New Law Changes Endowment Management to Help Nonprofits
July 2, 2009 Gov. Deval Patrick today signed a bill into law that allows Massachusetts nonprofits to tap into endowments, using prudence factors, enabling them to draw funds down below their historic dollar value.
Enactment of the Uniform Prudent Management of Institutional Funds Act, called UPMIFA, will enable some charitable organizations in Massachusetts to avoid layoffs and liquidation of assets, according to its supporters. It took effect today.
UPMIFA will affect many nonprofits, even those that dont have endowments, as it will influence the ability of foundations and other organizations that rely on endowments to make grants to other nonprofits.
Thirty-eight states have passed similar legislation, which aims to raise the threshold of responsibility for nonprofits 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 nonprofits 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.
Im 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 law modernizes the rules governing expenditures from endowment funds 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.
This will help Mass Audubon and other nonprofits in Massachusetts weather the storm said Laura Johnson, president of Mass Audubon
. 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 OLeary [who filed the bill], we wouldnt be making this important step forward for nonprofits today.
On behalf of the statewide cultural community, MAASH thanks Senate President Therese Murray, Speaker Robert DeLeo and Gov. 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.
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.
UPMIFA requires nonprofits to diversify their portfolios and invest wisely according to the intent of donors, and provides guidance and authority to charitable organizations on the management of their funds.
The new law also imposes 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.