Iowa State University


Inside Iowa State
December 8, 2000

Who gets the money?

ISU Foundation often has little choice in how to use gifts

by Debra Gibson
Iowa State is not the first university to face such a conundrum: A woefully lacking operating budget on one hand, and a foundation flush with success following a recent $458 million capital campaign on the other. Inside spoke recently with Tom Mitchell, president of the ISU Foundation, on that organization's role in providing financial assistance to the university.


What is the foundation's relationship with Iowa State?
The ISU Foundation is a private corporation that has been incorporated under the laws of the state of Iowa since 1958. It is classified as a university-related foundation and is governed by a volunteer board of 16 directors, including the university president. [In addition to Mitchell's position as foundation president, he also serves as the university's associate vice president for external affairs.] More than 70 percent of university-related foundations nationwide, our size or larger, have similar status under their state laws. The purpose of the ISU Foundation is to work with alumni, friends, corporations, foundations and some associations to secure and manage grants and private gifts that benefit Iowa State.


What types of gifts do you receive and oversee?
Gifts to the university come to us as cash, stock transfers, property, pledges to be paid over time, wills, estates, trusts and life insurance policies.


What is the plan for determining how gifts are used?
The hallmark of voluntary giving is that the donor decides the type of gift he or she wants to give, as well as the timing of presenting the gift, its size and to whom it is designated. More than 95 percent of all gifts we receive annually are restricted for specific purposes on campus, as directed by the donors.


So how much is actually available for undesignated campus needs?
Typically, the foundation receives about $850,000 annually in unrestricted funds through its annual giving program (primarily telemarketing and direct mail). In addition, a limited number of estate gifts, varying in size, are received each year.


Did Campaign Destiny include provisions to raise undesignated funds?
Not beyond the annual giving program. It's very difficult to raise unrestricted monies, since less than 5 percent of our donors agree to designate gifts in that way. Campaign Destiny involved a long list of fund-raising priorities for the university. We discuss university priorities with prospective donors, but they are free to direct their funds as they wish.


So how are undesignated funds secured for Iowa State?
Most of those monies are raised through the foundation's telemarketing program, in which we phone alumni throughout the year and ask for gifts for unrestricted support. On occasion, we receive an unrestricted estate gift. For instance, about two years ago, the Stoddard estate bequeathed $3 million to Iowa State to be used where the need was greatest. After we talked with university administrators, the funds were distributed, $1 million each, to the Greenlee School of Journalism and Communication, the National Merit Scholarship program and the ISU Honors Program.


How do you decide who receives unrestricted funds?
Actually, it is the university president who makes that decision. Once a major gift has been received, the president determines how those funds can best support the university priorities at that time, and allocates them accordingly. The foundation maintains a list of university projects that need to be funded each year from unrestricted monies, including awards for faculty, staff and students. And we do telemarketing or direct mail fund-raising programs for each of the colleges every year, but those funds go directly to the specific colleges for use at the deans' discretion.


How can faculty or staff members have input on funding requests?
Each year, I meet with the president, the provost and the deans' council to determine priorities for the next fiscal year. The individual deans have received requests from their department chairs, who have met with their respective faculty members to assess needs. I would encourage faculty and staff members to work closely with their department chairs to identify specific needs to be considered within this process. During the five-year Campaign Destiny, we raised $14.25 million for endowed chairs and professorships and other programs of faculty support.


What about the foundation's many endowed funds? If those are worth millions, why can't we tap into those for university revenue?
Endowments are funds that are set aside in perpetuity. Only the interest earned off these invested accounts can be used for income. And the ISU Foundation has a 5 percent expenditure policy regarding its endowments; in other words, only an amount equal to 5 percent of the endowment's principal in any given year is actually available for use, but it must come from the endowment's earnings. Let's say we received a $100,000 endowed gift slated for scholarships. Last year, our rate of return on our investments was 20.5 percent, which means we earned $20,500 in interest on this $100,000 gift. A total of $5,000 was paid out in actual scholarships; $1,000, or 1 percent, was held by the foundation to pay administrative investment fees exclusive to endowments, and the remaining $14,500 was returned to the principal of the account to hedge against inflation and tuition increases over the long term.


Earlier this fall, some ISU students criticized the foundation for not providing more financial support to prevent a substantial tuition increase. Is that a fair criticism?
We have no resources to do it, based on the fact that 5 percent or less of our total funds are unrestricted. If this is an issue the university wants us to raise money for, it can be added to the priority list and we can go out and test whether the [donor] support is there. I am sensitive to the students' questions as to why the foundation didn't step in. But Campaign Destiny did raise more than $103 million in scholarship funds; $67.6 million of that was received as cash.


Should the foundation receive university funds during times when budgets are so lean?
The foundation has a $1.2 million/year service agreement with the university to raise and manage gift funds and maintain the institutional database. This database contains information on 180,000 alumni and friends of the institution, portions of which are accessible to university departments and colleges for official business. The service agreement picks up the costs of hardware, software, hourly wages for data entry and longer-term maintenance. Service agreement funds cover a portion of the salaries of about one- third of the foundation's staff. The current agreement expires June 30, 2001, and we're now in the process of reviewing it for renewal.


Are university funds used to pay for other foundation operating costs?
No. The foundation's remaining $8 million budget is funded by earnings from investments, as well as from gift fees. Typically, if you're doing a very good job of raising money, it costs less than 15 cents to raise $1. Last year, our costs were only 6.5 cents per dollar raised, and that was with only a 5 percent gift fee [the amount charged to cover the costs of administering a gift, e.g. accounting, tax preparations, donor acknowledgment and recognition]. This gift fee was reduced to 4 percent on July 1.


In what ways do you see the foundation assisting the university in the months and years to come?
In order to grow our private gift support, we need to realize the potential that still exists in a number of our colleges. We need to add more development officers to call on alumni and ask for their support. All those costs will be borne by the foundation. I don't think a lot of people realize that 85 percent of the gifts we receive come from individuals. Only 7 per-cent comes from foundations, 6 percent from corporations and 2 percent from other related associations.

The faculty, staff and administrators have been great partners with the foundation these past five years in raising extraordinary amounts of private support.

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