HB 290-ESTABLISH ENDOW ALASKA GRANT PROGRAM  8:03:57 AM CHAIR MUNOZ announced that the first order of business would be HOUSE BILL NO. 290, "An Act creating the endow Alaska grant program in the Department of Commerce, Community, and Economic Development to encourage community development." 8:04:23 AM ERIN HARRINGTON, Staff, Representative Alan Austerman, Alaska State Legislature, presented HB 290 on behalf of the sponsor, Representative Austerman, by paraphrasing the following written remarks [original punctuation provided]: Endow Alaska sets up a challenge grant or matching fund mechanism that allows local community foundations throughout Alaska to leverage private donations from within their communities by matching donors' contributions dollar-for-dollar with state funds. By providing a powerful tool to help grow the endowed assets of community foundations, the Endow Alaska program addresses several objectives: · It supports community self-sufficiency · It recognizes the ability of community members to identify and respond to local needs · It creates additional catalyst for community conversations about philanthropy and the power of Alaskans to invest in meaningful local projects and visions · It creates an opportunity to take today's state dollars--which result from the development of a finite, non-renewable resource--and turn them into a financial tool that can yield perpetual returns, potentially supporting local projects and investments for centuries to come. Endow Alaska is inspired by a program that was originally put in place in Iowa--Endow Iowa--and which has since been established in Kentucky, as well. The legislation envisions a relationship between the state and a "lead philanthropic entity"--a statewide organization that receives an annual lump-sum grant, and then turns around and provides numerous "challenge grants" to local community foundations or community affiliate funds. · Presently in Alaska, the organization most likely to qualify as the "lead philanthropic entity" would be the Alaska Community Foundation- -a statewide community foundation with more than 250 funds in management, and assets of more than $47 million. · A nonprofit public charity promoting personal philanthropy and providing financial management, strategic development and donor-development services to communities, organizations and donors across Alaska. MS. HARRINGTON then posed a hypothetical example in which Kodiak has a community foundation. The State of Alaska would make an annual lump sum grant to perhaps the Alaska Community Foundation (ACF), which would be able to provide a challenge grant to the Kodiak Community Foundation. The Kodiak Community Foundation would apply to lead a local campaign and have its fundraising matched. If the Kodiak Community Foundation was able to raise $10,000 in its first year, it might be able to obtain a state match via ACF. She then continued to paraphrase from her written remarks [original punctuation provided]: The program is quite simple, but the impacts are potentially profound. The bill does not currently recommend a funding level, though it does provide some funding limitations to ensure that community investments are made in diverse regions of the state. · However, because this is a matching or challenge grant program, the scope of the fund is necessarily limited by the capacity of donors in Alaska's communities. 8:08:58 AM MS. HARRINGTON then reviewed the legislation, which is only one section. The language on page 1, lines 6-12, establishes the Endow Alaska program in the Department of Commerce, Community & Economic Development (DCCED). The program is being placed in DCCED due to the department's experience with administering grant funds through the Division of Community & Regional Affairs (DCRA). Page 1, line 13, through page 2, line 9, outlines the requirements of a community foundation for the purposes of this program as well as what would be considered a lead philanthropic entity. The language references the Internal Revenue System (IRS) code because some of these organizations are explicitly defined in the IRS code and have to meet certain tests. The language started on page 2, line 10, through page 3, line 5, describes some of the factors the lead philanthropic entity should consider when choosing to offer a community a challenge grant. She characterized this portion of the legislation as the policy portion in which the legislature describes what it wants to achieve. The language on page 3, line 6, sets forth the limits such that the grants cannot exceed $25,000 for a community foundation unless it benefits multiple boroughs or a large region. Furthermore, a single borough can't receive more than five Endow Alaska grants per year. She did note that work needs to be done in the aforementioned provision since some areas in the state aren't an organized borough. The last limitation stipulates that only 5 percent of the grant funds received by the lead philanthropic entity can be used for administrative purposes. Currently, ACF administers about [280] affiliate funds and about $47 million in holding. She related her understanding that ACF's administrative fees are much lower than 5 percent of the grant funds received. The final portion of the legislation consists of definitions. Ms. Harrington then paraphrased from the following written remarks [original punctuation provided]: Our office has been work-grouping this bill with individuals from around the state who are involved in community foundations and their work. Through this process, we have identified several aspects of the bill that can be improved to: · Ensure the legislation recognizes the unique characteristics and opportunities of Alaska · Enable communities with limited financial resources to avail themselves of the opportunities presented by Endow Alaska. · Clarify that the program is intended to grow endowed funds · Underscore the importance of local donors and local control of funds. After your committee hears public testimony today, we'd like to return at a future meeting with proposed revisions to HB 290 that helps achieve the goals I've just outlined. 8:14:40 AM REPRESENTATIVE GARDNER inquired as to the policy if more than one philanthropic entity existed in a community or if there came to be more than one philanthropic entity in the future. MS. HARRINGTON said that currently she wasn't aware of communities that have more than one community foundation. However, she deferred to those in the community foundation realm. She related her understanding that typically there is only one community foundation in communities with such an organization. REPRESENTATIVE GARDNER acknowledged that may be the case now, but suggested that once state money is available more such organizations may be created. For instance, if an existing community foundation doesn't support a particular issue, she could envision another organization being created. Therefore, there should be a manner in which to select which community foundation [to fund] unless the intention is to fund multiple community foundations. 8:16:01 AM REPRESENTATIVE GARDNER then directed attention to page 2, lines 5-6, of HB 290 and inquired as to whether the intention is to support only community organizations or also corporate and private organizations. MS. HARRINGTON acknowledged that the aforementioned portion of the legislation is one in which the sponsor would want to amend in order to provide clarity regarding [the member organization being the Alaska Community Foundation]. 8:17:01 AM REPRESENTATIVE CISSNA inquired as to how the work of the Rasmuson Foundation would compare with what HB 290 proposes. MS. HARRINGTON recommended that the committee invite the Rasmuson Foundation to speak regarding its work and view on the proposal in HB 290. She did note, however, that she believes the Rasmuson Foundation would need a formal invitation to testify due to the nature of the organization. To the question, Ms. Harrington specified that the Rasmuson Foundation has been investing in community foundations through challenge grants as well as through the community foundation mechanism, albeit with a different focus. The focus of the Rasmuson Foundation with the community foundation mechanism has been to provide funds and assist communities that don't have community foundations to create one and thus involves more technical assistance. Ms. Harrington emphasized that HB 290 doesn't compete with the work of the Rasmuson Foundation, rather it enhances it. 8:19:04 AM CHAIR MUNOZ announced that the committee certainly can invite the Rasmuson Foundation to speak at the next hearing of HB 290. 8:19:09 AM REPRESENTATIVE DICK inquired as to the inception of this idea. MS. HARRINGTON explained that staff in Representative Austerman's office subscribe to various newsletters and follow some nonprofits. Originally, staff became aware of the Endow Iowa program and some of its benefits, particularly in the rural communities of Iowa. She opined that the Endow Iowa program has experienced an astonishing level of success, success in ways that she suggested would be analogous in Alaska. The Endow Iowa program was inspiring and resulted in discussions of how it would work in Alaska. 8:20:51 AM REPRESENTATIVE SADDLER asked if the $25,000 limit [specified on page 3, lines 8-9] is per year. MS. HARRINGTON answered that the $25,000 limit is intended to be per year, although she acknowledged that it's not clear in the legislation. In further response to Representative Saddler, Ms. Harrington confirmed that the $25,000 limit is for each sub unit not the lead organization and the borough is not intended to be the recipient of the funds. This language could be clarified, she acknowledged. REPRESENTATIVE SADDLER opined that with a 1:1 match, much philanthropy would flow to this proposed fund and perhaps starve other philanthropic organizations. He inquired as to the experience in Iowa. MS. HARRINGTON related that in conversations with nonprofits she found that annual campaigns are fairly different than endowments. In fact, the Chilkat Valley Community Foundation related that they were explicit with nonprofits that they didn't intend to perform annual fundraising or compete with nonprofits to provide ongoing annual services. Rather, they are dealing with bequests and planned giving and other ways in which funds can flow into the fund during major life transitions. The aforementioned resulted in some of the nonprofits being the original investors in the community fund. REPRESENTATIVE SADDLER surmised then that the goal of HB 290 is to create an endowment from which the proceeds go toward direct grants to the community foundations. MS. HARRINGTON replied yes. REPRESENTATIVE SADDLER asked whether this would be a one-time appropriation to the lead philanthropic organization or would it take a couple of years. MS HARRINGTON deferred to the sponsor. 8:24:20 AM REPRESENTATIVE AUSTERMAN related that he has reviewed it both as an annual appropriation or a larger sum to create its own endowment from which the interest earnings are spent. He expected the discussion of the aforementioned to occur in the Finance committees. 8:25:01 AM REPRESENTATIVE SADDLER asked if the Alaska Community Foundation is the lead philanthropic organization. REPRESENTATIVE AUSTERMAN replied that currently ACF is the organization which he knows has a track record and the capability to do this, although there may be other organizations that will come forward. 8:25:30 AM REPRESENTATIVE CISSNA asked if the sponsor has had any discussions with the Kenai and Soldotna [foundations]. MS. HARRINGTON confirmed that there is a Kenai Peninsula Foundation. The sponsor statement in the committee packet includes a list of community foundations that already exist. She noted that there are also community funds that have been established with the assistance of Arctic Slope Regional Corporation (ASRC) in order to benefit all of the North Slope communities. Furthermore, there are communities throughout the state that are actively exploring the establishment of local community foundations. 8:27:08 AM REPRESENTATIVE AUSTERMAN, returning to Representative Gardner's earlier question, clarified that the legislation doesn't specify there is only one community foundation or affiliate, and therefore there is the potential for more than one as reflected in the language on page 1, line 11. He then suggested that the benefit of having more than one foundation could result in a better organization or philanthropic community due to the competition. 8:28:18 AM REPRESENTATIVE GARDNER pointed out that under the language capping the grant amount on page 3, lines 8-9, communities with multiple organizations would receive a greater benefit because each organization would receive $25,000. Therefore, she questioned whether the limit would be one per organization or per community, in which case knowing the selection criteria would be necessary. REPRESENTATIVE AUSTERMAN responded that he was not sure. 8:29:04 AM REPRESENTATIVE FOSTER inquired as to the feedback regarding the 5 percent administrative cap, particularly from those smaller communities that don't have the administrative economies of scale. MS. HARRINGTON said that she hasn't received any feedback on that matter. However, she clarified that the 5 percent limitation is for administrative purposes within the lead philanthropic entity. When the dollars go to the local community foundation, they are intended to flow into the endowed fund to build it. Therefore, there would be no administrative fees at the local level, which is based on the assumption that these foundations are already functioning or will be shortly and the purpose is to build endowments with existing resources running the administrative functions. 8:30:39 AM REPRESENTATIVE SADDLER asked if there is any standard for management of the lead philanthropic organization. MS. HARRINGTON said that she is learning about the IRS restrictions that provide high levels of assurance that these organizations are operating in a manner consistent with the public good. Additionally, Uniform Prudent Management of Institutional Funds Act (UPMIFA) ensures that donors have the ability to be ensured that organizations holding endowed funds on their behalf are doing so in a fiscally prudent manner. Essentially, when there is a fund with many donors, [the donors] can become the safeguard in that the donors have the ability to be sure the foundation is being managed prudently. 8:32:47 AM REPRESENTATIVE GARDNER recalled the legislation's goal of leveraging donations. Referring to the language on page 2, lines 16-17 and 29-30, she asked if the community foundations and community affiliate organizations are required to match dollar-to-dollar or can they do more. MS. HARRINGTON confirmed that the language allows for community foundations to [provide a match that exceeds dollar-for-dollar]. However, she wasn't sure that is useful and characterized it as a policy call. 8:34:23 AM REPRESENTATIVE GARDNER related her understanding that this is a matching grant fund and thus the community foundation has to raise whatever amount the state is asked to provide. REPRESENTATIVE AUSTERMAN replied yes. 8:34:39 AM REPRESENTATIVE MUNOZ inquired as to the details of the Endow Iowa and Kentucky programs. MS. HARRINGTON said she would have to research the type of philanthropy those two programs have generated. Since the Kentucky program was enacted relatively recent, it's likely just beginning to have impacts. However, in Iowa the dollar-for- dollar match component has been in existence for six to seven years during which donors could receive a tax write-off. The Iowa program was so successful that it had to do away with the dollar-for-dollar match and only have the tax write-off for donations. 8:36:35 AM REPRESENTATIVE SADDLER surmised that in terms of money flow, the state would appropriate a certain amount of money to the lead philanthropic organization that would take applications for grants. Local community foundations would apply for grants, the applications would be scored, and a matching amount of funds would be provided. He then asked whether there is another effort to obtain matching state funds or do the state matching funds come through the lead philanthropic organization. MS. HARRINGTON clarified that it's intended to refer to the funds that are received through the lead philanthropic organization. 8:38:04 AM KEN CASTNER, Member, Board of Trustees, Homer Foundation, informed the committee that the Homer Foundation has been in existence for over 20 years. He noted that he submitted written testimony to the sponsor and thus he would like to provide answers to some of the questions posed today. He informed the committee that UPMIFA, AS 13.70.020, is state law that addresses the concerns expressed by Representative Saddler regarding the prudent management rule. With regard to Representative Gardner's concern over the possibility of rapid growth of new community foundations, he reminded the committee that community foundations don't fund projects. Therefore, there is no competition. [Community foundations] fund other 501(c)(3)s and other general charitable organizations and publish annual reports. He characterized community foundations as apex boards that are difficult to populate. Most of the work for community foundations is in regard to the management and administration of the funds as well as reporting; the distribution of grant funds isn't the largest portion of what a community foundation does. Although he said he wouldn't expect a rapid growth of community foundations, he would expect ACF would grow more affiliates. He said he would also expect the smaller communities to create simple funds, which he referred to as community endowments. Because of the nature of the various sizes of communities in Alaska, he expressed hope that the community funds would qualify for matching grants for their endowments. Mr. Castner opined that as a public charity, [community foundations] have to annually meet a public support test such that one-third of the community foundation's income has to come from public sources. Although the support from individuals is capped, it's not from governmental sources. Therefore, any funds from governmental sources are very helpful in meeting the aforementioned public support test. In closing, Mr. Castner offered to help craft this legislation for Alaska. 8:42:01 AM CANDACE WINKLER, President/CEO, Alaska Community Foundation (ACF), provided the following testimony: [The Alaska Community Foundation is] a statewide community foundation that works to increase philanthropy and build community throughout the state. I am testifying in support of HB 290, which I think is a pragmatic way to incentivize and grow individual philanthropy and to invest in Alaska's future. I think Alaskans understand the value of endowments; ... we all live with the Permanent Fund as a part of our life and I also think Alaskans recognize the importance of local control and guidance and I think that this bill enables that to happen. Many of us in the nonprofit and development world know that Alaska has low levels of individual giving and I think the concepts behind this bill utilize state resources to maximize and grow private dollars that will not only help build these permanent endowments but will also help build a culture of philanthropy. And I think that ... is how a program like this can help all of the nonprofits in the State of Alaska that are doing such great work. To give a bit of context to the bill and to the work of community foundations, I want to tell you a little bit about the Alaska Community Foundation .... We have been around for 16 years. During that time we have granted out more than $30 million around the State of Alaska. We currently hold about $55 million in assets for the benefit of Alaskans. From that we grant out somewhere in the neighborhood of around $5 million last year and I think that's what we're anticipating this year. We have 280 different funds ... included in that is the Alaska Children's Trust (ACT), which just recently those funds moved over from the State of Alaska. With regard to affiliates, we actually have five affiliates that are locally ... managed and they set goals at a local level, do local fundraising, make granting decisions, but do fall under the governance structure of the Alaska Community Foundation, and that's the Seward Community Foundation, Petersburg Community Foundation, Kenai Peninsula Foundation, Jessica Stevens Community Foundation, and Chilkat Valley. In addition, we have three partner community foundations that are their own stand-alone nonprofits: the Homer Foundation, Juneau Community Foundation, and the Arctic Slope Community Foundation (ASCF). Those stand-alone entities do hold permanent endowments with the Alaska Community Foundation in addition to endowed funds they held locally. And then we have a more loosely structured partnership with the many other community foundations: Chugiak Eagle River, Bethel Community Services Foundation, and Northstar Community Foundation. We do have experience in managing these matching programs. In partnership with the Rasmuson Foundation we have given away more than $1 million in matching funds to ... our two partners and the five affiliates as they have raised dollars. These have proven to be a really effective method to build community endowments. In a four-year period the Seward Community Foundation, an affiliate of ACF, received three bequests; one of them was a $1.9 million gift when a long-time Sewardite passed away. So, it's not only an effective way to raise dollars today, but there's the potential as activity and the work is happening in local communities to plant seeds and receive some of those resources when Alaskans pass away. So, that's really powerful. The program has been called the Community Asset Building Initiative (CABI) and from a generous grant with the Rasmuson Foundation, we will be expanding to three or four new communities as early as this fall. We are currently working on meeting with different communities and determining their interest level. 8:46:33 AM MS. WINKLER continued: Specific comments on the bill, as Erin stated, ACF is not a membership organization. The only membership organizations that really work with foundations are Philanthropy Northwest, which is our regional association in Alaska. It's one of the five Northwestern states, and then there also is the National Council on Foundation that's a membership organization; they are the entity that oversees the community foundations' best practice standard that is referenced in the bill. If I were to make comments specific to the bill, there is on page 2, line 27, a reference to those best practice standards. And I do think that this is a policy area for you all to think about. The terminology says "substantially complied" with these best practice standards for organizations who might be applying to the lead organization to participate in the matching funds. From my perspective, trying to administer language around "substantially complied" is complex; it entails defining what that means. And so from my perspective it would be much easier to have language that says you either meet these best practice standards or you don't. I think then that review process happens at a national level and I think some of the questions regarding ... if you have two community foundations or ... are unsure about how funds are invested or managed, ... that national best practice standard reviews those policies and practices. And I think it provides the highest level of protection for the state dollars and also the individual donor dollars that are coming in. That's the standard that Iowa is using. There also is currently draft language at a federal level to use USDA funds to do a very similar project to incentivize rural communities to build endowments and it also uses the best practice standards as sort of the marker of how you participate in that program. So, ... I do think that the policy decision around that is that we do have some community foundations, that at this time in the State of Alaska meet those standards [and] we do have some that don't. And I think that there will be a cost associated for some of those that don't to actually get that best practice standard. And so, that is certainly a consideration. Ken talked a little bit about some of the strategies to try to address the needs of communities that don't currently have a community foundation. And I think some of his suggestions were good ideas. Currently the Alaska Community Foundation does have what we call an Alaska Fund and out of that fund any community is eligible to apply. We could look at setting up some sort of fund that matching funds went to and then state funds ... corresponded and could be open only for those communities that did not have a specific local community foundation in the region. It would be one way to kind of aggregate that activity but provide still some benefit to communities that maybe are quite small or don't have the current capacity. 8:50:05 AM REPRESENTATIVE GARDNER inquired as to the criteria used to evaluate applications from communities without an existing fund that apply to ACF. She also inquired as to examples of things commonly funded by community philanthropic endowment funds. MS. WINKLER stated that such organizations, ACF, mostly fund nonprofit organizations via the grant program. However, there may be a few cases in which ACF may become involved with expenditure responsibility when there is a need in a community. She explained that when communities without a nonprofit apply, ACF performs basic due diligence to ensure the nonprofit is in good standing with the IRS. If it's a competitive project, the proposal would be evaluated on the criteria that have been set. Other funds are established in such a way that they may be funding a specific organization by design, which means that there is a basic review to ensure the organization is still in compliance and operating effectively. The process for determining an affiliate community foundation is complex and very different than applying for funding for a grant. Ms. Winkler then related that ACF funds a wide variety of issues based on the goal/mandate to improve the quality of life in communities throughout Alaska. Therefore, ACF may fund refrigeration systems, food banks, a smolt study, revitalization of the Gwich'in language, trails, parks, and basic health and human service needs. Much of what ACF funds is dictated by the 280 different funds, she stated. 8:53:25 AM REPRESENTATIVE DICK, referring to the language "substantial compliance with the national standards" on page 2, line 27, asked if Ms. Winkler would foresee any problem with "national standards" working in small communities in Alaska. MS. WINKLER answered that the downside of national standards is that it takes time and effort to document the practices, which can be costly. There are some community foundations in the state that do great work, but don't meet those criteria. There are also community foundations in Alaska that do meet the national standards, such as ACF and the Homer Community Foundation. In fact, ACF is currently in the process of re- certification, which occurs every five years. Ms. Winkler opined that the criteria are doable and provide protection by demonstrating that the organization has an investment strategy and policy, a distribution policy, a grant policy, and a fund acceptance policy. An external body reviews whether the community foundation has the policies and practices in place to manage the complexities of a community foundation. 8:55:24 AM REPRESENTATIVE SADDLER requested that Ms. Winkler work with the [sponsor] to develop a flow chart of the various organizations and how the money could flow through them. MS. WINKLER agreed to do so. She then explained that the affiliate organizations work in their community to be the face, set agenda, raise funds, and make grant recommendations. However, legally affiliate organizations are part of ACF and governed by its bylaws, policies, and investment strategies. The aforementioned situation provides local flavor and autonomy without redundant infrastructure. Because the program is substantially supported with a partnership with the Rasmuson Foundation, 99.5 percent of the dollars raised in affiliate foundations stay in those endowments because they don't have significant operational costs as those are handled by ACF. She did note that the Iowa model and pending federal legislation recognizes those affiliates as eligible and able to apply for matching funds. However, because there are specific endowed funds that ACF holds only for the benefit of Seward and Moose Pass, those grants can't be spent on grants or projects in any other part of the state. 8:58:50 AM CHAIR MUNOZ announced that HB 290 would be held over.