And yes, that sort of thing was often done with endowments, and it made sense in the 50's when there were these Blue Chip companies like Chrysler and Bethlehem Steel that you could buy their stock and be paid dividends "forever", and never have to care about the price per share. The problem is as you describe here:


That "double taxation" is something that general investors really wanted to avoid. So a new generation of stocks (notably, on the NASDAQ, that would be pretty much all of high-tech) chose NOT to pay dividends, and stockholders took profits by selling shares.

Trouble is, if you're buying stocks for dividends, then you're ignoring better stocks that don't pay dividends. For instance you would have shunned all tech stocks and small companies, which means you would have completely missed the computer revolution. That would be a big hit to your endowment.


First: Charities pay Unrelated Business Income Tax. If they run a cell phone kiosk in the mall, they pay UBIT. The rate is the same as for corporations. Most passive income (and some other stuff) but not all, is exempt from UBIT.

I know of two tax treatments. A corporation is a legal person that pays its own tax. After that, it pays dividends (if it does that). Dividends are exempt from UBIT.

The other is the pass-through entity: partnerships, most LLCs, S-type corporations, etc. In this case, the taxes "pass through" to the individual shareholders, as if they earned the profit themselves. The question for the charity is, "If I earned this profit myself, would UBIT apply to it?"

My understanding is that charities see REIT and MLP as pass-through entities.

http://www.irs.gov/pub/irs-tege/eotopicl00.pdf page 169
http://www.irs.gov/publications/p598/ch ... 1000267797
http://blog.elkocpa.com/nonprofit-tax-e ... ubit-rules

Two comments from various points in this thread:

1) Whether or not investment income that a non profit earns is taxable or not depends on certain tests on the IRS 990.... and if a non profit finds itself consistently not meeting this test, it's time to think about setting up a separate tax exempt foundation.

2) I haven't seen the IRM newsletter and don't know if there were any restrictions on how the money they were given can be used, but would be surprised if a donation this large was totally unrestricted.

Bob H

The money has no restrictions put on it.

First: WOW! One Mil. with NO restrictions. Katie bar the door.

Since my only financial qualification comes from being a first-class tightwad, I will stay out of the finer points of this stuff. I will say that I have thought about this sort of thing from the perspective of my own collection, and what I want to have happen to it. Finding any sort of archive, museum, historical society, etc., that might be interested or care about what I've spent the past 40 years accumulating (mostly photographs in various formats, a lot of railroad company docs from my employers, very little "hardware") has seemed to be a nearly impossible task. Just dumping a pallet of boxes of material on the doorstep of the local Historical Society without any kind of financial contribution to help conserve it probably will lead to a lot of it ending up in a dumpster, unsifted.

I like the idea of an endowment, provided that the money can be put away, and not using it won't hurt the annual operation of the museum. With interest rates for long-term savings near zero, taking President Washington's supposed advice about investing ("buy land, they aren't making any more of it") might be the best thing to do right now. Any chance of, or interest in extending the operating RoW of the museum? Maybe adding space for turning facilities of some kind (wye, balloon track, or turntable)? That would certainly help the flow of the operation. I've long felt that whatever their other shortcomings, the EBT having a wye at both ends of their line is a major plus. If not a way to turn the "steam road" or "heavy rail" equipment, then tighter "trolley loops" that don't require as much room.

What to do with a million dollars. What a difficult question they are facing.

Yes, that's very, very unusual, usually donors aren't that... trusting.

WRM's endowment was about the size of IRM's endowment when Loring Jensen died. His will specified $600,000 to WRM for Carhouse 3 and a fraction of the rest of his wealth to WRM's endowment. We had no idea. That single event put WRM's endowment "on the map".

Suddenly we started getting grants from outfits like the Allegheny Foundation, which rarely gives west of the ... Alleghenies.


Like I say, endowments don't work like anything else.

WRM's investment performance:
Aug. 2009 5,584,707
April 2010 5,907,982
April 2011 6,718,828
April 2012 6,531,022
April 2013 7,610,023

That is lock-step with every other endowment.
https://osufoundation.org/about/financi ... rmance.pdf
http://www.marquette.edu/endowment/endo ... ance.shtml
http://dukeforward.duke.edu/ways-to-give/endowment
... because we all invest the same way, same asset mix, similar portfolios.

Because there's pretty much only one correct asset mix for an endowment, and they have so many stocks in each asset class that it averages out.

How do you own a bunch of stocks in one asset class? You buy a mutual fund, most of them contain stocks in one asset class.

All I will say is we better see some steam by 2014 then with that type of money..

If this windfall gift is used towards throwing a big steam party I'm afraid I will have to quit being a member and contributor to the organization.

From the outside looking in, there hasn't been much steam action in a while. I have no idea what money is owed to the bank, or what politics are involved, but there are is a whole line of steam/diesel locomotives and cars sitting outside that could use a roof over their heads. Priority one should be getting those under cover. Does that mean investing the money and using the money earned to buy more property to build buildings? Maybe it does. In the end, what ever money is spent should be to accomplish that goal. Just my opinion as an outsider.

If they don't put at least $200,000 to steam then I'd loose respect for them. Pay off debt and any other legal transactions first of course but with steam back in service by fall of this year as told to me by steam department blogger Nigel Bennett, their ridership will no doubt sky rocket being everyone is waiting for the debut of Frisco 1630 which as I said is scheduled for fall. So being that's their real driving force for more ridership they really ought to put at least some money into the steam department cause they always say with money UP 428 and St Regis #5 could be done, well, you got money now! I'm saying it should be used to finish the 428 and 5, not start whole new projects...

Ther looseness or tightness of your respect is of little consequence to the management at IRM. And, basing your contention that steam is the basis for success on the blogging of a steam fan - in an organization that is doing a fine job of making a success of themselves without interference..........well, let's just say the inference that their management ability and knowledge of their own situation is of less value than that of a steam blogger with no dog in the fight is not only absurd but insulting.

Trust them to act in their own best interest as they have proven themselves able to do. If steam is a priority because they have good reason to make it so, we'll see it. If not, that's OK because something more worthy is the priority.

I'm happy they have been so successful, and wish them the best and I'm sure they will give due consideration to how best to put this bequest to work for them. I sincerely hope they won't put comments from railfans into the equasion.

dave

As a long time member of a steam-diesel-electric museum, I recall hearing one of our steam specialists (I tend to work mostly on the electric side of the house) saying something like, "It's quite amazing. There are steam fans out there who will never be seen when there's work to be done. and they plead poverty when there's a fund raising drive, but let that [steam pressure] gauge start moving off the peg, and they appear as if by magic." And another member commented, "often they have a $2000 camera to photograph the engine with."

Let's see....

Whose "respect" should they make a priority.....

Some anonymous guy with a pseudonym "SPSteamBuff"?

Or the accountants who judge whether or not a place like IRM is worthy of a potential grant from government or foundation coffers, the guys administering the charitable giving wings of big corporations, and the like, by running a properly administered organization?

SPSteambuff,

What marketing research do you have to support your contentions regarding your purported "surge" in ridership once steam is back at IRM?

The reason I ask is that I personally know the people doing market research at IRM, and your name hasn't come up, whatever it is. I'd love to see your research. I want to see how many visitors or potential visitors you've surveyed. How many said they'd come only if steam is running and from what geographical areas they come from.

Plus I'd like to know how you've conducted this research when nobody in a decision-making capacity at IRM has heard of you. I think they'd notice someone on the property with a clipboard talking to visitors.

Please PM me with this information. There's a Board of Directors meeting on June 15. I will be there. I'm sure they want to see your research.

I apologize for the first rude statement about the respect. I understand from a marketing stand point that putting a steam locomotive back in service while not easy is very time and money consuming. Now tell me, what would a railfan pay more to see? A steam engine or a diesel. You can find diesels all across the country but how often is it you get to watch a steam locomotive in action? Which would you pay more to see? Something made in the 19th and 20th century? Or some 21st century piece of junk. I love the IRM's diesel collection as this is more directed towards modern freight diesels. I'm not one of those people with a $2000 dollar camera b******g about a steam engine not being restored or not helping out. I follow the weekly progress the Steam Department makes and it's incredible what they do and how much they get done. If I was made of money heck yeah I'd donate tons towards the restorations but I am only a high school student. And don't be so rude to say oh that explains it, I understand and know a lot of what's going on for someone as young as I am. Steam locomotives are my #1 favorite mechanical piece of engineering and I spend a lot of my free time researching, emailing, and talking to people involved with projects to find out what the latest is on said project of theirs. Always kind and complementary. Now being the common answer to why other IRM steamers or the current ones that aren't finished is MONEY, why are they not to put at least some towards something probably the most fund consuming and labor intensive? As I said take a pole and see how many more people would pay to ride behind a steam engine then a diesel. there's your demographic for you.