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New Law Bolsters Nonprofits

Boston, Mass.—The Massachusetts House and Senate voted unanimously on June 30 in support of Senate Bill 2078, the Uniform Prudent Management of Institutional Funds Act (UPMIFA), and on July 2, Governor Patrick signed the bill into law. Charitable organizations in Massachusetts have been pressing for passage of UPMIFA by the end of the fiscal year on June 30, so that they may access its benefits and avoid unnecessary layoffs and liquidation of assets. 40 states have passed similar legislation, which raises the threshold of responsibility for non-profits in managing their assets, while providing greater flexibility to these organizations in managing and expending from their endowments.

"This legislation provides critical support for our non-profits during this tough recession which has brought on severe reductions in program funding and private donations," Senate President Therese Murray said. "It makes long-overdue updates to endowment management laws, resulting in unprecedented flexibility and efficiencies that will allow charitable organizations to save jobs and sustain critical services for the people of the Commonwealth."

"I'm proud that the House and Senate and Administration have worked together to help our partners in the non-profit sector of Massachusetts," House Speaker Robert A. DeLeo said. "The many nonprofit organizations in Massachusetts serve the needs of our communities and help our state in ways that government cannot. This bill will provide our nonprofits with the flexibility they need in these tough fiscal times so that they may continue to enrich the lives of so many."

The bill, filed by Senator Robert O'Leary (D-Barnstable), allows a charitable organization to focus more on the preservation of their organization and not on solely preserving their endowments, as current law states. It modernizes the rules governing expenditures from endowment funds, both to provide stricter guidelines on spending from endowment funds and to give institutions the ability to cope more easily with fluctuations in the value of the endowment. It also updates the provisions governing the release and modification of restrictions on charitable funds to permit more efficient management of these funds.

"The non-profit sector is a major employer in this state and they are hurting financially right now, just like everybody else," said Senator O'Leary. "Allowing our non-profits better access to money they already have, while maintaining appropriate state oversight of spending, is the best thing we can do to help our non-profits help themselves. I'm thrilled to see that we were able to get this bill done in time for the next fiscal year."

"The passage of this important legislation will allow many non-profit organizations—from environmental groups to arts and cultural organizations—to have greater flexibility in responsibly managing their finances while continuing to provide services during these challenging economic times," said Representative Stephen Kulik (D-Worthington).

Thirteen percent of Massachusetts workers are employed in the nonprofit sector, which includes arts institutions, foundations, colleges and universities, charities, conservation groups and others. The financial crisis has hit these organizations in the Commonwealth and across the nation through capital losses on endowments and decreases in charitable donations. Most non-profits rely on private donations to help maintain their bottom line, but during tough economic times some of those funds go "underwater," meaning the donation is worth less today than it was yesterday. When that happens, none of those funds can be spent, leaving nonprofits unable to support the programs their donors endowed. UPMIFA would allow a small portion of those funds to be spent, consistent with donor intent, and only if expenditure is low enough to not compromise the permanent nature of the fund.

"This will help Mass Audubon and other nonprofits in Massachusetts weather the storm," said Mass Audubon President Laura Johnson. "The Senate, House, and Patrick Administration recognized the importance of this bill during a difficult time on Beacon Hill, made it a priority, and worked together to meet the needs of the nonprofit sector. Without their leadership, and without the tenacity of Senator Robert O'Leary, we wouldn't be making this important step forward for nonprofits today."

"AICUM is very appreciative of Mass Audubon's leadership on this issue, and the Legislature's timely action on this bill," said Rich Doherty, president of the Association of Independent Colleges and Universities in Massachusetts. "This legislation will give not for profit, educational institutions critical flexibility in the prudent management of endowment funds."

"On behalf of the statewide cultural community, MAASH thanks Senate President Therese Murray, Speaker Robert DeLeo and Governor Deval Patrick for their leadership in seeking innovative ways to support cultural jobs," said Dan Hunter, executive director of the Massachusetts Advocates for the Arts, Sciences and Humanities (MAASH), "UPMIFA allows cultural organization valuable flexibility in managing this recession" said Dan Hunter, Executive Director of Massachusetts Advocates for the Arts, Sciences and Humanities.

"At this critical time when nonprofits face the perfect storm of revenue drops, rising demands, and low reserves, this bill provides important flexibility, without placing demands on government," said David Magnani, Executive Director of the Massachusetts Nonprofit Network. "This is a particularly critical time for this legislation and we thank the legislature for passing it and the Governor for signing it."

"With the passage of UPMIFA, Sea Education Association can again focus our efforts on teaching students about the oceans. Like other non-profits, we have taken a real beating in this economy. Thanks to the legislature and the Governor for their quick action, we can now manage our endowments in service to our mission. The next generation of ocean scientists and policy makers that SEA helps to turn out owe a debt of thanks for the passage of this bill" said John Bullard, President of the Sea Education program at Woods Hole Oceanographic Institution.

UPMIFA requires non-profits to diversify their portfolios and invest wisely, always with donor intent in mind, and provides guidance and authority to charitable organizations on the management of their funds. It will also impose additional duties to those managing charitable funds, providing additional protections for charities and protecting the interests of donors who want to see their contributions used wisely. The model bill was drafted by the Uniform Law Commission, endorsed by the American Bar Association, and was finalized in 2007. Since then it has become law in 38 states, updating existing law. It is expected to be signed into law in 44 states by the end of the year. It modernizes the rules governing expenditures from endowment funds, both to provide stricter guidelines on spending from endowment funds and to give institutions greater ability to adjust with fluctuations in the value of the endowment.

States are adopting UPMIFA for the following reasons:

• To make sure that the best investment practices govern the actual investment of institutional funds.
• To withdraw obsolete rules governing prudent total return expenditure and provide a modern rule of prudence consistent with the rules that govern investment.
• To encourage growth of institutional funds while eliminating investment risks that threaten principal.
• To assure that there are adequate assets in any institutional fund to meet program needs.
• To make the law governing institutional funds uniform in every state.

For more details, visit www.upmifa.org.

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Mass Audubon works to protect the nature of Massachusetts for people and wildlife. Together with more than 100,000 members, we care for 34,000 acres of conservation land, provide educational programs for 200,000 children and adults annually, and advocate for sound environmental policies at local, state, and federal levels. Mass Audubon's mission and actions have expanded since our beginning in 1896 when our founders set out to stop the slaughter of birds for use on women's fashions. Today we are the largest conservation organization in New England. Our statewide network of 47 wildlife sanctuaries welcomes visitors of all ages and serves as the base for our conservation, education, and advocacy work. To support these important efforts, call 800-AUDUBON (283-8266) or visit www.massaudubon.org.