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By Andrew Haeg
September 8, 2000
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These are times of plenty for foundations in Minnesota and around the nation. Savvy investments in the long bull market have driven their assets to unprecedented levels. While newfound wealth brings great opportunity, it also raises new difficulties for foundations, who must ensure the money is put to good use.
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A THEATER TROUPE gathers on stage in their Minneapolis warehouse district practice space; they look like any other group of costumed, sequined actors, but these players are mentally disabled. The group, called Interact, is applying for a $5,000 grant from the Grotto Foundation. They're performing for Grotto program officer Ellen Liberatori who's come to inspect the group firsthand. They launch into a song called Too Many Chromosomes, inspired by the fact that many of them suffer from Down's Syndrome, and lampooning a society that keeps them from living normal lives.
Liberatori was once a mental-health worker, and she bursts into tears as they perform. After the performance is over, she sits among them.
"We get a lot of applications for grants to do different things in the community. And we make visits, and this has got to be one of the best visits I've ever had."
Interact's $5,000 request would represent only a small fraction of the $900,000 Grotto will give away this year. But even for small applications, Liberatori routinely visits potential grantees, to make sure the money will be well used.
Grotto was established in the 1930s by Louis W. Hill, the grandson of railroad magnate James J Hill. Its assets have grown from about $8 million in 1996 to roughly $33 million in 2000. That's still tiny compared to the state's largest giver, the McKnight Foundation, whose endowment totaled some $1.9 billion in 1998.
But Grotto's responsibilities have grown along with its assets; staff members are inspecting six-times-as-many grant proposals as they did in 1995. The foundation installed new software to track grants and boost productivity.
But soon, Grotto - and other foundations - may have to do even more to ensure each new grant proposal receives the attention it deserves.
"Everybody's who's involved with a foundation, whether they're a trustee is concerned about stewardship for their dollars," says Jackie Reis, executive director of the Minnesota Council on Foundations. "In a sense these are public dollars. The donor has been given a tax deduction in order to set up the foundation. And so there's a stewardship or fiduciary responsibility that the people involved with them have."
Increasingly, local foundations are grappling with this issue as they watch their investments climb. The assets of Minnesota foundations grew some 87 percent between 1994 and '98. Minnesota foundations gave more than $600 million to nonprofits in 1998, almost 60 percent more than in '94. Figures from 1999 aren't yet available, but judging from the stock market's performance, it's safe to say foundations saw another big rise in their endowments.
Federal law requires foundations to give away at least five percent of their assets each year. So the sharp rise in their funds is presenting some groups with novel problems.
Like the Bush Foundation discovered last winter.
They'd pegged their giving for 2000 at $35 million. But the foundation's assets had risen more than expected and in February, board members were surprised to discover they had an extra $10 million to give away.
Anita Pampusch is president of the Bush Foundation. She and the board are busy crafting new goals for the foundation to manage its growing riches.
"If we continued in exactly the same way we're operating now, the number of proposals would have to skyrocket to reach that level of contribution over the year. So we would either have to either have to add a lot of staff, or make much larger grants, or something," says Pampusch.
Pampusch says it's tempting to parcel out only large grants to large organizations. That would save time the staff would have otherwise spent perusing smaller proposals. She says the foundation would like to resist that temptation.
"The real challenge for us will be to try to maintain the level of rigor that we had in reviewing proposals, and - at the same time - remain open to well let's say 'the little guys.' Because the smaller non-profit groups have been able to come to the Bush Foundation. And we don't want to only make grants to large, well-established organizations.'"
So the board decided to do something unusual. It turned to other foundations for help in spending the extra $10 million.
The Minneapolis Foundation is one of the groups submitting a proposal for part of the Bush Foundation's extra dollars; not that it's short of funds. In the last five years, its assets have just about doubled, to more than $390 millions. It's added staff and expanded its downtown office.
But, like the Bush Foundation, the Minneapolis Foundation needed a new plan to deal with its growing wealth. In more-modest times, the foundation aimed dollars at specific problems, with hopes of creating specific solutions. Now it's looking to use its swollen reserves to change systems, in some cases, to help restructure, several layers of bureaucracy.
"Only with those very large, mega-grants can you make systematic major changes. The increase in funds has allowed us to do that," says Emmet Carson, president of the Minneapolis Foundation.
The foundation recently gave $139,000 over two years to Hennepin County. Every year, police in the county bring in about 200 kids under the age of 10 who've committed crimes. Research shows that such children often end up lifetime clients of the justice system. The foundation's grant will locate at-risk kids, and provide them with mentors who can guide them away from trouble. And it will pay to see that a child deals with only one person from the county, rather than with several contacts from a patchwork of agencies.
"To measure whether you've made a significant change in the system, or if you've changed public policy in a positive way, will not only be more complicated, but it will take more time," says Katherine Roberts, the vice president of programs at the Minneapolis Foundation.
Hennepin County Attorney Amy Klobuchar says the program was considered too long-term, and too risky for the county to fund. But the foundation, with its impressive endowment, could do it.
Roberts says The Minneapolis Foundation is using its growing endowment to make a series of similar, large grants, including one that will help pay for a new affordable housing program.
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