My first involvement with endowments started during my tenure as a director for the Mule Deer Foundation. In the non-profit world, an endowment fund was thought of as a guarantee of survival. With a few million dollars in an interest-bearing account, the organization would be perpetually secure.
Then along came Conservation Banking and a different twist on endowments – perpetual funding for land management. A requirement of the US Government, via the Fish and Wildlife Service, and California, via the Department of Fish and Game, endowment funding is used to create a steady stream of funds for use in management of privately-held conservation properties.
In this scenario, money held in trust by a third party yields a return of cash at a predetermined rate in order to produce an income stream. The revolving fund pays the cost of activities necessary to maintain healthy habitat for wildlife. If all goes right, the program continues in perpetuity.
Since the endowment guarantees that the cost of maintaining the land is covered, the developers of the conservation project can pass the property on to caretakers such as agencies or non-profits.
Endowments provide other side benefits to the project developers and approval agencies. In order to determine the size of the endowment fund, other factors must be defined. The first is, “How much money will the project require each year in order to sustain itself?”
In order to answer this question, information about the land and associated management activities must be determined. In the case of a Conservation Bank, surveys must be completed to determine existing species, habitat types and maintenance activities.
Physical features that require periodic maintenance, such as fences, dams and roads must be quantified into units. The useful life of land improvements must be estimated as well as replacement and maintenance costs.
The costs of other practices must be estimated by creation of a management plan that determines work to be done and the time needed to accomplish tasks. Wages, fees, supervision and administration must also be included in the mix.
With a management plan and annual budget nailed down the rate of return on endowment fund is the next critical item in determining the size of the endowment account.
The process of creating an endowment account is very revealing. Public and private landowners create management plans and budgets when acquiring property, but if a formal endowment creation process were a prerequisite to government acquisition of land, the public would be better served.
“Buy now and figure out how to fund management later,” is a poor way to run any organization and in California that attitude has helped to put the taxpayer in the hole or facilitated the purchase of property that remains locked up because there is no funding available to pay costs associated with public use.
It seems to me that endowment creation as a prerequisite to California land purchase would be good business practice and serve decision makers well by unmasking the true cost of property acquisition.