Ann Arbor Public Schools Educational Foundation spent more on overhead than on giving grants, tax records show

“If you want to have a professionally run non-profit foundation, you have to hire professional people to run it or you get a hockey association,” foundation Executive Director Wendy Correll said, referring to the recent embezzlement case involving a part-time bookkeeper who stole nearly $1 million from the Ann Arbor Amateur Hockey Association. “We know the Michigan non-profit association recommends you spend about 20 percent on overhead. We’re not there yet, but we're going to get there (soon).”

The foundation - a 501c3 nonprofit organization run separately from the school district it supports - has experienced rapid growth in recent years, both in how much money it raises and in how much money it gives away. It is in the midst of transistioning from an organization that primarily gave away small amounts of money to an organization that underwrites large scale initiatives designed to help offset some of the Ann Arbor school district's budget struggles.

The foundation, which was formed in 1991, is in the midst of a campaign to raise $1 million to help the district. And in that campaign, the foundation has pledged to spend just 12 percent to 20 percent on overhead costs.

The overhead

The Ann Arbor foundation gave out $61,733 in grants for various programs in the Ann Arbor school district in the fiscal year that ran from July 1, 2008, to June 30, 2009, while spending $94,337 on overhead costs, the foundation's 990 tax form shows.

Correll said the amount spent in grants last school year, while accurate to the tax forms, is misleading because the foundation had approved spending $25,000 for the elementary enrichment coordinator program - but that money wasn't spent that year because the program was delayed.

It’s not unusual for foundations to approach the 50 percent mark on overhead costs, said Rob Collier, the president and CEO of the Council of Michigan Foundations.

“As a general rule, you don’t want to get over 50 percent,” he said. “It’s even better if you can keep it to under one-third.”

Other foundations of comparable size that support school districts have a range of overhead costs.

Ann Arbor has the highest overhead costs of the seven foundations analyzed by AnnArbor.com. Walled Lake, at zero percent, is the lowest - giving out all the money it raised. That was possible because the district contributed the cost of the director, something that’s changed since those numbers were reported due to district budget cuts, Executive Director Sandy Richards of the Walled Lake foundation said. She said Walled Lake aims to give out at least 50 percent of what it receives and uses the rest for overhead and savings.

Experts said it's common for districts to pay for foundation staffs.

“It’s certainly not unusual to have school districts provide administrative support and space,” Collier said. “That’s why overhead costs for many school foundations are down compared to (Ann Arbor).”

The district that came closest to Ann Arbor in overhead costs was Rochester at $90,332 - although Rochester also far outpaced the other foundations in total revenue. The number dipped from there, with the third highest in overhead costs attributed to the Plymouth-Canton foundation at $58,916.

In a publication for foundations, the Michigan Nonprofit Association suggests non-profits give out at least 65 percent of what they raise and use between 20 percent and 35 percent on overhead.

Raising money

After Washtenaw County voters turned down a countywide enhancement millage last fall, foundation officials launched the push for a $1 million campaign - which surveys and studies told them was possible to reach.

“After the countywide millage was defeated last fall, as a board we decided it was time to take bold action,” said board chairwoman Christy Perros. “As a group, we believe that strong public schools make for strong communities."

The board commissioned a feasibility study several years ago that showed the organization should be in a position to raise $750,000 to $1 million by this year, Perros said. After the millage defeat, a foundation survey of community donors and non-donors indicated the community would be willing to support a larger fundraising campaign than the non-profit initially planned for this year, Perros said.

"We were ready - they were ready,” she said of the ramped up campaign.

Vicki Haviland, a parent of students at Dicken Elementary School, is among those ready to give more. She recently held a house party that raised about $2,500 for the fund.

“I support the 1 Million Reasons campaign because I think it's a great way to capture the dedication that thousands of A2 citizens feel for the public school system," she said. "Although the county millage didn't pass this fall, it did get the majority of votes in Ann Arbor, so we all know that there is interest in financially supporting our schools ... Donating at this time especially is a great way to give back at the end of the school year to the school system and teachers who have done so much for our kids.”

The goal of the new campaign is to help the district keep its excellent programs, Correll and Perros said.

“We hope that funds raised through this campaign will help keep the Ann Arbor Public Schools innovative and excellent,” Perros said. “We hope that the funds raised through this campaign will find their way to each and every student in the district. One of our guiding principles is all students, all schools. We believe the funds from this campaign will help us reach more students in the district than ever before.”

The board will decide what projects it will fund with the money after the campaign ends June 30. To date, more than $135,000 has been raised in the campaign, which began in April, with more gifts in the pipeline. Ninety percent of those giving have never donated to the foundation before, Correll said.

“We’ve created so much awareness,” Correll said. “We’ve already tripled what we normally get through our letter campaign.”

Even before the $1 million campaign was launched, the foundation’s fundraising efforts were on the top end compared to similar-sized school districts and the foundations that support them. The bulk of Ann Arbor's gifts came from letter campaigns, not from events, although the foundation has several annual events.

The only one to raise more money in 2008 was the Rochester Community Schools Foundation at more than $490,000. Most of the other schools raised between $125,000 and $150,000.

Spending money

For much of its life, the Ann Arbor foundation focused on giving out small grants to teachers for classroom projects, but that's changed in the last few years.

The foundation board decided it should also provide broader support for the district and began to fundraise more and support district-wide projects like specialized literacy software.

The foundation still provides teacher grants. This spring, it awarded about $15,000 in projects, all designed to enrich students’ classroom experiences. The projects included minority student scholar programs at the high schools, gardens at various elementary schools and a sixth-grade transition boot camp at Scarlett Middle School.

However, the foundation recently has been focusing on larger grants to the district for programs that help all students, not just one classroom. For example, this year the foundation paid for enrichment coordinators to work with the schools to focus on increasing opportunities outside the classroom for students.

"They fund programs that align with our strategic plan and that we feel are needed for our students, but because of the tight financial times, we're unable to pay for," Ann Arbor Superintendent Todd Roberts said. "We're certainly grateful for all their help."

The foundation has decided to only spend the money it has on hand, Correll said. That’s why no specific projects are earmarked for the $1 million campaign. The board will see how much money it has, then prioritize with the district on how to best spend it.

That process will likely follow the current procedures for larger gifts - the school district develops programs to help students and pitches them to the foundation board committee, highlighting the educational research supporting each initiative and how it will be monitored.

To raise money, the foundation has a small staff.

Correll is a ¾-employee, a bookkeeper works a few hours a week and a clerk works a few hours a week.

Correll said the foundation is committed to making sure its finances are in order and that played into the overhead costs.

“We had a CPA signing checks for a while,” she said. “We didn’t need to pay for that.”

The bookkeeper does that task now, under the supervision of a certified public accountant firm.

From the $1 million campaign, the foundation has decided of the first $250,000 raised, 20 percent will go to overhead; for the dollars between $250,000 and $500,000, 15 percent will go to overhead, and from the dollars between $500,000 and $1 million, 12 percent will go to overhead.

Those are lower percentages than currently go to overhead.

Of the $94,337 paid in fiscal year 2008 for overhead costs, $68,564 went to professional fees and payments to independent contractors, the group’s required non-profit 990 form shows.

At the same time, the foundation gave $61,733 in grants, down from $83,222 in fiscal year 2007, tax forms show.

Despite more money being awarded in the 2007 fiscal year, overhead costs also were higher that year.

The group reduced its spending on overhead from fiscal years 2007 to 2008. Tax forms show the foundation paid $118,800 on overhead - including more than $65,000 in compensation - in the year that ended June 30, 2008. That compares to $94,337 in total overhead in the year that ended June 30, 2009. Correll said the the compensation figure is for more than a 12-month period.

“For several years, the foundation was run on a strictly volunteer basis,” Perros said. “As we committed to growing so that we could raise more money to give back to the district (more than teacher grants), we knew there would be associated costs to fund capacity building. The board knew that we had to make an initial investment to reach our new goals. It is our ultimate goal to reduce overhead costs as much as possible so that more of donors' dollars go to programs in the schools."

Perros said the plan in the coming fiscal year is to start talking about the process of growing the endowment so that ultimately, all funds received from donors would go directly to programs in the schools, and overhead would be covered by income from the endowment.

“We’re cognizant of our costs and want to keep them as low as possible," Cornell said. "We want to put as many dollars as possible back into the district to make sure the students keep receiving the excellent education they’ve been getting here in Ann Arbor.”

David Jesse covers K-12 education for AnnArbor.com. He can be reached at davidjesse@annarbor.com or at 734-623-2534.