Without tax dollars: an entrepreneurial approach to funding high-quality parks

Without tax dollars: an entrepreneurial approach to funding high-quality parks – Congress Roundup

John Potts

Following is the text of the Crawford Lecture, delivered by Potts on Oct. 24 during NRPA’s National Congress & Exposition in St. Louis, Mo.

Park and recreation agencies are facing unprecedented financial challenges that few of us could have envisioned 20 years ago. We were riding the crest of the wave of increasing property values, non-referendum sources of taxes and reasonable tax limitations established through the legislative process for most of our history. We were accustomed to being the good guys who provided our communities with high-quality, well-maintained facilities and a myriad of recreational opportunities. Indeed, many agencies, particularly in urban and suburban areas, competed with one another by offering increasingly more complex and expensive facilities. Water parks, “championship” golf courses, state-of-the-art health club facilities and other expensive projects were justified to our constituents by predicting break-even or profitable operations. We were moving far from our blue-collar roots as providers of recreational opportunities to those who could not afford country club memberships and memberships to private health clubs.

As the anti-tax movement moved from West to East across the nation, we were stunned to learn that we were one of the babies that got thrown out with the bath water as state after state adopted tax-limiting measures. All levels of government were tarred with the same brush, with no distinction made between the efficient and the inefficient, the good guys and the bad. Tax-payers are sending the message that all government is bad, all government is wasteful, and all governments can “tighten their belt” and provide the same services with less money. At the same time, for a variety of reasons, we are under attack for competing with private industry with many of our endeavors. We have not done a particularly good job or maintaining our “good guy” image with our constituents, particularly with those who vote but who may not regularly use our programs and facilities. Many of you will not remember Pogo, but he was a famous cartoon character/philosopher who once said, “We have met the enemy, and he is us.” In order to weather the current storm, we must look for innovative ways to reduce our expenses and to increase our revenues without relying on tax revenues to the extent we have in the past.

Putting Our House in Order

To be entrepreneurial means to be profit-oriented. “To be profit-oriented, we cannot focus on revenues without first making sure we have examined the expense side of the ledger with the same open mind and creativity we employ in looking at revenue sources. Benjamin Franklin said, “A penny saved is a penny earned”–good advice, but the trick is to look for ways to save pennies that are as thoughtful and creative as our approaches to revenue production, or we risk crippling our agencies and alienating our constituents.

The typical approach to budget trimming is to apply across-the-board cuts to all aspects of the operation. This approach requires little thought on the part of the manager, and is based on the belief that one can tighten one’s belt a notch or two and continue to produce the same product without a noticeable decline in quality or service. It also assumes that the entire organization has been amply funded in the past–an unlikely event in the public sector. A well-managed agency has little, if any, “fat” in the operating budget, and any excess revenues that may accrue are held in reserves for emergencies or are reinvested in capital items that reduce operating expenses, such as newer, more efficient equipment that requires fewer repairs and fewer hours of labor. The end result of across-the-board belt tightening is inevitable: the entire organization suffers without priority. The essential services suffer as well as the non-essential, and the efficient are penalized even more than the inefficient.

Funding reductions can be likened to treating an infected limb. Sometimes it is necessary to amputate the limb to save the body. Just as it takes great courage to face the amputation of a limb, it takes great courage to face the elimination of services or facilities that the public has come to expect. This is the time to blow the dust off of the agency’s mission statement and make sure that everyone understands it, including the public, the governing officials and every single employee. Those activities that are not clearly essential to the agency’s mission are prime candidates for early amputation if they are not financially self-sustaining, recognizing that during times of increasing budgets we could fit nearly any activity into our mission statement, extrapolating from words such as “wellness,” “youth” and so forth. We need to identify our core mission and those services and facilities that must be protected at all cost, and reconsider all those that, although valuable, are not essential.

Take the time to list every activity conducted by the agency in priority order and identify how it contributes to the core mission. Within that framework, consider the cost/benefit ratio, the numbers of persons affected, the social contribution, the political ramifications, the availability of similar services within the community or within reasonable distance–in other words, consider all of those things that we should have thought of before we began the activity and would have thought of if were we faced with tough financial conditions at the time of the program’s inception. When the priority list is complete, the endeavors that can and should be excised will stand out. You may learn that you can no longer afford the elaborate water park, the state-of the-art exercise facility, the full-service ice rink or the banquet facility, all of which were predicted to break even at the time of their construction.

Unfortunately, the prioritizing process is infinitely easier than the implementation. We all know how strident people can be when the activity they or their children enjoy is threatened. They are often highly organized and can bring a great deal of pressure to bear on managers and elected officials. It is incumbent on the professionals to provide the public and our elected officials with thorough, accurate and honest appraisals of our recommendations that are presented in an objective and businesslike manner. Remember that your proposal will be examined microscopically, and woe to the administrator who asks elected officials to support a proposal filled with logical loopholes, because every possible loophole will be brought to light in public hearings. Quietly remind officials that a group of vocal enthusiasts should not inordinately sway public policy. There are many more constituents who may quietly applaud their efforts to hold down expenses. The only defenses during this process are excellent staff work, thorough education on the issues and, above all, courage. Anyone can make across-the-board budget cuts–it takes heroes to do it right.

Prove to the anti-tax people that when they meet the enemy, they are not us.

Other People’s Money

Having gotten your house in order, look For ways to use other people’s money to eliminate or at least mitigate your expenses. Long before “partnering” became a buzzword, many park and recreation agencies were finding creative ways to use other people’s money effectively. The following are just a few outstanding examples.

Champaign Park District, Champaign, Ill.: Champaign Park District has for years had a “Flower Island” program that benefits both the district and the community at large. The district will maintain planters and landscape areas in front of businesses while charging double the actual cost of the materials and labor to each business-client. Signs identify each location as being a Champaign Park District project. The program creates infinite good will for the district and enables them to use the profit to beautify other areas of the community. Their program has attracted international attention.

Urbana Park District: Urbana Park District, adjacent to Champaign, began an extensive program with Champaign County government and the court system to use adult-diversion workers sentenced to public service by the courts. Urbana is the county seat, and the county governing body and the park district share the expense of a full-time supervisor and necessary equipment to effectively utilize court-supervised offenders on public property. Because many of the offenses involve driving violations such as DUI, the agency often gets highly skilled persons such as masons, carpenters, electricians and painters to perform work on their facilities that otherwise would have cost the agencies hundreds of dollars. Key to their success has been careful planning to fully utilize the free labor and close supervision to avoid wasted effort.

Peoria Park District, Peoria, Ill.: For more than 30 years, Peoria Park District has contracted to perform landscape maintenance and forestry services for other governmental agencies on a “cost-plus” basis. Utilizing the park district’s expertise and efficiency has proven a bargain for other units of government as compared to performing the work themselves or contracting with private contractors.

Not all of the benefits to the park district are reflected on the balance sheet. The district has been able to benefit from economies of scale by utilizing larger and better equipment than it normally could afford, and it has profitably used the by-products of some of its tasks. For example, mulch from taking down street trees has been used for trail surfacing, and the district actually bought a portable sawmill to cut lumber from trees taken down within the city. When contracting with other governments, however, care must be taken not to let their problems become your problems. For example, when the district contracted with the city of Peoria to maintain street trees, the district did not agree to decide which trees were taken down in what order. Those contentious decisions were left for the city to handle. Additionally, when it comes time to cut budgets and the contracting agency asks to cut a certain percentage, the only possible response is to ask what work they want you to stop performing.

Champaign County Forest Preserve District: When a local Internet service provider was looking for space to house its equipment, the district contacted it and offered space in one of its buildings. In exchange for equipment space equivalent in size to a couple of suitcases, the Internet service provider furnishes high-speed Internet access to the district headquarters’ computers, and hosts its Web site. In addition, it pays about $30 monthly for the electrical use. The district saves hundreds of dollars each month.

The district eliminated its small police force and negotiated an intergovernmental agreement with a community adjacent to its largest facility for police protection. In return, the district maintains the city’s police cars and provides technical expertise on landscaping. Savings to both the district and the city have been substantial.

When the township road commissioners were looking for a place to hold semi-annual meetings, the district offered one of its facilities. In return, the road commissioners rebuilt the crumbling road leading to the building and will maintain the road for the 15-year term of the agreement.

Miamisburg, Ohio, Parks and Recreation Department: Miamisburg Parks and Recreation Department allows a farmer to graze sheep on Indian mounds that formerly required regular and difficult mowing, again with substantial savings to the department.

These are just a few examples of creative thinking that can vastly improve an agency’s bottom line and image in the community. Using other people’s money to achieve our goals is the essence of entrepreneurial spirit.

Taking the Next Step

Having gotten one’s house in order and having explored creative options to use other people’s money, agencies are in a position to ask others to help. You have established a reputation of frugality and efficient use of tax dollars, and you have demonstrated by your actions that you can offset expenses with imagination. In short, you have armed yourself with the best tool to garner public support–a reputation for good government.

Americans give billions of dollars each year in charitable contributions to not-for-profit corporations, large and small. Forming a not-for-profit corporation (foundation) under the federal 501(c)(3) regulations for charitable and educational purposes allows governmental units to approach the public for support of its activities in a systematic and professional manner. A foundation accepts contributions and gifts, promotes fund-raising activities and provides assistance to the programs and projects of the agency. The foundation is a separate entity and does not receive either tax revenue or user fees. All contributions to the foundation, whether cash or in-kind, remain separate from the agency’s general revenue and operating expenses.

A foundation designated for the support of the agency is not affected by the day to-day political pressures of local constituents, and can concentrate on the true mission of the agency without concern with the political election process. It can do many things an agency cannot easily do, particularly in the private fund-raising arena and in the area of obtaining grants. Grants usually require a local contribution, and when funds held by a foundation are used for the local share, the money is leveraged to a much larger value. For example, if a grant requires a local contribution of 50 percent, and the foundation holds a piece of property valued at $50,000, it has a value of at least $100,000 in the grant process. This process is attractive to potential donors as they can get more bang for their buck with their contribution.

Initial formation of a foundation is relatively simple, requiring only that appropriate forms be filed with state and federal governments. Creating a viable and productive foundation is not so quick and easy Agency-elected or -appointed officials may initially fear a foundation, as it is an independent entity beyond their control. Prospective members of a foundation board may be reluctant to become involved in a foundation supporting a tax-funded agency In smaller communities, community leaders who seem perfect for your foundation board may already be committed to other boards and organizations. Finding time for busy staff members to organize and support a foundation through its start-up period is often difficult. However, in spite of the initial difficulties, the potential financial support is so great it is worth any effort to make it successful.

Americans give for many reasons, and they give generously Some give for immediate tax advantage, others give for future tax benefits, some give because they support the purposes of your agency, some give because of a pleasurable experience in a program or facility and many give to memorialize a loved one or a significant event in their life. For whatever reason, Americans give billions. There are many ways they can contribute. Outright gilts of money, securities, real estate, insurance policies, equipment and personal property future charitable remainder trusts, life income plans, gift annuities, testimony trusts, bequests and memorial gifts, including land set aside as living memorials, are all vehicles designed to accommodate the needs of the individual donor. Even a small foundation can act as a vehicle to make these options available and attractive to donors.

Identifying persons to serve on a foundation’s board is of utmost importance. Prospective board members must be willing to commit to the foundation, both financially and with their time. Participation in meetings, committee meetings, fund-raising activities and using their personal influence to help the organization is time-consuming. Persons considering service on the board must be made aware of the expectations before agreeing to serve. Obviously persons with influence within the community are likely candidates, and it is helpful to have business people, attorneys and the like because of their wide contacts and financial expertise. It is incumbent on the staff of the foundation or, during the formative period, the staff of the agency to provide meaningful tasks to board members and to nurture and support them, or they may be lost to the organization, and the organization’s reputation will suffer.

Once a board is formed, it is a good idea to hold a retreat to educate the members about the agency; the agency’s goals and objectives, their needs and the agency’s expectations of a foundation. The foundation hoard and the agency governing body should be familiar with each other and with the agency staff. Education of the foundation board is an ongoing process, and every regular meeting of the foundation board should have an educational component. The more the foundation board knows about the agency and its vision, the better the foundation will be able to serve the agency.

There are a variety of documents that are crucial for a well-managed foundation. These include a mission statement, a statement of vision that clearly states where the organization wants to go in the long term, an annual development plan that outlines the fund-raising program, a case for support that shows people why they should support the organization, gift-acceptance policies and a procedures manual. These documents are important; both the foundation board and the staff must allow time to focus their attention on them. Many of these documents become the basis for fund-raising contacts, brochures and getting educational literature into the hands of the public

A foundation needs funds for day-to-day operations, even if the foundation has no employees during its formative period and is relying solely on agency staff and volunteers. Production of printed materials, postage, telephones, fired-raising functions and so forth all require money. Operating funds normally come through annual giving of unrestricted gifts raised by an event, direct mail and repeat annual donations from supporters. It is important to get these activities started early. One park foundation recently raised nearly $200,000 in operating funds merely by mailing the agency’s constituents and asking for small donations. Every park user and program participant is a potential donor.

A Solid Foundation

Eventually the foundation will need a development director and a staff. Agency staff has neither the time, training nor inclination to be fundraisers in the long term. Foundation staff should obviously more than pay for themselves. However, an interim step may be a part-time development director, supported by agency staff, a person who is well known in the community and has the time and ability to meet individually with potential donors. A community college in our area has hired a retired businessman on a part-time basis with great success. Funds must be available to that person to entertain donors and do those things necessary to accomplish their mission.

The foundation board must work closely with the agency board and staff to identify the needs of the agency and get those needs put forth in a manner that encourages giving. A gift catalog is a useful tool for fund-raising, and should include opportunities for giving both large and smaller amounts. Prices for various items in a gift catalog should include the long-term maintenance of the items offered. For example, a park bench with a memorial plaque costing $1,000 to purchase and install may be priced in the gift catalog at $3,000, with the extra $2,000 set aside in an interest-bearing vehicle to be used for future repairs or replacement. If the agency is willing to name facilities as a lasting memorial, millions of dollars may be involved. It is important to your fundraising success, however, that donors have the assurance they are creating a lasting memorial. No one wants to create a memorial garden that turns into a weed patch in 10 years.

One of the long-term goals of the foundation should be to create endowments that support agency activities or facilities. Endowments are usually a relatively large amount of money that is set aside for a specific purpose, with accumulated interest spent to support the activity and the principal amount left untouched. It is important that donors be given the opportunity to create an endowment over a period of years with which they are comfortable, as few people have the means or inclination to donate large sums in a single year (with the possible exception of wills or bequests). However, endowments can have a huge positive impact on agency finances in the long run, and should be suggested at every opportunity.

Foundations must also take advantage of the many granting foundations already in existence. There are thousands of charitable foundations in the United States, and they need to give money away. Many of them have the same general purposes as parks and recreation, and millions of dollars remain undistributed each year merely because no one asked for the funds. A cursory search on the Internet yields hundreds of such foundations, and a systematic search will yield thousands. Many of those foundations prefer dispensing funds to another foundation, as they can be confident the structure already exists to handle the funds responsibly.

In summary, I see the process of attracting non-tax dollars as being of three steps:

1. Getting the house in order and demonstrating that we are good stewards of funds entrusted to our care.

2. Exploring every opportunity available to substitute tax funds with private funds through partnerships.

3. Creating an active, viable foundation to supplement or eliminate expenditure of tax monies.

The chances of success are much greater if the steps are accomplished in the order given, because each step builds on the prior step. It also requires constant attention and review. Being entrepreneurial is as much a state of mind as anything. Thinking creatively and seizing opportunities as they present themselves will eventually free us from much of the uncertainty inherent in being totally dependent on taxes.

Future National Congress & Expo Dates

2004: Oct. 12-16 Reno-Tahoe, Nev.

2005: Oct. 19-23 San Antonio, Texas

2006: Oct. 11-14 Seattle, Wash.

John Potts, CPRP, is executive secretary/treasurer of the American Academy for Park and Recreation Administration, and has served as a regent and trustee of the National Institute of Gold Management for 20 years. He has served on the Board of Directors of both the National Society for Park Resources and the Administration and Finance Section of the Illinois Park and Recreation Association. Ports is currently active on the boards of two foundations pertaining to parks and recreation. He can be reached at johncpotts@mchsi.com.

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