My post was based on a preliminary budget. The actual budgeted endowment contribution is $125K of a $551K budget, which is about 23%.

About 18% of the total is devoted to capital-related expenses such as paying off our carhouse loan and also some special projects which may be capital items.

Robby,

Regarding the establishment of endowments, if you review comments here, you will note that one or more major contributions really put the endowments on the radar. In other words, if you want to start one, find that one big donation to get the ball rolling. 67% of our endowments comes from 4 estates. Funding locomotive repairs from endowments would be a tough go. There are too many other seemingly higher priority activities that major donors give to like universities, religious institutions, Katrina Aid and the like. You would be better off determining a fundraising budget to raise the restoration funds and fund that budget out of an endowment. If fundraising costs float between 8-10% then you can do the math and see how much it will cost to fundraise for the loco. I think a rebuild in a year is ambitious and not really a realistic target. Ours took six years and cost right at $100,000. In your example, time is money. It is a lot easier to raise $400,000 per year over three years than churn out $1.2 mil annually. That would require $40,000 in development activity if the effort is an average one. Actually good museum consultants suggest an endowment of 5-8 times your operating budget as a reasonable target.

Wes,

It appears that you are asking the right questions. Figuring the scope of support that your endowment is intended for is wise. However, it is not reasonable to consider endowments as the bedrock of your operational revenue stream. They are to supplement the other activities designed to generate revenues for the organization. Your memberships, entrance fees, rental income, commercial use fees, and events should all create means of supporting the museum. It is true that an $800,000 endowment (very reachable in several years) would roll out your $40,000 for trolley restorations. So, it would seem to me to look for a key donor who would like their name attached to that specific activity and work to match their pledged donation as a start. We try not to allow our endowments to get too specific, but car restoration work would certainly not be inhibiting and would also be a "draw" for your trolleyphile constituency.

Although I realize the idea of funding an annual locomotive rebuild is extremely difficult from the standpoint of setting up an endowment, I used the C&TS as an example because I have a rough idea of their situation. Based upon their current operating season they are looking at almost a boiler job per year and about two running gear overhauls per season so the number is high per year but not off by a significant factor. The $1.2 million is based upon the anticipated request to the two legislatures for doing locomotives in the future. It is true that the rate of production today is not what was on the class one railroads during the days of steam due to the changes of the economies of scale. Where I see this making a bigger impact for a museum is in more tangible ways such as a library supply endowment for the Richardson Library at the Colorado Railroad Museum or a material (paper towels, lathe cutters, ties etc.) endowment for a museum’s projects or even perhaps a salary endowment for certain positions staff positions (similar to a endowment for a professorship) where it can in some way help insulate the beneficiary from economic forces. When you look at the Friends of the C&TS “Another Century of Narrow Gauge Steam” campaign 10% was to go to a permanent fund which after four years is about $60,000 if the information I have is correct. If a similar fundraising campaign was configured for an endowment setup you now see a small step to stabilize the funding for locomotive repair from the past issues they have endured, but I digress.

The question before me is what will be the state of funding for a museum. Will government and private grants be more prolific or less? Will other sources of income compensate for a potential loss? Any collection is going to require a certain level of care no matter what happens. A scholarship program at a University is made up of not one gift but several. Could a similar model be used? By finding out how other museums have planned their future either deliberately or accidentally maybe the rest of us can lean and move forward with fewer missteps.

As charities go I do not see a railroad museum on the same scale as charities for basic human survival but because of this we may have to plan for certain levels of economic uncertainty. I am thinking out loud here and I do appreciate everybody’s patience.

Sincerely,
Robby Peartree

This topic comes at a perfect time for us. We should be reciving a 6 figure check. This topic has the wheels turning.
I was proposing useing it for matching grants only. Investing the money short term till the match money is needed.
Our operating coast and slow expansion are currently being meet out of existing fund rasing but it's only hand to mouth no extra saved for rainy days.
I've been working on a prority list of our projects. We never had a working list in the past. New projects have been identified, growth can start moving faster with the money but I also stand firm on my putting some of the funds toward long term stability. This would be a great starting point.
So here are my questions to anyone kind enough to answer.
Let's use an imaginary amount such as 300,000.00 dollars would you put let's say200,000.00 in an edowment fund for long term growth and do short term investment of 100,000.00 for the grant match fund? This money being liquid in let's say 60 days for grant match. Or some other combination.
Another question is what were the determing factors used in making the decissions previosly listed here?. In particular Outside board vs. existing board or the same board that makes the normal decissions.
How were projects decided upon or priortized. Some groups it's simple where there are one or 2 projects. Then some of us have 10 or more. Since the money in question isn't ear marked for one thing it's kinda wide open.
Thanks in advance for any information.
Jack

Robby and Cwylde,

So far we've not designated income from our endowment for either operationg support or capital projects such as major car restorations. The income is just sitting there and compounding. At the moment we're knee deep in relocating in the park to make room for a freeway, so the issue of the endowment is sitting on hold. (The freeway comes with a generous check, which is the topic for a case study of its own.) The consultant report mentioned in my earlier post did give us something to go on for long-term planning. As for operations, at a minimum I'd like to see enough funds to endow a staff position in our education program for starters.



As far as state funding in Maryland, we are eligible to apply for grant funding through programs administered by the Maryland Historic Trust. Unfortunately, the available pool is minimal in comparison to state support for the arts. The same is true at the local level. This is where the history crowd in Maryland has failed to leverage the same level of support as the arts crowd. A few of our larger history Museums have done well on their own, but the general level of government operating support is not there for smaller museums. And increasingly any state or local funds in Maryland require matching funds, with a recent added requirement that you find "new" money as your match.

At present the local and state programs for which our museum is eligible are project-based. So we come up with new ideas each year and have been fairly successful. The advantage to the project-based grants is that you do not become dependent on the funding for operations. I have seen several down years when the award pool is cut for operating grants, or at best there is no increase in funds. Here is where the larger arts groups are at a disadvantage since operating support usually pays for staff salaries. At least with project grants you can simply defer a planned project or try again next year.

Back to you.

Wesley

I think Wes makes a very good point. Grant money can not be counted on for continuing support of a museum program, as it is too variable from year to year. It is generally subject to a competitive award process, and the organization that ranks highly one year may find itself in a lower ranking position in a following year, even assuming that total funding has not been cut.

My opinion is that an endowment fund is essential to support the day-to-day operations of any museum, if it is to survive long term as a private nonprofit organization. Visitor revenue can fluctuate for reasons that are often beyond the control of the museum. Although we have been fortunate in obtaining grant money for car restoration, I think that a large enough endowment to establish a long term restoration program would be highly desirable, particularly for a larger museum. For example, I estimate that that we will be working on restoration for at least the next 50 years at a minimum.

Building an endowment fund is difficult, but not impossible. Do not count on the large grant or bequest from the "big money" sources. These tend to go to "high culture" organizations. However, the more modest size bequest is probably the best source to building an endowment fund. For example, the $200,000 house is not uncommon in many parts of the country. Ten $200,000 house bequests would fund a 2 million dollar endowment, enough to provide $100,000 of income (at 5%) per year.

Our board did not have the full investment expertise or time to review the endowments. A separate committee in place would also make an easy transition to establishing a foundation should the need arise.

What I am about to say may upset many people but the purpose is intended to spur thought not to insight a riot. I look at many organizations in this business and I do not see several things in many organizations. First thing I notice based on my experience (which may or may not be accurate), is the usual difficulty in finding basic documents such as a strategic plan, master plan or even find the ever elusive mission statement. Some organizations have both worked on these documents and even provide access but often times I fell that everyone feels that they and everybody else knows their organization’s mission and future plans which are not always true because they often change due the particular individuals you talk with. If the basic plan is not in place then the financial picture is harder to understand because the long term financial need is not necessarily known. The only project seen is the one to be undertaken today. Yet the very items were preserving are existing beyond their design life and proving that futures are truly unknown.

Let us take a machine dear to my heart; El Paso & Southwestern 4-4-0 #1 built in 1857. Number 1 was built before the invention of the automatic coupler or the air brake. She sat in a park from in front of the El Paso & Southwestern headquarters building from 1909 to 1960 then moved to what is now known today as the University of Texas at El Paso (UTEP) Campus. In the 1970’s and 1980’s thought was given to operating the locomotive but eventually nothing happened. In 2002 she was removed from the campus for cosmetic restoration work prior to its installation in a new home in downtown El Paso which for the first time was designed for the care of the machine including a special system for climate control. The locomotive is a survivor in the truest sense of the word. She was retired before my grandparents were born and at the rate it’s going it will be around long after I am gone. With few exceptions for 90 years the locomotive received little in the way of preservation. However today she has utility bills that need to be paid monthly. Currently a city department gets the bill but will it stay that way? After all, the locomotive has a habit of outliving its homes.

So this takes us to the question of how does one plan for the locomotive’s future? It is treated as an artifact today (it may be 80% to 90% original). I see a true need to set up the locomotive’s future so the political whims of a given city administration does not leave it high and dry. An example of this to me is the issues recently facing the C&TS. Early on the C&TS enjoyed strong support from Colorado but passage of the bill to purchase in New Mexico came after heated debates. Recently New Mexico has been the determined partner with Colorado having other priorities. This and other deficiencies in the management have created the situation they are currently climbing out of. Largely because of Economic Development Grants they have the three locomotives operating today. Yet the plan was to fund more locomotives this way until Iraq intervened.

So where am I going with this? I realize that government programs will not always be available and that other stable funding sources are needed. I was surprised that no one brought up the idea of placing such things as lifetime memberships into an endowment or long term investment program to help cover costs over the life of the membership. A thirty year old with a 40 year life expectancy will get a pretty good return on his investment but it may cost the organization in the long run if the membership is not managed properly. With many pieces of equipment, were happy when the day’s expenses are recouped by operating revenue. I often find few groups are looking at recovering the capital costs from the last rebuild so they can make the next capital investment just as the original owners needed it to. While capital costs are currently raised though a special campaign I wonder if the railroad museum world needs to move to a more stable funding format? I will admit that endowments are one possibility and how they are structured will determine a lot about the long term vision of the people putting them together.

I believe Cornelius W. Hauck’s financial vision in the early years of the Colorado Railroad Museum was the fuel that brought the CRRM this far. But the rules for a nonprofit have changed greatly since that time that he worked his magic. How do we lead our respective museums so the next generation does not have the same struggles that we currently face? By only facing today’s problems we may condemn the future.

Sincerely,
Robby Peartree

"A thirty year old with a 40 year life expectancy will get a pretty good return on his investment but it may cost the organization in the long run if the membership is not managed properly. "

As I peruse the many, many members whose membership number sports and "L" signifying life membership, I note with haste that this group actually has contributed in both time and money far, far more than many who "pay as they go." Our life membership is 20 times the annual rate. So if they last 20 years, it would seem financially that we begin losing. Nothing could be farther from the truth. Last year, we received $228,000 from the estate of a "life" member. You are right Robby. Managing the membership matters, but I don't have in mind sequestering some of the funds into an endowment.

This same member brought a significant piece of equipment to us in 1998 of which he was part owner. We fixed the interurban car enough to pull it as a trailer behind a mechanically sound piece of equipment in 2005. This effort, though it pleased many, was primarily done to allow this gentleman the opportunity to ride in that car again. (He actually wore the same shirt that he had worn on a railfan excursion the last time he rode in her...50 years ago!)

He has subsequently died and blessed us with a portion of his estate. I am not saying that we must exclude the idea of endowments, but on paper certain policies will never replace the good ole human touch of care and concern for our members.

folks,

to add to this discussion in another way, the National Parks are not allowed to have endowments because the US Congress wants to have the control of the money they spend from year to year.

Sometimes a way to get around this is a Friends of group, but I don't expect to see an endowment at Steamtown NHS or Golden Spike NHS any time soon.

I am glad to hear that so many of the museums are getting past the hand to mouth stage and thinking of the long term future of the place!

Ted Miles

My head’s spinning regarding this thread. I think several fund types are being discussed here, all labeled as “endowment.” A true endowment is designated by a donor to be permanently restricted such that annual income, but not principal is available in perpetuity. This is not the same thing as a donor restricted fund whose principal must be used in a specific way. Nor is it a board designated reserve fund that can be restricted or unrestricted at the pleasure of the governing body. Finally, it is not the commingled cash amount in various restricted funds that is invested and whose income goes to the unrestricted general fund income.

There are advantages and disadvantages to each of these, but they should not be confused. There often is confusion between an Investment Policy and Spending Policy governing the use of endowment proceeds. They are equally important. The former usually is shaped by board sentiment, while the latter is driven (unfortunately) by budgetary consideration. Sadly, many organizations have investment guidelines that are too conservative, but spending needs that are too rich. That’s a toxic combination. As a final comment, I would not that many, if not most, museums refuse offers of endowments whose income is limited a specific fund or purpose. It’s common with universities to have endowed chairs, but the accounting is brutal and the money can’t be used in the event of emergency.

I understand that the National Model Railroad Association (NMRA) [I'm not a member of the organization] places its life membership payments into separate fund which may be endowment-like. It goes so far as to have a individual to contact the organization for the payment amount. I guess they look at it actuarially and look at it as a means of covering the costs over the life of the membership.

I believe the Friends of the C&TS has its life membership funds in a separate investment account. And I recall reading that it had borrowed, with a repayment schedule, from the fund to meet some extraordinary current expense the other year.

Most of the long-time railway museums created life memberships as a funding concept. To obtain current money in the early years and then support the ongoing incidental costs of the membership from other sources.
--- A different kind of museum funding.

The fund the C&TS "borrowed" from was the Another Century of Narrow Gauge Steam fund and it is my understanding the fund was not repaid.

Robby Peartree

Thanks for the correction. I will stand corrected.

I should have taken my time to do the homework and not rely on my memory.