Northampton’s Non-Profit Sector
Look Park’s Shrinking Endowment
Could Pose Pitfalls down the Road
By Mike Kirby
With warmer weather, the tempo of activity at Look Park is picking up as park employees prepare for another summer of concerts, picnics and dodge-em boats. The Frank Newhall Look Park is another one of these unusual Northampton institutions like the Academy of Music, Smith Charities and Lilly Library whose mandate, financing and organizational structures are dictated by wills, some of them anachronistic.
Yet, the Look Park, which first opened in 1930, seems to be well run; it pays its taxes, its grounds are well tended; you hardly ever hear anyone complain about the park. The trustees devote a great deal of time to park affairs, and don’t earn a dime for their trouble. So before the inquisition, I say thanks for running a great place and responding promptly to requests for information.
When all is said and done, there is something going around, some kind of flu affecting some of our local non-profits. There are the troubles at the Academy of Music, and the United Way of Hampshire County, and the demise of the HCAC. Could what happened to the Academy happen to Look Park? Could this popular recreation facility some day shut its gates, lay off staff and end up turning to the city for financial help?
Perhaps. It has been running a deficit, and in the period between
1999 and 2003, its endowment, the result of an initial gift of some $500,000 by Fannie Burr Look, is in a portfolio of stocks and bonds, has taken a beating. Every year, Look Park fills out federal income tax declarations. These so-called 990 forms are filed with
the State Bureau of Charities. The following figures show that the park’s net worth (land value, plus the buildings, plus cash and securities) has been steadily dropping for some time.
Park’s Net Worth
December 2000 $10,821,945
Market value in millions
December 2000 $8.36
Because the value of the endowment is shrinking, the income that the trustees get from it is also declining. Between 2000 and 2005, the income from securities dropped by almost 50 percent.
Park’s Endowment Income
December 2000 $212,880
During the same period of time, the cost of operating the park, pushed by utility costs, salaries, and new expenses posed by the construction and operation of the Garden House at Look Park, edged ever higher. In the year 2000, the cost of running the park was $1.2 million; in December, 2005, the cost was $1.74 million. Income from entrance fees, sales and space rental did rise during this period from $577,845 to $884.298, but the end result was that the park continued to operate in the red. Income was up, but expenses, much of it traceable to the cost of operating the Garden House, were way up. The many improvements made by the trustees over the last 10 years have made for a more attractive park, but maintaining and staffing its operation do not come cheap. The old Pancake House, which was demolished many years ago, was a low maintenance affair: open it up on Sundays, and start a fire in the fireplace.
The Garden House, in comparison, eats up money. In the 2001-2003 period, the Garden House filed separate returns as a 501-C3 corporation. It never showed a profit. In 2002, it posted $89,000 in revenue, as against $115,500 in expenses. It was not until early 2003, however, that the park obtained liquor license for the Garden House and it was operating fully. By then the park had quietly folded the stand-alone corporate shell, and the Garden House operation’s money are co-mingled with the park’s general revenue and expenses. In 2004, the first full year it was in operation, Garden House revenues were $140,012. In 2005, the figure was $150,914. Many categories of expenses jumped dramatically, however. The new facility had to be heated and air-conditioned; it had to be staffed; there were advertising costs. In 2001, the utility bill for the park was $30,000; in 2005 it was $62,600. In 2001, professional fees totaled $9,375; in 2005 they were $38,167. Advertising also jumped from $19,000 to almost $40,000. All that is clear is that the Garden House, despite the glowing promises made by the trustees in 2000 and 2001, has not put the park into the black. It is a success, but not the "home run" that one consultant to the park once deemed it.
The former head of the Northampton Recreation Department, Ray Ellerbrook, is the park’s chief administrator. The trustees are seven in number. Their chairman is lawyer and former city solicitor Edward Etheredge and its treasurer is the former President of Heritage Bank, Richard Covell. The other members are Robert Ostberg, a financial consultant, Nancy Reeves, a fund-raising consultant, Mayor Higgins, Sharianne Walker, professor of sports management at Western New England College, and William Brandt, head of the physical plant operations at Smith College.
Ellerbrook was frank to admit that he was not too conversant with the park's investment practices, referring me to Etheredge and Ostberg.
The Board of Trustees at Look Park, because of the way the will was written, is a self-perpetuating organization. Trustees have lifetime tenure, and many of them have died on the job. It makes writing a story difficult for reporters, since usually the only people who are willing to talk about the inside workings of an organization are former board members. At Look Park, the former board members are all dead and Brian Elliott, its former director, is in
Longevity is a fact of life at the board level. For example, Covell has been treasurer since l980; Etheredge, the current chairman, has been on the board since l978. The treasurer is responsible to the board for how the endowment is invested. For practical purposes, however, the portfolio is managed by TD BankNorth.
During the 1980s and 90s, the portfolio was aggressively managed, with heavy investments in stocks that were hot at the time, like telecommunications. The market value of the park’s investments zoomed upward. The trustees got into the "irrational exuberance" that affected ohers in the stock market in the 1990s. Just because the park had a bank president as its treasurer didn't mean that it invested conservatively. At the Heritage Bank Covell put much of his bank's assets into risky stocks and commercial real estate operations managed by bank insiders, and the bank crashed with enormous repercussions for the whole region.
Sometime in the late 90s the park’s board realized that the park was in trouble. It had a decaying physical plant and an endowment in free fall. In 1999 the endowment peaked out at $10 million; by December of 2000 it was $8 million and dropping rapidly, and 2002 was a terrible year for the market. The trustees decided that they could generate more income by making improvements to the land and buildings than they could by keeping it in stocks and bonds. So they took capital from the endowment and put it into new bathrooms; redesigned the playgrounds, lighted tennis courts, and made other physical improvements. The trustees were trying to expand their customer base. Liability insurance on the swimming pool had become exorbitant, so they turned their pool into a water show with bumper boats. They borrowed $1 million from the Florence Savings Bank and took another $400,000 from the endowment to tear down the old Pancake House and renovate the pool house to make it into a state of the art catering facility, the Garden House at Look Park. It appeared the trustees figured they had to become entrepreneurial or perish.
The Garden House was intended to be the Northampton equivalent of the highly successful Carriage House Banquet facility in Forest Park, so the trustees hired experienced local restaurateur and real estate developer Chuck Bowles as a consultant to come up with a plan for the park’s new enterprise. Then they fought their way through to planning board approval, obtained a seasonal liquor license, and managed to persuade their neighbor, Edwin (Ted) Warner, to drop a law suit he had filed to block operation of the Garden House. The board predicted that the new facility would generate $300,000 in revenue annually. Where this figure came from is unclear. Bowles forecast $117,000 yearly in net revenue. It has exceeded that, but the top annual revenue figure to date is $150,000.
The project was an expensive one, however, involving a lot of infrastructure work on drainage that had no corresponding payoff in revenues. Between 2001 and 2005, the park was only paying the interest on the $1 million construction loan it had secured from the Florence Savings Bank, and for which the trustees had pledged the endowment as collateral.
The trustees were never really able to have a grand opening because of the law suit. Starting in the summer of 2003, the facility was able to open with a seasonal liquor license. The Garden House appears to be doing well, but the park is running a substantial deficit every year, and it cannot go to the financial well many more times. So, in 2003 when it came time to replace the late Franklin King, the trustees brought in Ostberg, an experienced financial planner.
“They wanted me to come on because they knew I was very conservative” said Ostberg. In 2005, at his urging, the board voted to limit its yearly withdrawal from the endowment to 4.5 percent of its fair market value. The park has also started to pay down its indebtedness to Florence Savings Bank. Its note now stands at about $500,000.
So is it likely that Look Park could some day wind up in the same kind of financial jam that afflicts the Academy of Music? This won't happen tomorrow or next year, but 5 or 10 years from now, unless the prevailing trends are reversed, the park will find itself land rich and cash poor. If the venture crashes, the will specifies that the land reverts to the heirs, not the city. And the heirs, whoever they are, may decide to sell the property off to developers and pocket some handsome profits.
The trustees have done well investing in its physical plant, but seem to be toying with risky behavior in handling its endowment. This is best seen if you contrast the Childs Park endowment with the Look Park endowment.
Annie Childs set up a trust of $600,000 in 1950 dollars for the park's upkeep. She left the land for the use of the city residents, but she didn’t trust politicians or civic leaders to invest her money. So the money went to the Springfield Safe Deposit and Trust to be managed, and the board of trustees got reports and a check every year for the earnings from the investments, and that was it. The bank ran the show.
The $600,000 that the Springfield Safe Deposit bank managed had only grown to $2.3 million by 1996. Today its endowment, now managed by the Bank of America, amounts to about $3.03 million. But the Childs Park endowment is yielding its trustees more income every year and, today produces more income than Look Park's $4.3 million nest egg does. A total of 30.3 per cent of Childs Park assets are in cash or fixed income investments, mainly government bonds and AA and AAA bonds.
David Murphy, a principal in a local real estate firm, is president of the Childs Park Foundation, Inc.
Meanwhile, BankNorth manages the Look Park endowment. The cash and fixed income investments are only 13.4 percent of its total investment portfolio. On a graph, the Look Park endowment looks like a cross-section of the Alps. Up and down. The Childs Park package started low and records steady gains almost every year. Strong investments in bonds keep the principal intact.
If we are talking about managing the park for our grandchildren and our grandchildren's grandchildren, we have to talk about possibly putting the park on a different investment strategy, it seems.
Yet, one of the problems with some of our local non-profits is their insularity; their lack of accountability to the community at large. Look Park’s priceless property is public land, yet the trustees do not report regularly to the City Council or the Auditor. The Board of Trustees of the Park operate in secrecy. Maybe you could get a copy of minutes of their meetings, but I am sure it would be a struggle. The park needs to report to the public and the Council yearly, and post the minutes of board meetings.
The dangers to the community, which has a vast stake in the well-bring of the park, lie in what rising costs, possibly combined with a market crash or recession, would do to Look Park and its operations. Modernization and entrepreneurialism are a dangerous business. You need to make your home-grown business work, so you plow more money into it. The public expects a really nice-looking park, so you have to hire and pay staff to enable the park to attract customers.
If you project out the falling net worth of the park with the rising expenses of running it over the next 5, 10 or 20 years, you might get to the point that the trustees would not have the cash to run the park. They would have to go to the city for help, or fold. User fees can increase only much before people stop coming to the park in large numbers.
The trustees also need to look into changing these rules that make trustee positions last a lifetime. New blood is good for an organization. Openness is also a good thing for an organization that is managing an institution for the benefit of the entire community. The park should go before the City Council annually and provide a “state of the park” report, and release it to the media. The worst thing the park can do is to continue its “go it alone” policy and tell us, well, nothing.
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