Schools take a second look at nonprofit foundations as revenue sources

A number of Michigan school districts are trying to instill new life into nonprofit educational foundations they established years ago, in hopes of bringing in money simply by asking for it.

While even the most ambitious programs generate only a drop in the bucket compared to a district’s overall budget, foundation directors say the advantage is that the drop can be earmarked for specific academic programs. Donors like knowing that their money is going directly to the classroom, foundation officials say, where even a few thousand dollars can have a large impact.

Voters across Michigan have said no to additional public funding for schools in many ways over the past year. Proposal 5, on the statewide ballot last November, would have mandated annual funding increases. It was rejected by a margin of 62-38. More recently, voters said no in February to 13 of 17 funding-related elections in districts throughout the state, including requests for buildings, infrastructure and an override of the caps on local millage rates.

But those same voters are sometimes willing to make a private donation to their local school district because, "It’s voluntary. They know exactly where their money is going," said Rich Howard, senior consultant with the McCormick Group, a national consulting firm that works with school districts on foundation development.

"We are seeing a resurgence of new foundations … as well as foundations we set up previously coming back. It’s not just in Michigan. It’s happening across the country," he said.

One example is Ann Arbor, where Wendy Correll is the executive director of the Ann Arbor Public Schools Educational Foundation, a privately operated, nonprofit corporation established to support the school district. Correll previously served on the district’s board of education and was hired for the half-time foundation position in May 2006. Like many districts, Ann Arbor has had an educational foundation for years. But in recent years it has shifted from passive to active fundraising, setting a goal for itself in the hundreds of thousands of dollars.

"The waters are untested in Ann Arbor for significant private support of K-12 (public) education," Correll said, but a feasibility study showed that there is potential for a foundation to bring in $250,000 to $500,000 annually over the long term.

"The reality is, we need to educate the public. It’s easy not to pay attention to how school financing works," she said. "We’ve cut so much."

The effects of Proposal A increased the role of state government in funding public schools. Because of the state’s increased role, the extent to which local school districts may add to their budgets by levying local property taxes is more limited than it was before Proposal A passed in 1994.

Under Proposal A, each school receives state funding on a per-pupil basis, called a foundation allowance. The amounts per pupil have increased under Proposal A, but decreasing enrollment combined with increased retirement and health benefit costs has squeezed many district budgets. Like other foundation directors, Correll doesn’t expect more money from the state. Other ways to generate revenue would include passing a countywide millage, which Correll said would be an "uphill battle," or to attract more students.

"People are not coming to Michigan. People are leaving Michigan," she said. The district could lose up to 200 students not only from cutbacks in the automotive industry, but also the closing of Pfizer Inc.’s Ann Arbor site, which will displace 2,100 workers. "The implication is huge," Correll said.

The point of establishing a school foundation is to draw support from the community at large, not just parents, according to Howard. Booster clubs for sports or music, and parent-teacher organizations, already rely heavily on parent contributions, and school foundations are not meant to intrude on that territory.

"The community member gives money because there is a huge correlation between the perception of the local schools and property values," Howard said.

Correll echoed that, saying that in presentations to community leaders, she emphasizes that "Strong schools support strong communities and strong communities support strong schools. … The opportunity arose with Pfizer to say ‘Do you understand the draw of a great school system?’"

One of the appeals of foundations is that donations made to them are tax-deductible. Foundations generally operate as tax-exempt organizations under section 501(c) 3 of the Internal Revenue Code, which prohibits them from paying dividends or profits, but makes them eligible to accept public or private grants. Some school foundations operate under the umbrella of a larger community foundation, such as the local United Way.

Tax-deductible status "plays an important role in our fundraising, particularly for contributions over $25," Correll told Michigan Education Report. "For large contributions, over $10,000, some contributors may find a tax advantage in making a contribution through our local Ann Arbor Area Community Foundation. I can say that people are more willing to give because of the tax break."

Most donations to foundations are not large grants from businesses, according to Howard, but small amounts from individuals. Educational foundations operate independently of their local school districts and have their own boards of trustees and financial accounts, but usually work closely with the district to define the foundation’s purpose and activities.

Howard said it is difficult to say how much money foundations bring in to Michigan schools in any given year, because those that take in less than $25,000 do not have to file annual financial reports with the state. The total is "certainly tens of millions of dollars," he said.

An article in the American School Board Journal in July said that foundations are becoming more visible in states where local property taxes are capped, the state has primary responsibility for funding schools, and there has been a downturn in state revenue from income or sales taxes.

In Los Gatos, Calif., a small community near Silicon Valley, a six-day telephone campaign brought in enough donations to replace 10 teaching positions that would have been cut, the article said. "These communities no longer simply add enrichments to the basic, state-funded program," the article stated. "They pay a de facto voluntary tax to the school district to fund the level of education they desire."

While Proposal A lowered local school property taxes for most homeowners, substituting a higher sales tax, it did not do the same for business owners.

Asked if Michigan’s business tax load affects donations from that sector, Correll said, "That is not something I hear. Quite simply, I think it’s hard to get dollars out of businesses in the overall declining economic climate of Michigan. They continue to be willing to give us time and small dollars that provide them with advertising, but not large impact dollars. We will be rethinking our strategy on this idea. ‘Give for the greater good’ doesn’t seem to work in the overall business world; perhaps in coming years if the economic climate changes, their attitude may change."

One businessman told Michigan Education Report that school taxes and school performance both affect his decisions on donations.

"When it comes to public schools, I already gave at the office. It’s called taxes," Detroit businessman Steven Thomas said. "And I think too many schools fail to get much bang for the bucks they now have. Like many of my colleagues in business, I am far more interested in a tax credit for contributions to scholarship funds or private schools. At least then the money goes directly to help the student and his parents’ choices, not business-as-usual bureaucracy."

"If people want to give money, they can do it," said Jim Sandy, executive director of the Michigan Business Leaders for Education Excellence, a statewide coalition of business leaders which has proposed various education reform measures. There are some tax advantages in making a contribution, he pointed out, but donors should be aware of how the money is being spent. Even if foundation dollars are earmarked for specific academic projects, the effect is to support the district’s general fund budget, he pointed out. The question is whether that takes pressure off districts to operate efficiently.

"It’s just creating more and more pots of money and as we’ve seen in the past, schools with more pots of money don’t always manage them well," he said.

Foundations use a number of ways to raise money, among them solicitations by mail, personal contacts and fundraising events like golf outings. Many of them also receive investment earnings from endowments. Whatever the method, Howard said the most successful campaigns give donors a specific idea of how the money will be used and how it will impact education now and in the future. Foundation money is typically spent on academic projects, arts and music, science and technology, professional development or capital improvements, he said. Some foundations also pay for college scholarships.

When the Forest Hills Educational Foundation was established in 1986, it was led by parents who wanted to be sure children "would be provided with what we fondly considered ‘the icing on the cake,’" Executive Director Amy Clark said. Today, the mission statement calls for the organization to support core academic programs, "which is vastly different," she said. One school gala hosted by the foundation brought in $86,000, of which half went into an endowment and half was spent on instructional materials, including new math textbooks. "The Forest Hills Foundation has transitioned from a bake-sale mentality," she said.

In Ann Arbor, the foundation’s major recent project was a $50,000 writing literacy program at the high school level, Correll said. A similar program already is under way in the lower grades. The foundation, like many others, also awards smaller amounts of money to teachers through a mini-grant process.

The Portage Education Foundation has been in operation since 1990, but this year announced a $1 million endowment campaign called "Putting Excellence First."

The campaign brochure says, "It’s no secret that school systems across Michigan — Portage included — are at a crossroads; rely on public funding — becoming more unstable each year — for an adequate education. Or seek alternative, private financing to guarantee an amazing education. For Portage, the choice is easy." The money would be used for start-up costs for innovative academic projects, fine and performing arts programming, and instructional technology initiatives.

The Portage foundation gave $23,000 in grants to students, faculty and school- or district-based programs last year, according to its annual report. It received $35,000 in donations.

The Michigan Association of School Boards also has seen increased interest in school foundations among its members, according to Kathy Hayes, co-director of board leadership and development.

"In these tough economic times, there seems to be more interest in getting foundations going again," she said. The MASB has developed a training program for foundation board members, staff and volunteers in conjunction with The McCormick Group and the National School Foundation Association.