Could Hartford Foundation help solve city’s budget crisis?

John Horak

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By John Horak

Connecticut's image took another blow in March when State Sen. Martin Looney proposed taxing Yale's endowment. His suggestion was couched behind rhetoric about the “need to look at how much of the endowment is invested for the greater public good,” and making sure rich schools “use their wealth to create job opportunities.” The proposal died when people realized Looney had been reading from the playbook of Willie Sutton, who robbed banks “because that's where the money is.”

However, on a deeper level, Looney's proposal is evidence that the relationship between our government and nonprofit organizations (whether they have an endowment or not) has taken on attributes of a tug-of-war over resources. The struggle is reflected in reductions in state funding of nonprofit service providers, and municipal attempts to impose property taxes on nonprofit real estate. Looney was more direct — he wanted to take some of Yale's money and use it to pay the state's bills.

This issue is grounded in the fact that both nonprofit and governmental assets must be used to provide a “public benefit” of some type, so a pas de deux between the trustees of these organizations and governmental officials is inevitable in times of scarcity.

I believe that the endowments of our nonprofit organizations would be gone by now if they had been under the control of government officials; and that Looney's remarks are not appropriate for Yale because its endowment is dedicated to its educational mission. However, his inquiry may be appropriate in the case of our grantmaking foundations with endowments legally dedicated to the general public welfare. As a matter of necessity (and political pressure) will grantmaking foundations need to step up or alter their games to “relieve the burdens of government” — which the law expressly permits them to do?

This could play out in different ways depending on the depth of government's problems and the resources of appropriate foundations. But let me use a large example to illustrate the point: the city of Hartford and the Hartford Foundation for Public Giving.

The city is drawing open comparisons to Detroit and its bankruptcy. Hartford's turnaround will take years even if it avoids a bankruptcy filing. On the other hand, there is the Foundation with a total (restricted and unrestricted) endowment of $900 million dedicated to the “greater public good” (to use Looney's words) in the “city of Hartford and its vicinity.” So, why and how could the Foundation step up to help the city (consistent in principle, for example, with the way the Kresge Foundation participated in the “Grand Bargain” that took Detroit out of bankruptcy)?

The “why” question is easy to answer because the Foundation is a “community foundation,” a form of entity that emerged in the country in the early 20th century when the industrial economy was creating wealth and people saw wisdom in pooling their charitable gifts in an entity managed by the community for its benefit. The Hartford Foundation was created in 1925. The endowment is not owned by the Foundation, but by the community for which it was created. The Foundation is directly answerable to the community and the community is hurting.

As far as the “how” question is concerned, the first thought is that cash is always king in these situations, and the Foundation could free up cash for a period of time to help navigate these waters.

The Foundation could be asked to “share the austerity” by taking a hard look at its operations in search of savings. In 2014, the Foundation started a public policy and lobbying initiative. Maybe this is necessary and maybe it is not — but the community does not lack for policy papers, demographic analysis or lobbyists.

Another way to free up cash is to tweak the Foundation's spending policy upward (the percentage of the endowment's average value that is expended) for special purposes. The Foundation is spending at a 5 percent rate, but it could be tweaked higher (even for a limited time or purposes) while still satisfying legal prudency standards.

Next, on a strategic level, the Foundation could “lessen the burdens of government” by doing what the government has done poorly — enhance private-sector economic growth. Community foundations can invest resources in enterprises (even privately owned) linked to economically stressed communities and residents.

When you think about it, the Foundation's current endowment is the fruit of the community's once vibrant wealth-creating private sector — such that investing to bring it back is as natural an undertaking as it is prudent.

Finally, many private nonprofits depend on the Foundation for support, so if the Foundation were to shift focus to the city for a time, the Foundation could adopt a policy reserving a minimum percentage of its annual distributions to their grant applications. The underlying point is that local governments have sources of revenue (taxes and bonding) that private nonprofits do not.

Let me circle back to where I started — with Sen. Looney and the relationship between nonprofit organizations and government in a time of scarcity.

There is no one-size-fits-all formula for addressing the issue, but it is reasonable to expect grantmaking organizations with the means to help lessen government's burden, but only in a carefully reasoned and prudent manner.

John M. Horak has practiced law at Reid and Riege P.C. in Hartford since 1980. His opinions are his own.

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