NEW HANOVER COUNTY — The formation of the $1.25 billion private nonprofit New Hanover Community Endowment, Inc. will infuse local stakeholders in New Hanover County with more money than they’ll immediately know what to do with.
Funds passed onto the endowment as a result of the sale of the county-owned New Hanover Regional Medical Center to Novant Health — which is expected to become final Feb. 1. — will benefit the region for decades.
RELATED: Deep Dive: Did rural counties get left out of $1.25 billion New Hanover hospital deal?
The question isn’t whether the endowment will make an impact — it undoubtedly will. The question is how much and what kind of an impact will it have.
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‘When are they going to be handing out the money?’
Word of the sale — and its financial flood — has understandably excited those working in the area’s philanthropic sphere.
From whispers to public chatter, community leaders are eagerly awaiting updates from the endowment with open hands.
“I think there’s been a lot of speculation from nonprofits about, well, ‘When are they going to be handing out the money?’” Hannah Gage, the endowment’s co-chair, said. “First of all, we don’t have the money. That’s outside of our control.”
If the sale does close Feb. 1 as expected, the endowment will receive $1.2 billion of the $1.9 billion in cash Novant is paying for the county-owned health care system, immediately making the newly formed foundation one of the largest nonprofit philanthropic organizations in North Carolina.
“We don’t envision any money being dispersed in the first year,” said the endowment’s chair, Spence Broadhurst. A nationwide search is expected to take place to hire the endowment’s executive director, Broadhurst said, with no definitive timeline set for finding the right individual.
“We don’t know enough about what this job entails to write a job description right now,” Gage said.
“It may look like we’re doing nothing for a while,” she added. “I think there will be important work going on when you’re not hearing anything.”
As designed, the foundation will operate privately. It’s bylaws require its CEO to host biannual meetings “to answer questions from the public” and the release of biannual reports — concessions negotiated by the county as part of the sale. The foundation will be required to issue quarterly reports on its financial and other activity.
Beyond what’s required, Broadhurst said, the foundation will operate as transparently as it can while still balancing the need to formulate what exactly it intends to do.
“When the time is right, we want to get all the community input we can get,” he said, “and make the best recommendation, decision on grantmaking and allocating the money at the right time so that we can make the most significant, needle-moving, transformational impact on this community possible.”
Broadhurst said the endowment’s first step is to make sure the deal closes — that appears likely after N.C. Attorney General Josh Stein announced last week that he has no objections to the deal — then invest the funds so they can grow. Before it begins making grants, it will calculate how much it can spend in a year based on the formula in its bylaws .
“The endowment’s goal is to make a difference — not just to get money out, Broadhurst said.
After holding the endowment’s first organizational meetings virtually, Gage said the board is still getting to know one another. “We haven’t even been in the room together yet,” she said.
The 11 board members will have another task — one of the conditions of Stein’s approval of the sale is for the board to add two seats that are permanently reserved for members with expertise in areas directly related to the foundation’s mission, such as health care and education.
Related: Top 5 changes to NHRMC-Novant deal after AG’s review
The anxiety — or excitement, depending on your outlook — of being given a blank canvas to shape $1.25 billion in spending priorities will surround board members until they fine-tune the endowment’s roadmap.
“It’s challenging and daunting to have such broad categories,” Gage said. “But I think it was genius on the part of the county. Because 75 years from now, if they had given us very specific categories, they may not be needed. Because the world changes. If we were too tightly confined by the bylaws and by the intent of this endowment, I don’t think it would serve this area in perpetuity the way that the broader goals will.”
Through the sale agreement, the foundation is directed to serve four purposes: 1. public primary, secondary, and post-secondary education; 2. health and social equity; 3. community development; 4. community safety.
Most of these purposes, on the surface, don’t have anything to do with health. They address social determinants of health, foundational aspects of people’s lives — such as housing, access to transportation, and healthful foods — that eventually impact health outcomes. Addressing health care issues at their root cause early is a prominent, if not leading strategy in the conversion foundation field.
What does spending in those areas actually look like? For now, no one — not even the endowment board — knows. For the board’s first year to 18 months, it will work with consultants and learn from similar foundations before developing a strategic plan that will serve as its framework to inform future grantmaking.
“I think that first year there will be a lot of time spent before anything is handed out, trying to understand deeply what the real needs are within those categories. And then from that we will have a framework to understand what programs will do the most good, what kinds of programs will move this forward,” Gage said.
Though the experienced board has deep business and healthcare ties, none has experience serving a conversion foundation. Few people in the region are well-versed in such work, prompting members to look to statewide and national experts for guidance. Experts in the field recommend doing exactly this before foundations get busy writing checks.
“I think we know enough to know that we don’t know enough yet,” said Gage, a Wilmington business owner who previously served as chair of the University of North Carolina System’s Board of Governors. “It’s a complicated process if you want to do it well. It’s not just handing out money willy nilly.”
What to do, what not to do
After first emerging in the 1980s, continued consolidation in the healthcare industry likely will spawn more conversion foundations. A majority of such foundations operate as private nonprofits or public charities, according to a 2017 Grantmakers In Health (GIH) survey.
The New Hanover Community Endowment has been designed to operate as a private nonprofit with a board that will appoint its new members itself.
The Internal Revenue Service requires tax-exempt private nonprofits to spend 5% of their total assets for charitable purposes (how the total value gets calculated varies — nonprofits are permitted to hold off spending for specific projects). The New Hanover Community Endowment’s bylaws state expenditures must not exceed 4% of its total market value.
However it gets broken down, the endowment is looking at spending between $50 million and $62.5 million when it gets started. This amount will vary (hopefully, increase) as investments grow and the total value changes.
Compared to other known healthcare conversion foundations (also referred to as health legacy foundations), the New Hanover Community Endowment’s bank account will be titanic — experts place its assets in at least the top 10 or five endowments along the East Coast. Depending on the geographic boundaries of where grants are made (a question for which local officials and Attorney General Stein appear to have different answers at this time), it could be one of the biggest grantmaking organizations in the nation on a per capita basis.
It’s highly common for conversion foundations board members to have also served on the board of the converted entity, according to the GIH survey. Five of the current 11 board members on the New Hanover Community Endowment sat on the Partnership Advisory Group, the committee formed by the county and hospital to identify a sale partner; none were members of the hospital’s board of trustees.
A 2019 GIH report, “Making Their Mark,” weighed data-driven and anecdotal evidence in its analysis of foundations. Compared to national foundations with a wider focus, the report found foundations with defined local or regional service areas develop stronger community ties. This local focus allows foundations to amplify their impact, tailoring their approach to target community-specific needs.
The report found controversy surrounding the transfer of charitable, community-driven wealth is not at all uncommon. Much like with the NHRMC deal, tensions typically arise surrounding the valuation of assets and where (or who) ends up controlling them after the transaction closes.
Foundations often find themselves with heaps of funds but lack the accountability that comes from markets or voters. This can be a good thing, the report found — “since they are not accountable to voters or shareholders for quick results, they can remain focused on issues of concern for as long as needed . . . Given that most of the fundamental challenges facing modern society do not lend themselves to a quick fix, this ability to stay the course may be one of the most important structural advantages that conversion foundations bring to their communities and regions”
At the same time, the lack of direct accountability can lead to complacency, with boards making safe grants that lack impact, the report found.
Kate Treanor, GIH senior project manager who co-authored the report, said if foundations really want to make an impact, they should deeply understand what the community needs and develop a strategic approach to addressing those needs.
“What you don’t want is a foundation to come in and say, we know what the problem is and here’s how we’re going to solve it without looking at the community?” she said.
A challenge the New Hanover Community Endowment will likely face, according to Treanor, is the existing nonprofit capacity in the county. This is especially important if the foundation limits grants to New Hanover County, a guideline that Stein questioned in his legally mandated review of the sale.
“You look at that, and if you’re sitting on the foundation, you really have to think through, who are your partners? What is the nonprofit capacity in New Hanover County? Are there enough nonprofits that can absorb your grants?” Treanor said. “There is some risk there.”
(In an interview last week with Port City Daily, the attorney general said he did not believe the bylaws as written restricted grants to only New Hanover County, an interpretation that runs counter to what local officials have been saying.)
The best foundations target specific issues with intentional strategies, Treanor said. For example, if a foundation wants to improve immunization rates in a community, they can attempt to do so using one or multiple approaches: expand vaccine supply and resources, launch an immunization education program, improve transportation opportunities to access appointments, influence policy, etc.
“We wouldn’t advise a foundation to take what I would call the ‘peanut butter’ approach to grantmaking, which is, ‘We’re going to take our 5% and kind of spread it around to everybody,” she said. “You need to be strategic. You really need to think about: What are the goals? How are you going to get there? And who are the best partners to be working with?”
So, how do foundations actually become strategic, and how do they measure their impact once they identify a community’s needs?
“That’s the billion-dollar question,” she said.
Answering that question
The advent of the data-heavy dashboard has created a crutch for foundation boards, according to Allen Smart, an N.C.-based conversion consultant with more than 20 years of experience in the field.
Boards — especially business-heavy ones — tend to overemphasize results as a means of quantifying their return on investment, a mentality that “misunderstands how foundations can be influential,” Allen explained.
It’s tough to prove you’ve influenced improving health-related behaviors in a community, like reducing opioid use or increased healthy eating.
Numbers can be tweaked by consultants to please boards, Allen said, leading to a self-fulfilling prophecy. The “need to create causation paths” when there’s too many outside influences or factors to take credit or declare a failure is an itch all philanthropic organizations face — not just conversion foundations, Smart said.
“Sophisticated measures of foundation effectiveness take into account lots more variables and inputs than in a typical dashboard,” he said.
Dr. Doug Easterling, Wake Forest health policy professor, has extensively researched the question of how foundations can strategically make an impact and has made recommendations based on a study he co-authored of 33 health conversion foundations.
“On the one hand, I believe that foundations, especially conversion foundations which derive from public assets, have a responsibility to define how they are going to make a difference with their resources, and then to assess what they are actually achieving re: impact,” Easterling wrote in an email.
On the other hand, focusing on outcomes the foundation can “make happen” can be limiting, he said.
“This is naïve and sometimes arrogant,” Easterling wrote. “Foundations operate in complex environments and their dollars are usually much less than what government agencies contribute to addressing these issues. And there are hundreds of competing factors and forces at work influencing the target outcomes.”
Monitoring population and health outcomes makes sense, Easterling said, but it makes him nervous when foundations point to changes and take credit for them.
The most successful foundations clarify their strategy by identifying key organizations and players that will be helped or influenced and ask themselves: how they’ll be more effective, how their strategy will pay off, what else is going on in the community, and what it will take to actually implement what they wants to accomplish, according to Easterling.
“If a foundation answers these questions, then it knows where to look when assessing its impact,” he wrote. “This assessment provides accountability and supports learning.”
Asking and answering these questions takes time — sometimes years, according to Smart. “Many of these conversions hide behind closed doors their first one or two years,” he said.
Is that a good thing? Smart said yes, and no. Failing to engage with the community and later revealing a surprise, big plan isn’t always effective. At the same time, overly engaging the public without studying the community first risks spreading a foundation’s focus too wide. “The best examples are somewhere in between,” he said.
In his experience, Smart said the most common mistakes foundations make include: “Too much grant-making too soon. Too much ego. ‘We are going to transform the region.’ Trying to be all things to all people.”
“Foundations who are good at this work really are learning from each other,” he said.
Send tips and comments to Johanna Ferebee Still at johanna@localdailymedia.com
