COMMUNITY FOUNDATIONS
House Bill 5351 as introduced
First Analysis (3-15-00)
Sponsor: Rep. Terry Geiger
Committee: Education
THE APPARENT PROBLEM:
As family estates are settled, there are times public school systems receive gifts from families and individuals that are made from wills and bequests. Usually the gifts are made to be perpetual, with only the income from the gift used for the donor's goal. That goal might be offering a scholarship to a high school graduate; support for a children's reading program; the purchase of technological equipment; or, assistance with an athletic program.
According to testimony offered by the Council of Michigan Foundations, the growth of permanent endowment funds has been limited by the investment instruments available to public school systems under Public Act 20 of 1943 (MCL 129.91 et al.), the act that governs the investment of surplus funds for political subdivisions. As a result, permanent endowment funds sometimes are not able to be invested in ways that maintain the buying power of the original gift, and they fail to produce the level of income needed to fulfill the donor's specified goal.
In the last eight years there has been a dramatic growth in the development of community foundations in Michigan. See BACKGROUND INFORMATION below. These nonprofit, tax exempt corporations are designed specifically to receive and invest permanent endowment funds and to award grants from the income of these funds. The community foundation's ability to invest funds is more flexible than is a public school system's, since it can use a wide array of investment instruments, including the stock market, in order to increase the value of the money.
While officials in a number of school systems have gone forward to transfer gifts to community foundations, many have not because of the uncertainty of the restrictions of Public Act 20 on private gifts. Those public school officials have argued that legislation is needed to remove any uncertainty about the appropriateness of making transfers from school districts to community foundations.
THE CONTENT OF THE BILL:
House Bill 5351 would amend the Revised School Code to establish the procedures for school boards of both local school districts and intermediate school districts to follow in order to transfer a gift to a community foundation. (The bill is identical to House Bill 4959 as it passed the House on 11-3-99.)
Gift Transfer with Conditions. Under the bill, a school board could receive a gift of real or personal property for school purposes, and a school board could also transfer the gift, or the proceeds from that gift, to a community foundation. If a gift was subject to any condition or limitation, then the transfer to the foundation's fund would have to incorporate an identical or substantially similar condition or limitation. However, if there were no conditions or limitations on the gift, then the school board in its transfer would have to impose conditions or limitations on the use of the gift, so that it was used for one or more school purposes, as specified under the code.
Gift Return. A community foundation would be required to return a transferred gift to the school board if the community foundation failed to meet all of the requirements for certification as a community foundation under the Income Tax Act of 1967, if it was liquidated, or if it substantially violated any conditions or limitations on the gift.
Donor Advisory Board. Unless waived by the school board transferring the gift, a community foundation would be required to establish a donor advisory board for a gift before the school board transferred it. The donor advisory board would be required to include at least one representative of the school board transferring the gift. The donor advisory board would be required
to: monitor the foundation's compliance with any conditions and limitations on the gift; and, make recommendations to the foundation for the use of the gift.
Previous Gift Transfers Ratified. Under the bill, a transfer of a gift made in accordance with these provisions but one that occurred before the effective date of the bill would be ratified and confirmed, and the transfer would be considered valid as if it had been made under the bill.
Definitions. House Bill 5351 would define "community foundation" to mean that term as defined in the Income Tax Act of 1967. Further, the bill specifies that "condition, limitation, or requirement" would not include a material restriction or condition that violates the Code of Federal Regulations (CFR), or that restricts a community foundation's inherent power of modification which is described in the code. Finally, the bill would specify that "gift" does not include state school aid or another grant from state or federal sources.
MCL 380.15 and 380.602
BACKGROUND INFORMATION:
According to the Council of Michigan Foundations, every county in Michigan is now served by a community foundation, and the 61 existing foundations and 34 geographic funds have collective assets exceeding $1.2 billion with annual grant making statewide surpassing $55 million. The growth of the community foundations has been helped by the State of Michigan's individual income and single business tax credits, and by a $45 million challenge grant from the W. K. Kellogg Foundation to establish permanent youth endowment funds. Under the state's tax laws, a business making a contribution to a community foundation can receive a tax credit of up to $5,000 or 10 percent of its liability under the single business tax, whichever is smaller; an individual can receive a credit of 50 percent, up to $100; and, a family a credit up to $200.
FISCAL IMPLICATIONS:
The House Fiscal Agency notes that the bill has no state or local fiscal impact. (3-10-00)
ARGUMENTS:
For:
The partnership with a community foundation provides a way to maximize the charitable intent of residents who care for their public schools by leaving a lasting legacy. Further, the legislation will remove any uncertainty about the appropriateness of making transfers between public schools and community foundations. Community foundations represent important partners for school systems in the management of endowed gifts. Superintendents and their boards view the local community foundation as an appropriate site to place an endowed gift, knowing that the income will still be used for the donor's goals, and to meet critical school needs.
POSITIONS:
There are no positions on the bill.
Analyst: J. Hunault