Financing a Nonprofit Parks Organization

Excerpted from Public Parks, Private Partners, published by Project for Public Spaces, 2000.

In any nonprofit parks enterprise, funding is generally divided into two types: funding for operations and funding for capital projects. Operating funds are those that support the annual budget of the organization that pays for salaries, programs, rent and postage. This budget must somehow be raised every year as long as the organization is in existence. Operating budgets can be as little as a few thousand dollars per year for an assistance provider, or a million or more per year for the largest sole manager and co-manager organizations.

Capital funds, on the other hand, are one-time expenditures used to build (or re-build) a landscape or park facility. Since capital projects are usually bricks and mortar facilities with decades-long lives, the capital budget is generally much larger than a single year's operating budget. On the other hand, a capital fundraising campaign can go on for several years before the funds begin to be spent, without quite the same time pressures to meet payroll and other deadlines that always come with an operating budget. Similarly the spending of a capital budget for the project construction can take several years, depending on the size of the project.

OPERATIONS

Annual operating expenses consist of salaries for employees, office and administrative expenses, publications such as newsletters, expenses associated with fundraising, programs, events, and numerous other recurring costs. If the organization also performs park maintenance or security services through paid employees or contractors, these activities would be major expense items in the operating budget as well.

Size and range of operating budgets. We took a closer look at the operating budgets among our sample of non-profits in order to get a better sense of the relationship between an organization's budget, the types of expenses it has, and the type of role and relationship it has with the public sector. We arranged the organizations into three general budget levels: small ($1,700-$45,000), medium ($100,000-$450,000) and large ($1-$23 million) (See Table 1).

Not surprisingly, those organizations of our nonprofit sample with smaller level operating budgets were those with roles as assistance providers and public advocates, or as catalysts. Smaller level budgets were allocated mainly towards staff salaries and/or administrative costs, fundraising activities, and public programs, events and publications. Three out of four of the organizations within this budget level have volunteer staffs, while only one group, the Friends of Garfield Park, has one regular staff member.

Nonprofits with mid-level operating budgets were mostly those with roles as co-managers, although there were also organizations with roles as catalysts, and as sole managers. Mid-level budgets provide nonprofits with more breathing room, allowing them to allocate more money for administration and professional staff, fundraising, public programs and events, maintenance and operation, public relations, marketing and membership development and services.

Nonprofits with large operating budgets were those with roles as co-managers and sole managers. These larger nonprofits allocate higher levels of funding to the above-mentioned areas and branch out further into visitor services and facilities rental. The Maymont Foundation, the primary caretaker for Maymont, a public park that was a private estate, allocates money to the maintenance and operation of facilities within the park, including a museum, carriage collection, nature center, and a farm with animals.

Revenues. Finding funds to cover the annual operating budget is one of the biggest challenges facing parks nonprofit organizations, all of whom derive their funding from six different sources: 1) government subsidies; 2) private donations and contributions (individual and corporate); 3) foundation grants; 4) concessions or other earned income sources; 5) in-kind contributions; and 6) earned interest from investments and/or an endowment.

Often the first source is in-kind contributions ranging from volunteer time to donated office space to public service announcements in the media. For the purposes of this chapter, however, we will be discussing sources of cold, hard cash to pay the bills cash that has to be raised every year to keep the organization going.

Occasionally there is endowment income as well the product of funds invested for the income they can produce every year (interest, dividends and capital gains) to replace annual fundraising. However, an endowment to support operations (as opposed to a facility) is produced only through an enormous fund raising campaign that is unlikely to be undertaken, let alone successful, until an organization is large, well-established, and seen by funders as a credible long-term steward of capital.

In our research we found that local foundations were likely to be among the first funding sources for a new organization. National foundations eventually might be attracted to an effective organization, especially if its activities fall within one of the foundation's program categories. Local foundations are often approached for seed money and start up grants, as well as capital campaigns, although they may ask to have their funds matched by other monies from other sources. This may be when the organization turns to individuals, as well as corporations.

Individuals are another common source of cash for a new organization, often through the vehicle of membership dues, but also through larger contributions from those who care passionately about the park and also have the ability contribute at a higher level. Individuals are often the source of funds secured through fundraising events. Sales of t-shirts, hats, and other items also can generate funds from individuals. Some groups have extensive catalogs of ways for individuals to invest in parks, and will let people sponsor everything from a waste receptacle to a child's term in a summer camp program.

Private corporations, especially those with developed corporate giving programs and/or an office near the park, are another likely source of funds, especially if some of their employees become part of the parks organization. Initially these businesses may give small contributions, but their donations can be potentially very large, especially when the park is seen as having a major effect on the corporation's image.

The three sources discussed above are all private-sector sources. To access them, the parks organization almost surely will need to have a tax-exempt designation (under Section 501(c)(3) of the U.S. Internal Revenue Code). This desig-nation, which can be obtained by application to the U.S. Internal Revenue Service demonstrating that the organization's purposes are charitable, religious or educational, will qualify funds as a tax deduction for the donor (a significant incentive in the case of individuals and corporations), or in the case of a foundation as an eligible candidate for its charitable funds. It is this ability to access private funding that makes a nonprofit partner attractive to a municipal parks department, and gives it an incentive to match the private funds the nonprofit raises. Some groups use the tax-exempt designation of a third party, although as they mature, they usually achieve their own designation.

Government sources are most likely to come in the form of a contract for services with the municipal government, usually specifying what services the nonprofit will perform in support of the park, and often with a budget specified. A government, usually city or county, also might make an outright grant to support the organization.

Earned income can include rentals paid by outside vendors of park facilities that the organization controls, such as food facilities, skating rinks, docks, or just space for a business to operate. Needless to say, such businesses should all complement and enhance the park; in fact this might be the first objective of such concessions, with the income used just to cover their costs.

Earned income also can come from recreational program fees, event admissions and gift or souvenir sales, among others. One group among many in our sample highlighted opportunities to earn rental income from the buildings that they have renovated and continue to manage. Depending on the location of the park, and especially the amount of pedestrian traffic near it, earned income can be considerable.

An entrepreneurial organization with a well thought out leasing plan that programs and animates park spaces into a synergistic whole can go far towards changing the park's image and revitalizing it. Since nonprofits can generally be more entrepreneurial and flexible than government agencies, possibly earning a surplus where a city could not, the parks department may be willing to cede some control through a contractual arrangement if it is seen to be in the best interest of the park. If the nonprofit is able to get control of the concessions and recycle the income into its own budget, this can be a substantial, stable, and long-term source of operating income. Concession services might also be run directly by the organization, but then it must provide the expertise and absorb the expenses as well; generally leasing out to experts is preferable.

In summary, it is worth noting that an important goal for any nonprofit organization, especially if it aspires to a long life as a park steward, is to maintain diverse and balanced funding using all these sources for its operating budget. Then, the shrinkage or disappearance of any one source will not spell the end of the organization's existence or effectiveness.

CAPITAL PROJECTS

Capital expenses refer to the one-time cost of creating an asset usually a park or park facility (although the term can also refer to the building of an endowment). These costs generally include not only the hard costs of construction materials and labor, but also the soft costs of design, insurance, legal services, project management, and any other needs necessary to see the project through implementation. The initial conception and planning of a new capital project, however, might need to be carried in the operating budget: the staffing of a planning committee, the hiring of a planner or designer to do the first concept drawings, the development of renderings to communicate a vision of the project, and cost estimates to put a price tag on it. This work provides a basis for raising capital funds. Once some or all the funds are raised, however, the subsequent management of the project can be justified and should be provided for in the capital budget itself.

As the planning for a capital project progresses, the skills required become increasingly specialized and technical, and the liability issues much greater. Unless the nonprofit organization is very sophisticated or has its own knowledgeable client representative, the legal responsibility for implementation of a capital project may well pass to the parks department or to another government agency, with the nonprofit serving as a junior partner and fundraiser.

Revenues. Because capital projects almost always result in the construction of a public space or public facility, and because they generally con-stitute very large expenditures-often dwarfing the yearly operating budget of a nonprofit-a large percentage of the funds to pay for them usually come from public sources. City, county, state, or federal funds or some mix of these will probably account for the bulk of the capital funding for park projects. However, a nonprofit's ability to raise private funds is one of the biggest points of leverage in its partnership with the city. Capital funds, whether public or private, almost always are designated for a specific project, or group of projects.

In-kind contributions also can play a significant role in a capital project, whether they are donated architectural services, contributed construction materials, or pro bono legal or construction management services. Adopt-a-tree and adopt-a-bench programs are also popular ways of generating individual support, as are brick campaigns, where donors are asked to buy a brick or other paving block.

In addition, an endowment can be raised to ensure the long-term maintenance and care of a capital facility. Sometimes an endowment is raised as part of the initial capital campaign that pays for building the facility; more often it is raised as part of a campaign to fund the rehabilitation of a deteriorated and beloved landmark. Endowments typically will be raised from private sources. The yearly income from the endowment is earmarked for regular maintenance and repair, or for capital replacement of the designated asset(s).