School Finance

Shaking the Tree: The Benefits (and Costs) of District Education Foundations

D

istrict education foundations (DEFs) are private, nonprofit, tax-exempt organizations that are positioned between a district and the community.1 Analogous in many ways to charitable organizations, DEFs solicit funds from individuals and businesses and then distribute those funds to a particular school district. Although researchers have not measured the extent of DEF activity nationally, they estimate that their numbers have increased from 100 in 1980, to 1,500 in 1990, to over 4,000 today (National Association of Education Foundations, 1994). And yet, despite these figures, educators know very little about this revenue source. For example, they have only incomplete answers to these important questions: How many districts have DEFs? Why do districts form DEFs? ■ ■

What are the sources and uses of DEF funds? Do DEFs benefit schools? What costs (if any) accrue to the district from DEF activities? To answer these and other questions, we recently conducted a comprehensive study of DEFs in California and New York.2 Here is what we learned.

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How Many Districts Have DEFs? We began the study by determining the prevalence of DEFs in New York and California. As Table 1 indicates, the incidence of DEFs in California is high and greater than that of New York. We anticipated this finding, given California’s regulatory climate relative to New York. (In California, local property taxes are constitutionally limited, whereas New York has no such provisions.) However, we did not anticipate that 18% of New York’s districts would have DEFs and that another 15% were considering establishing one. If those districts that are considering establishing a DEF do so, the rate of DEF activity in New York will soon rival that of California. We gleaned further insight into the scope of DEF activity by grouping the foundations by year established. As Table 2 indicates, DEF development in California appears to have begun with the passage of the now infamous Proposition 13 in 1978. Nevertheless, the 1990s were the decade of the greatest foundation expansion in both California and New York. One explanation for this phe1

DEFs are organized under Section 501(c)(3) of the Internal Revenue Code and exist independently of local school districts. See Merz and Frankel (1995) for a thoughtful discussion of the legal issues surrounding the establishment of a DEF. 2 Because education foundations can take many forms, it is important to define the type of foundation that we studied. Put simply, we examined education foundations that were established to assist a single school district. We did not study foundations that serve multiple districts, sometimes called public education funds. Nor did we examine broad-based community foundations that direct only a portion of their resources toward educational purposes. Finally, our study did not include the myriad student scholarship funds, booster clubs, and parent-teacher organizations that support schools.

By Brian O. Brent and John C. Pijanowski 6

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Table 1. Prevalence of District Education Foundations in

Table 2. Years District Education Foundations

New York and California, 2000–2001

Were Established

New York % California % Total Districts Total Districts Prevalence of DEFs in NY and CA Considering establishing a DEF Considered but did not establish a DEF Never considered establishing a DEF Discontinued a DEF

18%

Year Established

33%

15%

5%

6%

1%

60% 1%

59% 2%

nomenon is that the surging national economy prompted the formation of many DEFs. If so, we might not soon experience similar growth. Alternatively, DEF activity throughout the decade might simply reflect the emergence of a new funding source.

Why Do Districts Form DEFs? To better understand and anticipate the growth of DEFs, we asked foundations to indicate the reasons that prompted their formation. Most foundations listed several reasons

New York % DEFs

California % DEFs

Before 1976

1%

1%

1976–1980

1%

4%

1981–1985

3%

29%

1986–1990

7%

13%

1991–1995

30%

29%

1996–2000

58%

24%

for their establishment, including improving the quality of the educational program, improving school-community relations, and supplementing local revenues (see Table 3). In addition, most foundations stated that improving the district’s educational program was the most important reason for their formation. Nevertheless, California’s foundations were about twice as likely as New York’s to report that supplementing local revenues was the most important factor. This finding suggests that a state’s regulatory climate can encourage the formation of DEFs.

Table 3. Reasons Districts Established DEFs New York Reason

I

NI

California MI

I

NI

MI

Improve school-community relationships

84%

16%

6%

76%

24%

8%

Improve the quality of the educational program

89%

11%

60%

96%

4%

41%

Supplement local revenues

81%

19%

20%

92%

8%

36%

Facilitate tax-exempt donations

67%

33%

6%

80%

20%

7%

Identification of a large donor

39%

61%

2%

33%

67%

1%

Fund a specific project

39%

61%

6%

65%

35%

7%

Other districts in the area had foundations

39%

61%

0%

32%

68%

0%

Note. I = important; NI = not important; and MI = most important.

Table 4. DEF Revenue-Raising Activities New York

California

Activity

Use

Success

Failure

Use

Success

Failure

Special events

76%

92%

8%

88%

92%

8%

Telephone solicitations

21%

57%

43%

42%

62%

38%

Mail solicitations

68%

83%

17%

73%

77%

23%

9%

50%

50%

15%

20%

80%

Grants

33%

87%

13%

64%

88%

12%

Planned giving

32%

72%

28%

33%

61%

39%

Other

16%

60%

40%

24%

89%

11%

Door-to-door solicitations

Note. Use = activity used by DEF; Success = DEF deemed the activity a success; Failure = deemed the activity a failure.

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Table 5. Contributing Sources of DEF Revenues

Source Individuals (i.e., the community at large) Bequests District employees (e.g., teachers and staff) Parent groups (e.g., PTAs and booster clubs)

New York % DEF Revenues

California % DEF Revenues

68.6%

59.7%

1.2%

2.0%

New York Average per Pupil

California Average per Pupil

Revenues

2.5% 0.6%

Gifts

$23.00

$152.80

Program service

0.10

2.70

Dues

0.20

0.10

3.2%

Investment income

3.00

11.10

2.0%

Net income from special events

5.50

29.80

Other revenue

(0.30)

4.20

$31.50

$200.70

Salaries, wages, & benefits

$0.60

$2.30

Professional fund raising fees

0.10

0.20

Accounting fees

0.20

0.50

Legal fees

0.00

0.00

Printing, publications, & postage

1.20

4.80

Rent, utilities, & maintenance

0.00

0.10

Student groups

0.1%

1.1%

Alumni groups

0.9%

0.5%

Civic groups (e.g., Rotary Club)

1.3%

1.1%

Local businesses

7.7%

9.3%

Large corporations

5.6%

6.5%

Governments

4.7%

2.8%

Other foundations

1.8%

8.1%

Other sources

5.0%

3.7%

10.0%

10.0%

DEF has refused a donation

Table 6. Aggregated DEF Financial Statements

Total revenue Operating expenses

0.80

3.70

What Are the Sources and Uses of DEF Funds?

Total operating expenses

Other expenses

$ 2.90

$11.60

Most DEFs raise funds in multiple ways (see Table 4). Among the most common and successful activities are special events (e.g., dinners, auctions, and fairs) and mail solicitations. Many of California’s DEFs also successfully used grants. New York may have lower levels of grant support because most of its DEFs are new and do not yet have the infrastructure to support grant writing. Table 4 also reveals that each of the fund-raising activities failed in some districts, with door-to-door solicitations being the least effective. Coupled with the knowledge that some DEFs are ultimately discontinued, this finding should give pause to those who believe that merely starting a foundation guarantees its success. Our next analysis examined the sources of these revenues. As Table 5 shows, DEFs secured the greatest percentage of their revenues from individuals and local businesses. In addition, district employees contributed a small, but unanticipated, share. On the other hand, parent, student, alumni, and civic groups contributed little. This finding is not surprising, given that these groups often compete with DEFs for local dollars. Table 5 also reveals that 10% of the DEFs had refused a donation at least once. When asked why they refused, foundation officers noted that donors sometimes restricted the use of their gifts for purposes that ran counter to the foundation’s mission (e.g., funds targeted at one classroom).

Contributions to district

$17.20

$114.20

$77.00

$284.00

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Fund balance Assets Less liabilities Total fund balance

(5.00)

(6.00)

$72.00

$278.00

Next, Table 6 offers financial data for DEFs in New York and California. We report per-pupil figures to account for differences in district size. Turning first to the revenue section, we see that California’s DEFs raised considerably more revenue per pupil than New York’s. This difference might result from California’s DEFs being more likely than New York’s to rely on entities with potentially greater fiscal resources than individuals, such as local businesses, corporations, and foundations for gifts. This difference might also simply reflect the relative inexperience of New York’s foundations in soliciting gifts. In addition, California’s DEFs generated roughly four times the level of investment income of New York’s foundations. This finding is not surprising when one considers the large disparity in fund balance that exists between the states. Several reasons might explain a DEF’s desire to build fund balance, including maintaining liquidity or the preference of donors. Regardless of the reasons, if a DEF builds www.asbointl.org

Table 7. DEF-Funded Projects New York % of DEFs

California % of DEFs

Special teacher-developed projects (e.g., curriculum-enrichment projects)

65

81

Instructional materials (e.g., textbooks, library books)

47

83

Instructional equipment (e.g., computers)

52

88

Extracurricular activities (e.g., sports, trips, and special events)

38

60

Facilities and grounds (e.g., construction or renovation)

28

32

Professional development for teachers or administrators

16

28

Salaries for additional personnel

3

28

Salary enrichment or stipends for existing personnel

6

12

Project

Awards for exceptional teachers and other staff

4

14

Programs that connect families and schools

25

25

Scholarships for college-bound students

32

46

6

8

Other

Table 8. DEF Benefits to District New York Our DEF has . . .

California

Agree

Neutral

Disagree

Agree

Neutral

Disagree

Improved school-community relationships

90%

9%

1%

90%

7%

3%

Improved the quality of the educational program

86%

13%

1%

87%

12%

1%

Allowed the district to provide programs that would otherwise be impossible

81%

12%

7%

87%

11%

2%

Improved teacher attitudes and morale

48%

44%

8%

66%

30%

4%

Exceeded the district’s expectations as an alternatives revenue source

41%

41%

18%

57%

30%

13%

0%

—

—

0%

—

—

No influence on the district’s ability to pass budget and bond measures

67%

—

—

50%

—

—

A positive influence on the district’s ability to pass budget and bond measures

33%

—

—

50%

—

—

A negative influence on the district’s ability to pass budget and bond measures

fund balance, it necessarily means that their revenues in any given year exceed their contributions to the district. Interestingly, most foundations also reported their intent to increase their fund balance. That DEF revenues often exceed their contributions to districts is made clearer by the expenditure data reported in Table 6. Typically, DEFs devote between 6% and 9% of their revenues to operating expenses, such as accounting fees, printing, and rent. Overall, the small percentage of revenues devoted to operations suggests that foundations are quite efficient in many ways. Finally, foundation revenues that are not used to build fund balance or meet operational expenses are contributed to the district. As Table 6 reveals, DEFs contribute about 55% of their gross revenues to local districts. In general, these contributions are marginal when compared with total district expenditures. Indeed, DEF contributions in New York www.asbointl.org

and California amounted to only 0.13% and 1.6% of district expenditures, respectively. Nevertheless, some DEFs in both states had contributions that far exceeded these average figures. These foundations might offer a glimpse of the possibilities.

Do DEFs Benefit Schools? Our next analysis highlights the benefits of DEFs by detailing the types of projects funded (see Table 7). In general, DEFs base project funding on their level of resources and program goals. When sorted by revenue level, smaller foundations typically provide minigrants for teachers to develop creative classroom projects. Smaller foundations also frequently fund the purchase of instructional materials and equipment, such as library books and computers. At the other end of the revenue-generating scale, larger foundations sometimes support teaching positions. S C H O O L B U S I N E S S A F FA I R S | M AY 2 0 0 3

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Table 9. District Costs to Support DEF Donated resource

New York

California

29%

31%

What Costs (if Any) Accrue to the District From DEF Activities?

Assistant superintendent(s)

6

17

Principal(s)

7

14

10

15

5

10

Thus far, our findings suggest that most DEFs accomplished the purposes for which they were established: to improve the quality of the educational program, to improve schoolcommunity relations, and to supplement local revenues. Nevertheless, as enticing as these benefits might be, educators must weigh them against their related costs. Table 9 highlights a number of costs that districts incur to support DEFs. For example, about 30% of the districts provide office space for foundations. In addition, many districts provide equipment, supplies, and postage. Some districts even provide direct fiscal support for their foundations, averaging about $1,500 annually. Other district costs include making school facilities available for fund-raising activities. Another, and potentially large, district cost results from the allocation of staff time to DEF activities. For example, we found that superintendents typically spend between 22 (New York) and 36 hours (California) each year attending to DEF duties, a substantial amount of time given their many and increasing responsibilities. DEFs also place time demands on business officials, assistant superintendents, principals, and clerical staff.

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Final Thoughts

Office space Space for board meetings

77%

73%

Equipment

23%

24%

Supplies

33%

33%

Postage or telephone

15%

18%

Direct fiscal support

1%

6%

16%

46%

Donated personnel time

New York Mean Hours/Year

California Mean Hours/Year

Superintendent

22

36

Business official

12

11

1

2

Other

Legal counsel

Clerical/secretarial staff Teacher(s) Other district staff

To further help educators consider the merits of DEFs, we asked district officials to respond to a series of statements, each embodying a supposed benefit of educational foundations. Table 8 reports their responses and reveals that school officials overwhelmingly agreed that DEFs improved school-community relations. District officials also responded favorably to the statements that DEFs improved the quality of the educational program and allowed the district to provide programs that would otherwise be impossible to support. When we asked officials about the fiscal benefits of DEFs, we also found some interesting results. For example, most of California’s districts reported that their foundations exceeded their expectations as a revenue source. Although fewer New York districts shared this view, it is reasonable to expect that their numbers will grow if DEF revenues increase as anticipated. Finally, the last rows of Table 8 reveal that none of the districts thought that its foundation had a negative effect on its ability to pass budget and bond measures. This finding contradicts those who argue that DEFs supplant traditional revenue sources. In fact, it is possible that DEFs actually leverage other local revenues from the community, including property taxes. Indeed, it is remarkable to observe how many districts believe that DEFs positively influence their ability to pass budgets and bond measures. Partly, this belief might be due to the improved school-community relations engendered by DEFs. Partly, it might be because DEFs can better argue the financial case for districts.

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To summarize the results of our study, despite their costs, school districts can benefit from DEFs. In fact, officials in both New York (99%) and California (98%) believed that DEFs yield net benefits and would recommend that other districts establish foundations. ■

References Merz, C., & Frankel, S. S. (1995). Private funds for public schools: A study of school foundations. Takoma, WA: University of Puget Sound. National Association of Educational Foundations. (1994, Summer). Educational Foundations Focus, No. 1.

For More Information This article is based on a study reported in “Expanding Support Through District Education Foundations: A Tale of Two States,” Leadership and Policy in Schools, 1(1), 30–51, 2002. Other useful resources for information about the benefits of DEFs include the following: De Luna, P. (1998). Local education foundations: Right for many schools. Phi Delta Kappan, 79(5), 385–389. Padover, W. (1997). Developing an education foundation. Thrust for Educational Leadership, 27, 34–35. Brian O. Brent is a professor at the Warner Graduate School of Education, University of Rochester, in New York. He also is a member of ASBO International’s Editorial Board. His e-mail address is [email protected]. John C. Pijanowski is associate dean for continuing education at Tompkins-Cortland Community College in New York. His e-mail address is [email protected].

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