

Inside Civil Society in Mexico: The RGK Center Partnership

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Strategic Positioning and the Financing of Nonprofit Organizations: Is Efficiency Rewarded in the Contributions Marketplace?

This article addresses the question of whether operational efficiency is recognized and rewarded by the private funders that support nonprofit organizations in fields ranging from education to social service to arts and beyond. Looking at the administrative efficiency and fundraising results of a large sample of nonprofit organizations over an 11 year period, we find that nonprofits that position themselves as cost efficient reporting low administrative to total expense ratios fared no better over time than less efficient appearing organizations in the market for individuals, foundations, and corporate contributions. From this analysis, we suggest that economizing may not always be the best strategy in the nonprofit sector. This publication is Hauser Center Working Paper No. 2. The Hauser Center Working Paper Series was launched during the summer of 2000. The Series enables the Hauser Center to share with a broad audience important works-in-progress written by Hauser Center scholars and researchers