April, 2010 Prepared for: Board of Directors Economic Scenario Planning for Sample Foundation Community Foundations Leadership Team

2 I.Introduction II.Expected Scenario III.Alternate Scenarios IV.Discussion Contents Note The pre-populated model and presentation template are based on a predominately endowed foundation with a 3- year rolling average, which determines most of its economic outlook. Your own operating model might be quite different, which means the conclusions that might get shared in such a presentation for your foundation might also be quite different.

3 With the Help of the CFLT’s Economic Scenario Planning (ESP) Model We Have Developed a Five-Year Forecast for Our Foundation Introduction In response continued economic uncertainty, the Community Foundations Leadership Team (CFLT) created the “Confront the Brutal Facts” task force to help community foundations better understand the challenges of the current economic climate and its impact on budget and business decisions Based on the task force’s recommendation, the CFLT commissioned CF Insights and FSG Social Impact Advisors to create an Economic Scenario Planning (ESP) model (“stress test”) for community foundations available free of charge as an assessment and forecasting tool to answer pressing questions, such as: –Under what circumstances will the foundation’s assets return to pre-recession levels? –How will the foundation’s income statement be impacted if the market does much better or much worse than expected? –What adjustments need to be made to spending policies if absolute grant levels are to be maintained in the coming years? –How much of a gap in administrative fees might the foundation be facing / how much revenue from other sources does the foundation need to generate in the coming years? –What impact would a major new gift have on the foundation? –Can the foundation afford to increase its operating expenses in the coming years? –Will the foundation have enough operating cash? We have used the ESP model to create three scenarios for what the next five years could look like for our foundation and look forward to discussing these with you today  

4 Today We Will Present Our Assumptions, Show How They Impact Our Operating Model, and Discuss Key Implications for the Foundation Our goal for today is to discuss these and related topics and determine the best course of action as the foundation heads into the next year Introduction First, we will present a five-year forecast based on our current expectations of market performance, donor behavior, spending policy elements, alternative revenue growth, and operating expenses Next, we will show how changes to these assumptions would impact core operating indicators The key findings from these analyses highlight several important discussion topics: Key Finding Discussion Topic If we keep our grant pay-out at 5%, grants in 2012 will be 15% lower than in 2008  Should we increase our grant pay-out rate? Administrative fees will likely cover only 70% of our operating expenses in the coming years  Should we make further budget reductions or increase efforts around other revenue sources? Our operating reserve will get down to 4 months of cash by year’s end  Should we launch a fundraising campaign for general operating support next year?

5 I.Introduction II.Expected Scenario III.Alternate Scenarios IV.Discussion Contents

6 Key Assumptions Our Expected Scenario Is Based on the Latest General Economic Outlook and Local Trends We’ve Experienced in the Past Few Months Expected Scenario Based on conversations with our investment advisors, development staff, and program staff, this scenario assumes market recovery starting in 2010, with no changes to spending policies. The staff will continue to pursue other sources of revenue, while we maintain our operating budget at current levels. CategoryAssumptionRationale Market Performance 4% return in 2010, followed by four years of 7% return Economists are expecting markets to recover in 2010; the average annual S&P return since 1950 is 9.2% Donor Behavior New gifts as % of assets is 3% in 2010, 4% in 2011, and 5% thereafter These % are lower than those of the period of because the economy overall may recover slower than the markets (“jobless recovery”) Spending Policy No changes (i.e. fees remain 1.3% of assets and grants paid out remain at about 5% of assets) We do not think it prudent to increase fees; we have seen the 5% level of grantmaking hold steady over the past 12 months Other Revenues Fee for service and general operating grants grow at 10% after 2011 Smaller organizations will continue to look to us for back office support; our community efforts during the crisis will pay off in the form of operating support Operating Expenses Annual growth of 3% Growth reflects inflation and small pay increases; since preserving operating capacity is a key priority for the organization no further reductions are assumed     

7 We Expect Assets to Recover to Pre-Recession Levels in 2013, With Grants Exceeding Gifts Until 2012 Expected Scenario Comments Absolute grant levels will not recover to 2008 levels until after 2013 The foundation must decided if changes to the spending policy should be made to allow for increased grantmaking If we decide to keep the pay-out at 5%, we should let our grantee community know that they should expect fewer available resources until 2013

8 We Anticipate Operating at a Slight Deficit in 2011 and 2012 Unless Further Budget Action Is Taken Expected Scenario Personnel Non-Personnel Comments Assuming operating expenses only grow by 3% / per annum (to account for inflation and modest pay increases), we will be operating at a deficit in 2012 and 2013 Should we take further budget reductions in anticipation of this or are we comfortable with dipping into the reserve?

9 Alternative Revenue Will Be Increasingly Important in the Coming Years Expected Scenario Comments We may have to tap into the reserve in 2012 and 2013 Fee revenue will go from covering 80% of revenues to 70% of revenues; we have to think creatively about alternative revenues We need to grant more than 5% of the three- year rolling average in the coming years to maintain grants at 5% of year-end assets balance

10 I.Introduction II.Expected Scenario III.Alternate Scenarios IV.Discussion Contents

11 Optimistic Scenario These Two Alternate Scenarios Test How Key Operating Indicators Would Be Impacted if Some of Our Assumptions Panned Out Differently Alternate Scenarios Pessimistic Scenario In this scenario, markets end the year up only 3%, with future growth at 4% or 5% at best; DAF holders curb gifts in each of the next five years as economic uncertainty persists Market Performance 6% return in 2010 instead of 4% 3% return in 2010 instead of 4%; 4% return in 2011 and 5% return in instead of 7% Donor Behavior New gifts to DAFs at 5% of assts per year starting already in 2010 instead of 2012 New gifts to DAFs as % of assets 1% lower in each of the forecast years Spending Policy None Other Revenues None Operating Expenses None      In this scenario, markets end the year up 6% and our DAF holders shore up their asset levels with new gifts in 2010 and 2011 Key Differences to Expected Scenario

12 While Our Expected Scenario Implies Assets of $44 Million in 2014, This Figure Could Range from $38 Million to $46 Million Alternate Scenarios

13 While We Anticipate Gift Levels of Around $2 Million in 2012 and 2013, If the Economy Does Not Recover this Figure Could be 25% Lower Alternate Scenarios Comments The development staff believes the 2010 estimate is doable Comments This scenario assumes a faster recovery of gifts in 2010 Comments In this scenario, the foundation should be very targeted in its fundraising efforts

14 While We Hope to Reach Annual Grant Levels of $2 Million Again in the Next Five Years, a Worsening Economy Could Stand in the Way Alternate Scenarios Comments We should provide guidance to our grantees that 2012 will be a tough year Comments Even in this scenario, full grant level recovery does not occur until 2013 Comments If this scenario pans out, serving the community “beyond the grant” becomes critical

15 Deficits Are Likely Unavoidable in the Next Few Years, Unless Both the Markets and Donors Rebound Faster Than Expected Alternate Scenarios Comments We have more than enough cash in our operating reserve to cover this deficit Comments If this scenario pans out, we could begin investing in operating capacity again in 2013 Comments If this scenario pans out, personnel cost reductions may become unavoidable

16 [Use this Analysis if You’ve Created Scenarios with Vastly Different Revenue Mixes] Alternate Scenarios Asset-Based Revenues Operating Endowment / Reserve Revenues Other Revenues

17 I.Introduction II.Expected Scenario III.Alternate Scenarios IV.Discussion Contents

18 How Do Our Assumptions and Results Compare to Our Peers? To come Discussion If you’ve participated in a peer learning group, you can use this space to show what you’ve learned about how your peers are thinking about the coming years OPTIONAL

19 Based on the Results of the Economic Scenario Planning for Our Foundation, Several Key Discussion Topics Have Emerged Discussion Key Finding Discussion Topic If we keep our grant pay-out at 5%, grants in 2012 will be 15% lower than in 2008  Should we increase our grant pay-out rate? Administrative fees will likely cover only 70% of our operating expenses in the coming years  Should we make further budget reductions or increase efforts around other revenue sources? Our operating reserve will get down to 4 months of cash by year’s end  Should we launch a fundraising campaign for general operating support next year? Secondary FindingDiscussion Topic A deficit may not be avoidable in 2012 and 2013  Is the board comfortable with this? Total fees for our small DAFs will hover around $20,000 for the next few years  Should we create minimum fees to bring the fee level back up to cover ½ FTE?