By Bill King and Kim Embretson
During challenging economic times we must all do everything we can to build strong communities. One way to ensure local communities thrive today and in the future – throughout good times and bad – is to contribute to endowments at community foundations.
These endowments are like a gift that keeps on giving, benefitting everyone in a locale. They are a steady, long-term source of support to communities large and small, urban and rural. Foundation giving sustains nonprofits, fosters innovation, creates jobs and healthy economic climates, and much more.
Keeping it Local: Millions Back to the Community
According to MCF’s latest Giving in Minnesota research, community and public foundations grant about $160 million annually. If foundation assets were built up and grantmaking was boosted by 25, 50 or 75 percent each year, much more could be accomplished.
So how could community foundation grantmaking rise so dramatically? The recently completed Minnesota Generational Transfer of Wealth study (www.mcf.org/resources/transfer) indicates that more than $47.9 billion will be transferred from one generation to the next in Minnesota over the next 20 years.
If only 5 percent of that amount were placed in endowments, $2.4 billion would be set aside for use by local communities. And this would translate into approximately $120 million more annually for local community needs!
Endow Minnesota Philanthropic Tax Credit
This year, the Minnesota Council on Foundations (MCF) is exploring an initiative to spark increased giving to endowments at community foundations. The concept – called the Endow Minnesota Philanthropic Tax Credit – envisions the creation of an incentive for people with a wide range of asset levels to support their local community foundations, and thereby sustain the charitable causes that are most important in their lives.
Together with community foundations from across the state, MCF is exploring the benefits of this tax credit idea, which is patterned after a similar program in Iowa. It would encourage individuals, families and businesses to make donations to community foundations’ permanent endowments, and thereby support local economies, families and communities.
As initially conceived, the proposal would enable donors to receive a tax credit for contributing to a qualified community foundation. Donors could benefit from giving as little as $100 to up to $100,000.
To qualify to receive these gifts, a foundation would be required to meet national community foundation standards, be located in Minnesota and make grants to benefit people living in our urban neighborhoods and rural towns.
A Philanthropic Success in Iowa
Evolution of the Minnesota proposal draws heavily on a similar successful measure in Iowa. Endow Iowa encourages Iowa taxpayers to donate to permanent endowment funds at qualified community foundations to benefit charitable purposes in the state. Gifts are eligible for a 25-percent state tax credit, in addition to federal charitable deductions.
Since its creation in 2003, Endow Iowa has leveraged more than $95 million in endowed gifts.
The Iowa Council of Foundations offers an online tax calculator (www.iowacommunityfoundations.org/resources.aspx) that illustrates the potential tax savings and the long-term impact of giving to an endowed fund – the value to the donor and to the local community.
The Endow Iowa tax credit works well because it encourages tax advisors to engage their clients in a discussion about giving back to their community – the place that produced the values and resources that contributed to their personal success.
In Minnesota, especially in the past ten years, we have seen a growing interest among donors to make a difference by giving back to their communities.
Promoting Philanthropy by All
We believe philanthropy is not just for the very rich. Like the Endow Iowa model, the proposed Minnesota tax credit would be designed to engage donors from all walks of life and all means. In Iowa, credit amounts have ranged from $1 to just over $225,000. And a majority of qualifying gifts has been less than $1000.
Modeling Iowa’s approach, in Minnesota we would also want to engage donors of all abilities to give. For instance, a small minimum gift size of $25 or $50 would ensure broad participation. Also to encourage small gifts, a percentage of available tax credits could be reserved for those donations.
While donors would benefit from a tax credit, the ultimate beneficiaries would be, in essence, the donors’ next-door neighbors – the local communities and nonprofits that receive financial support through the endowed funds. With this extra incentive, local individuals and businesses would be motivated to elevate their giving in nearby communities. Then the charitable value of these donations would compound over time, maximizing benefits in their locale.
Good for Individuals, Businesses and Communities
As we explore the idea of an Endow Minnesota Philanthropic Tax Credit we see real potential to leverage significant assets on behalf of our state.
MCF and our community foundation partners think the time is right for this concept because of the high number of assets that will be changing hands in the immediate future…and because of the ever-increasing need to ensure the future strength of our local communities.
In the next 20 years, the transfer of wealth from retiring baby boomers will accelerate. Many of these Minnesotans may not realize how vital their accumulated resources will be to the places where they and their parents grew up, where their children went to school and where they actively participated in a community of individuals who supported each other.
By making an endowed gift to their community foundation, these retirees could receive a tax credit and ensure that their resources will be directed to local causes about which they care the most. As time passes, they would be assured that their community foundation will have the skills to manage funds and distribute resources appropriately, all while having the best interests of local people at heart.
If you are interested in learning more about the proposed Endow Minnesota Philanthropic Tax Credit, please contact MCF at 612.338.1989. We welcome support from all sectors – because the sooner we act, the more our communities have to gain. Let’s keep resources in our state, meeting the needs of everyday Minnesotans.
Bill King is president of the Minnesota Council on Foundations. Among MCF’s members are 43 community and public foundations.
Kim Embretson is vice president of development at West Central Initiative. He serves on the MCF Board of Directors and chairs the Endow Minnesota Philanthropic Tax Credit task force.