Community colleges, commonly referred to as junior colleges until the 1970s, continue to be an important part of our educational system in the United States. It is estimated that about 41 percent of all undergraduates are enrolled in community colleges today.¹ These primarily two-year institutions often focus on local low-income students who seek to be the first in their families to earn a degree, but there are also older adults who are looking to either start or continue their college education.
In the past few years, community colleges have faced some challenging trends, including lower enrollment and reduced funding levels from state and local governments. These trends have been exacerbated as a result of COVID-19 and are impacting many community colleges financially and strategically. As a result, fundraising and endowment building have become even more important for community colleges and their foundations.
Growing the endowment is particularly important, especially through fundraising strategies, as well as developing a strategic endowment plan, an important tool for trustees and leadership. This comes from the results of the Wilmington Trust’s independent research of 191 community colleges in the greater Northeastern United States, which is included in its Community College Foundations Revisited report.2 Many of these insights on community colleges can be applied to other similar institutions across the nation.
Foundation Basics and a Closer Look at Foundation Stats
The Use of Fundraising Foundations
How can community colleges effectively increase their fundraising numbers? One strategy that has been successfully utilized is to establish a separate fundraising foundation to lead development efforts. The key benefits of a separate foundation include increasing trusteeship, providing donors more choices, separating finances, providing a structure for investment management, and others. Many public community colleges have set up these foundations for these and other purposes.
According to Joanne Landau, chair of the Westchester Community College Foundation, “the success of the Westchester Community College Foundation is based on our ability, as an independent 501(c)(3), to recruit a highly involved board that brings many areas of expertise to the table, inclusive of fundraising and investing; to robustly explore a variety of donor partnerships; to set independent campaign goals that encourage our donors to stretch; and to maintain a true partnership relationship with the Westchester Community College so that we all prioritize and focus on meeting critical student and college needs.”
Research Study: Key Findings and Observations
The study of 191 community colleges was focused on the greater Northeastern United States and used a universe of colleges that is consistent with the list maintained by the American Association of Community Colleges. Total foundation assets for the colleges in the study were approximately $2.8 billion, with 50 community colleges having investment portfolios greater than $10 million.
To better understand the current fundraising strategies and to offer some insight, the Wilmington Trust reviewed the websites and Form 990s of colleges in 12 Northeastern states, and in some cases, spoke with school representatives. Of those studied, 154 (81 percent) of the schools have separate fundraising foundations.
Fundraising and Investment Findings and Strategies
Overall, as figure 1 reflects, the average fundraising is approximately $1,239,760 per school, which is considerable. For the community colleges in the study that had information on their investment portfolios (from Form 990), the average long-term portfolio size was approximately $8.8 million (most data are fiscal year as of June 30, 2017). This was calculated to include only long-term investments. Most of these long-term funds represent individual endowment funds and scholarship endowment funds, as well as quasi endowments funds. Some college foundations enhance their websites to offer endowment options and to communicate their goals to grow their endowment funds to build resources for the future.
The Importance of Building a Strategic Endowment Plan
Taking a Holistic Approach to Endowment/Foundation Management
As with many types of public charities (fundraising foundations), successful foundations grow themselves most effectively by focusing on both their fundraising and investing strategies, hand in hand. This is important because over the next decade, Wilmington Trust anticipates future portfolio returns to be lower than historical returns, which will limit the growth of the investments from an internal performance perspective. It will be important to look externally to grow the endowment through new gifts. Thus, the fundraising side of the program will significantly impact endowments/foundations as a key way to grow. For example, planned giving strategies are an important way to increase an endowment/foundation fund.
Developing a Strategic Endowment Plan
One way to memorialize the growth strategy of a foundation is to develop a comprehensive game plan or a strategic endowment plan (SEP). The SEP provides a summary of the nonprofit endowment/foundation’s history as well as its goals and future growth strategies. The SEP complements the investment policy statement and gift acceptance policy. It also requires a dialogue between the finance staff and development staff, which is an important relationship. Examples of how some community colleges are developing strategies to maximize the growth of their endowments through a holistic approach can be seen in figure 2. These examples show the different ways that community colleges can set endowment goals and strategies to accomplish these goals.
Using a Strategic Endowment Plan to Grow the Foundation Asset Base
Fundraising:
- Diversify your fundraising plans
- Develop strong technology and communications plans
- Review planned giving options and create a legacy society
- Complete a peer review to assess trends
Endowment investing:
- Set an endowment asset level goal; review and compare on a regular basis
- Be diversified in all ways and watch your cash position
- Be vigilant on your asset allocation and spending rate
Looking Ahead
Community colleges continue to be an important part of our educational system in the United States. Demographic and economic forces are impacting the community college arena, especially during the pandemic.
For community colleges to succeed, they must continue to look at private philanthropy just as four-year traditional colleges have done for many years. Philanthropic dollars will be even more important in the future, and separate foundations will be a key strategy for enhancing and managing a robust fundraising plan. Community colleges will also need to take a more holistic approach as they seek to build their foundation and endowment funds.
Strong community college foundations will be those that not only maximize their fundraising efforts while effectively managing their endowment funds over the long term, but also can develop a strategic endowment plan to help them plan for the future.
Walter J. Dillingham Jr., CFA, is managing director of endowments and foundations at Wilmington Trust, N.A. He is the author of the Community College Foundations Revisited report.
Endnotes
- American Association of Community Colleges, Fast Facts 2018, March 2018, https://www.aacc.nche.edu/research-trends/fast-facts/2018-fast-facts/. Council for Aid to Education, Research Brief, February 2019.
- Walter Dillingham, Jr., Community College Foundations Revisited, 2020. Online at https://www.wilmingtontrust.com/repositories/wtc_sitecontent/PDF/Community-College-Foundations-Revisited.pdf.
Takeaways
- Community colleges will continue to experience enrollment declines and government cutbacks, especially post-pandemic. Ongoing reviews of strategic and financial plans will be needed as these colleges experience greater scholarship and infrastructure needs.
- Community colleges will also need to assess and maximize both their fundraising plans and endowment growth plans, similar to four-year colleges.
- Community colleges can maximize their foundations through the development of a strategic endowment plan (SEP). The SEP can help formulate a long-term endowment growth plan, which includes both investment and fundraising strategies.
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