Community Foundation Shrinks its Mission

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Attorney Tom Davis will stay on as one of the three board members overseeing the remaining assets of the Laguna Beach Community Foundation.
Attorney Tom Davis will stay on as one of the three board members overseeing the remaining assets of the Laguna Beach Community Foundation.

Over more than a decade, leaders of the Laguna Beach Community Foundation labored tirelessly to spin straw into gold, creating an organization that gave away $5 million to charities, including $2 million to non-profits in its hometown.

Along the way, the Community Foundation also helped educate scores of volunteer board members at small non-profits with practical advice about tax returns, board governance and marketing.

Its mission aimed to promote more local philanthropy by wooing the town’s affluent residents to donate a tax-deductible slice of their wealth. The incentive: competitive investment yields and guidance on the myriad nonprofits that address the town’s unmet needs and vetting ones that dovetailed with a donor’s interests.

Some 60 individuals and organizations with endowments, such as the Boys and Girls Club and Glennwood House, established charitable funds managed by the foundation, which amassed $5 million in assets as of 2016, the most recent figures available in its annual report. It received a commendation of achieving national standards by the U.S. Community Foundation, signifying operational excellence and integrity.

Even so, the alchemy summoned by founders Peter Kote, Michael Pinto, Mary Fegraus and Wayne Peterson in 2004 lacked adequate staying power.

In June, the foundation’s board struck an arrangement with the larger Orange County Community Foundation to administer its funds and quit investment management duties, said Tom Davis, a Laguna Beach lawyer and the foundation’s chair.

Growing overhead and the recent lack of growth in the foundation’s assets led the board to conclude that the organization was not the best use of non-profit dollars, he said. The organization needed $25 million under management to sustain itself without annual fundraising, Davis said.

“We plateaued; we weren’t able to achieve those goals,” said Davis, who described encountering resistant potential donors who didn’t see the need for the foundation’s philanthropy advice and wanted to manage their own funds.

Even so, foundation leaders also describe precious experiences gleaned from their efforts. Davis learned the stories behind the town’s plethora of passionate non-profit leaders. “I didn’t find one that wasn’t a worthy cause,” he said. And board member Rick Balzer takes immeasurable pride in a 15-foot long printout enumerating gifts to nonprofits from foundation funds. “It’s really impressive,” he said.

The larger Orange County Community Foundation, now based in Newport Beach, originated in Laguna Beach in 1989 in the bedroom of founders Judy and Keith Swayne. A preponderance of foundation donors remain Laguna and Newport Beach residents, said executive director Shelley Hoss. Last year, organization’s donors gave away $60 million, 20 percent of its $300 million in assets. “We don’t want assets parked here,” Hoss said.

She said the Laguna Beach Community Foundation is not alone in ultimately merging with a larger entity, though she couldn’t cite another example. She declined to say how many of the Laguna Beach donors agreed to move their assets to the Orange County Community Foundation. Hoss described the local foundation’s aims as “beautifully aspirational.”

Founding chair Laura Tarbox also takes pride in what the foundation achieved, but is frustrated by the outcome. “I’m extraordinarily disappointed and disillusioned,” said Tarbox, a wealth manager, who pro bono managed the foundation’s investments with colleague Jim Fletcher. Over seven years, their efforts annually earned a 7.8 percent average return, according to the annual report. The foundation management fees of .5 percent to 2 percent for smaller amounts were within industry norms, Davis said.

Tarbox said her own high net-worth clients drove her involvement. She realized, she said, “that there is a lot more potential for philanthropy.” And while individual donors typically contribute the majority of assets amassed by community foundations, Tarbox anticipated that the town’s larger nonprofits would also welcome the foundation’s lower investment costs and competitive yields if not the organization’s broader philanthropic goals.

That proved otherwise. “It was so frustrating,” said Tarbox, who described encountering board treasurers unaware of their own investment costs, others scared to invest in stocks and loyalty over fiduciary responsibilities. “We should have been the white knight,” said Tarbox, who declined to name the organizations.

Turnover among volunteer board members, whose skills and knowledge vary, is one of the strongest rationales for placing philanthropic assets with a community foundation, which has a fiduciary process, Tarbox said.

The work of the local Community Foundation will continue, but in a smaller way: with a $100,000 legacy fund seeded by the Orange County Community Foundation, and overseen by three board members, and in bequests of unknown amounts written into wills, Davis said.

Among the small donors who supported the foundation is the Laguna Dance Festival. “We were making more than what we were earning with Wells Fargo and we wanted to be good community neighbors,” said Joy Dittberner, executive director of Laguna Dance Festival, which placed $25,000 with the LB Community Foundation.

The Dance Festival will shift its assets elsewhere to avoid the inconvenience of the Orange County Community Foundation’s required $25,000 minimum for a donor advised fund, she said.

Dittberner said she absorbed useful information about operating a nonprofit from foundation programs and appreciated its database of potential grants. “I spent hours there. I’ll miss them.”

This article was updated Sept. 22.

Correction: An article about the Laguna Beach Community Foundation in the Sept. 22 edition misstated its financial results. The organization’s investments earned an average of 7.8 percent a year in each of the last seven years.

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