Only one in 12 Americans can name a foundation. So says Cheryl Elliott, president and CEO of the
Ann Arbor Area Community Foundation (AAACF), a $60 million local charity.
Ann Arbor is atypical. An affluent oasis in an economic desert, its denizens are generous donors, Elliott says. At AAACF, their money goes in many directions, from the visually striking markers of the
Downtown Ann Arbor Historical Street Exhibit Program to the
Neutral Zone teen center.
Seeding the ground
Community foundations are tax-exempt public charities aimed at improving the quality of life in their area, according to the
Council on Foundations. Donors -- individuals, families, organizations and businesses -- give money to be invested and distributed by the community foundation. AAACF is typical, run by a volunteer board of directors and staffed by professional managers.
But "improving the quality of life” doesn't mean a bigger flat screen in every home. The concept can be more basic: food, shelter, clothing and healthcare for everyone. It can also mean funding economic development, including support for arts and culture. Those last two are seen as critical components for attracting employers.
AAACF provided money for
Matthaei Botanical Gardens and the
University of Michigan Museum of Art to transform from scholarly retreats to public exhibitors. It supported the
Ann Arbor Summer Festival's Top of the Park move to the mall in front of the Rackham Building.
"Our grant-making up to the last 10 years has been start-up funding,” Elliott says. Besides the historic markers and Neutral Zone, AAACF helped University Musical Society launch a live theater program.
"Ken Fischer says we were the domino effect,” Elliott adds.
Many times, AAACF is the first funder for a group. Such benchmark grants often inspire other funders to join in, establishing a strong base for growth and success
"We helped
Food Gatherers when all it was was a used freezer, a desk and a closet. We helped them get the building on Dhu Varren Road, (helped) with technology, and with the community gardens.”
Donors' interests and sometimes, limitations on their gifts, provide direction for the foundation. Their thoughts "can sometimes lead us into areas where we may not have gone,” she adds.
Expanding the pool of minority Big Brothers and Big Sisters for its namesake agency; helping Leslie Science Center attain 501(c)3 status; and aiding Aaron Dworkin in turning the
Sphinx Competition into reality are just some of the start-ups and expansions made possible by AAACF grants. The annual international Sphinx Competition, held in Ann Arbor and Detroit, encourages talented young black and Latino classical string players.
"Aaron Dworkin is now a MacArthur Grant recipient. We were the first foundation to fund him in 1997. We're the ‘Good Housekeeping Seal of Approval.' It was risky but it paid off and really benefited Ann Arbor,” Elliott says.
Ten years ago, Ann Arbor nonprofits turned a corner -- the wrong way. They weren't expanding and most needed operating funds. Based on a study by AAACF and United Way, a new public-private partnership (including the Washtenaw County Office of Community and Economic Development) formed to fund management and back-office functions.
"We all used to be in silos. Tough issues can't be solved that way. (We're) coordinating our health and human services funding in six areas: early childhood, school age, housing and homelessness, safety net health, food and seniors so we avoid duplication and make effective use of funds,” Elliott says.
Not every effort is a home run -- or even a base hit. "We wouldn't be doing our job if nothing failed. We want to take appropriate risk,” Elliott says.
In the early ‘90s, a neighborhood garage program in Ypsilanti went south. It began with good intentions: providing transportation for scholarship recipients who had no way to get to school.
"The garage fixed donated cars and gave them to people through Catholic Social Services. I can't remember what happened to the money -- there may have been fraud involved. The potential was great. People loved donating their cars. But when it fell apart, nobody wanted to pick up the pieces,” Elliott recalls.
The Neutral Zone and Dawn Farm were home runs. Elliott explains, "Without our help, Neutral Zone wouldn't have happened. When we started funding it, we knew the launchers. We also knew that many teen centers didn't work after a few years. They're focused on at-risk kids. Instead, Neutral Zone focuses on the at-risk hours: after school, on weekends.”
"We continue to receive wonderful support from the Community Foundation -- mostly through the Youth Council which funds youth-directed projects. We very much align with the Youth Council's mission,” says Neutral Zone Executive Director John Weiss.
The latest grant from AAACF supports Neutral Zone's new program, SCORE -- School, Careers, Opportunities Are Endless. It provides paid internships and tutoring for economically disadvantaged teens with high potential who may not be planning on post-secondary education. The program currently serves 50 teens, including 10 paid interns.
Dawn Farm Founder and President Jim Balmer says, "Twenty-five years ago, when we weren't as well known, AAACF gave us a grant for new van. It wasn't a big thing but it really helped us a lot. At the time, I don't know what we would have done without it.”
Over the years,
Dawn Farm has received AAACF grants for things as prosaic as a new septic field. In the past quarter-century, the substance-abuse treatment agency has grown beyond its roots as a residential farm where patients grew crops and fed animals as well as receiving treatment.
"We went from country cousin to one of the last treatment centers of our kind in the United States,” Balmer says.
Dawn Farm now includes an outpatient office and an adolescent program. Its 18-bed detox facility turns away more people than it treats because it is at capacity -- and it treated more than 1,500 people last year. The lack of services is graver than ever, Balmer says.
Funding the future
What's next for AAACF? The foundation wants to work with for-profits that have a social conscience, and to continue their focus on quality of place to encourage economic development. The creative economy, culture and the arts are all important draws for companies to come to Ann Arbor and AAACF looks west with envy at
Grand Rapids Art Prize or programs like the
Kalamazoo Promise, which guarantees a college education to everyone who graduates from high school in Kazoo. If only Ann Arbor had a few billionaires.
In the end, it all depends on the economy. When Elliott came on board in 1992, the foundation's asset pot was worth around $6 million. The portfolio suffered a 30% hit in 2008, which has been recouped, she says. 2010 was the foundation's largest gift year -- more than $8 million. It gives away 5% of the total assets each year, $2 million on average, requiring a return on investment of 8%.
"We can't get that from stocks and bonds. We have a lot of alternative investments. We're investing for perpetuity. If the markets don't go bonkers we may reach $100 million by our 50-year anniversary in 2013,” she says.
AAACF has an aggressive asset mix: Domestic stocks 23.1%, international stocks 23.9%, venture capital 4.4%, fixed income (bonds) 14.3%, hedge funds 23.5%, real assets 8.3% and cash 2.5%.
There's nothing unusual about weighting the mix to international equities. The world of investors has been shifting in that direction and out of domestic stocks for some time, says University of Michigan Associate Professor David Brophy. An expert on entrepreneurship, he is director of the U-M Office for the Study of Private Equity Finance and founder/director of the
Michigan Growth Capital Symposium.
Investing directly in entrepreneurs (i.e., one deal at a time) as an economic development strategy by a foundation is unnecessarily risky, he says. "AAACF only has a total of $60 million in its whole portfolio, and an allocation of, say, 8% of that would match the national average allocation of institutional investors. If you hit a downdraft with half a dozen direct investments, you would seriously hurt your ability to make community grants,” he says.
"Foundations shouldn't do venture investments directly in companies, but they might want to invest in a small number of appropriate venture capital funds,” he adds. But there might be other ways for them to support entrepreneurs. "AAACF might have real estate that's accessible to young companies as accelerator facilities. If accelerator demand proves unproductive, the foundation can rent it out for an alternative use," Brophy says.
Foundations and family offices, which manage a single family's private wealth, can and should play a part in providing risk capital in Michigan and the nation, he adds.
"Michigan is rich in foundations. Between family offices -- which manage private funds that are relatively unrestricted by ERISA and other regulatory constraints -- and the foundations, we could put more money to work in start-ups and growth companies via intermediated investment in venture capital funds.”
"If we can get family offices and private foundations involved in this type of funding activity, we could realize the value creation potential we have here at home. At some point, we in Michigan need to start eating our own cooking!” he says.
Constance Crump is Concentrate's Senior Writer. She's also an Ann Arbor-based writer whose work has appeared in Crain's Detroit Business, The Ann Arbor News, The Detroit Free Press, and Billboard Magazine
All photos by Doug Coombe
Photos:
Cheryl Elliott at the Ann Arbor Area Community Foundation's offices
Cheryl Elliott
Detroit Party Marching Band at Top of the Park
Cheryl Elliott
Matthaei Botanical Gardens
Cheryl Elliott
Creative Writing Director Jeff Kaas at The Neutral Zone
Cheryl Elliott