Boston – The Boston Foundation is increasing the amount of discretionary money it will make available for grants to Boston-area nonprofit organizations by 20%, or roughly $2 million in the upcoming year, as a result of an innovative change in its spending rule. The Boston Foundation is, as far as can be determined, the first community foundation in the country to factor future gifts to its endowment into its calculations to determine how much money it has available for grants to the nonprofit community.
"Like most endowed institutions, the Boston Foundation struggles to balance the current, versus the future, needs of generations of Bostonians. Fortunately, over the past 20 years, community foundations have grown significantly, and the high pace of asset accumulation is likely to continue or even accelerate over the next 20 years. By factoring in this growth, we want to make more money available to local nonprofits at a time when many of them are struggling," said Paul S. Grogan, President and CEO of the Boston Foundation. "As we move forward, the Foundation will continue to seek new gifts aggressively and the Board will carefully monitor the Foundation’s rate of growth to ensure that this institution will be here in perpetuity to provide a dependable source of money to meet our community’s needs."
The Foundation’s new spending rule of 6%, up from 5%, will determine the amount of money that is available for its discretionary grants, the funds that nonprofit organizations in Greater Boston may apply for. Next year, the Foundation anticipates having $13.6 million available for discretionary grants for distribution to Boston-area nonprofits; this year, the figure is $11.6 million. The discretionary grants are made from the Boston Foundation’s Community Fund, a collection of gifts made to the Foundation for distribution to nonprofit groups working to meet the needs of Greater Boston’s residents across a broad range of issues.
The spending rule for the Foundation’s Donor Advised funds, established by donors who want to play an active role in selecting the organizations and programs they support, was also raised to 6%. The other category of funds held by the Foundation, the Designated funds, established by donors to support one or more of their favorite nonprofit organizations in perpetuity, will be raised to 5.4%.
In 1999, the Foundation adopted a fixed percentage of 5.5% as its target spending rate. This rate was lowered to 5% two years ago, in response to an external investment environment which had negatively affected the performance of the endowment and reduced new gifts to the Foundation.
Jack Meyer, CEO of the Harvard Management Company and a member of the Boston Foundation’s Board of Directors and Investment Committee, was actively involved in the decision to increase the spending rule. "To make this kind of decision, you need to balance the portfolio and the gift flow, because the number you arrive at is influenced by both of these factors. This move wouldn’t necessarily be right for every community foundation, since it’s only for those in strong financial shape, but I think that we have come out with a very rational and forward-looking policy for the Boston Foundation."
The change was made after a thorough analysis of the Foundation’s current financial position and of its expectations of future growth by McKinsey & Company, a renowned management consulting firm that performed the study pro bono. "I’m delighted with the Foundation’s decision to consider future gifts in present giving," said Paul Jansen, Director of the Nonprofit Practice at McKinsey. "I hope that their thorough deliberations and innovative approach will serve as a model for other endowed institutions serving communities with significant current needs. The Boston Foundation is clearly a leader in this important aspect of philanthropy."
"Although the Foundation hasn’t fully decided what the priorities will be for spending these new funds, one area being given strong consideration is expanding an already significant commitment to Greater Boston’s workforce development programs," noted Grogan. "It seems very clear that acute labor shortages in key sectors are having a profound effect on our local economy, and the demand for effective training programs far outstrips the supply. The silver lining is that these shortages also create a great opportunity for more individuals and families to move to economic self sufficiency." The money is not expected to be available until July, the beginning of the Foundation’s fiscal year.
"We are delighted that now there will be more money available for grants to meet urgent community needs," noted Rev. Ray Hammond, Co-pastor of Bethel AME Church and Chair of the Board of Directors of the Boston Foundation. "However, given the substantial demand for grant money, I’m sure that there will be keen competition for these funds and, unfortunately, many applicants will continue to be disappointed."
Hammond pointed out that unrestricted gifts to the Boston Foundation – the money that is used for discretionary grants – is the money that permits the Boston Foundation to do its most important work in the community. "It’s fair to say that the Boston Foundation’s discretionary grantmaking has been critical to the transformation of Boston in the past 90 years. It has helped spark the kind of change that makes a city great by supporting fresh ideas and encouraging innovation. Early funding for projects that seemed impossibly risky at the time, like the system of neighborhood health centers, WGBH-TV, and the Boston Harbor clean-up, has supported a number of the institutions that have become the brightest jewels in Boston’s crown."
Boston Foundation Board member Hanson S. Reynolds, Partner and Director in the law firm of Rackemann, Sawyer & Brewster and Chairman of the Foundation’s Investment Committee, said that this is an important time in the city’s history. "As uncertainty mounts about corporate funding in the future, it’s particularly appropriate that a community foundation steps up to meet the community’s needs. By taking this step, we are committing the Foundation to an aggressive growth policy, in the expectation that civic minded citizens will continue to leave us money in the future to meet the community’s needs. By working together, we will be able to continue to support the innovative projects that have made such a difference to Boston."
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The Boston Foundation, one of the nation’s oldest and largest community foundations, has an endowment of almost $675 million, made grants of $51 million to nonprofit organizations, and received gifts of $41 million last year. The Boston Foundation is made up of 750 separate charitable funds, which have been established by donors either for the general benefit of the community or for special purposes. The Boston Foundation also serves as a civic leader, convener, and sponsor of special initiatives designed to build community. For more information about the Boston Foundation and its grant making, visit www.tbf.org , or call 617-338-1700.