But there may be a problem. We know that you don't need more bad news, and that you don't need to be reminded that the value of your endowment funds has taken a huge hit. However, you may need to be reminded that a significant decrease in the value of your endowment, such as we have seen in the past few weeks, may directly impact your ability to use the endowment as a current funding source.
Under the Uniform Management of Institutional Funds Act (the "UMIFA"), which has been adopted in 46 states, including Rhode Island, Massachusetts, and Connecticut, a nonprofit's access to funds is impacted by the "historic value" of the funds. Specifically, UMIFA limits the monies that a nonprofit may distribute from an endowment fund to a prudent percentage of the current value of the fund less the fund's "historic value". While the term "historic value" differs in Rhode Island, Massachusetts, and Connecticut, it generally means the initial value of the gift, plus the value of subsequent gifts or additions, adjusted prudently from time to time. If the current value of an endowment fund dips below its "historic value", UMIFA may block distributions entirely.
We recommend that our nonprofit clients review their endowment fund instruments and policies in light of the UMIFA. In order to plan for the near future, you should review the extent to which current market conditions have impacted your ability to use endowment funds, and what, if anything, you can do to balance current funding needs against your legal responsibilities as custodian of endowment funds.