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Charities Pushing for New Fund Rules

Buffalo Law Journal

February 25, 2010

Charitable organizations are lobbying state lawmakers to adopt changes they say would provide fiscal relief, offering greater flexibility in how they use endowment funds.

New York is among the last half-dozen states to address the issue, which updates a law from the 1970s.

The Uniform Prudent Management of Institutional Funds Act "would bring a lot more consistency how to interpret donor intent and what the organization's responsibilities are," says Alan Gracie, director in the health-care assurance advisory practice at Freed Maxick & Battaglia PC.

The UPMIFA focuses on the management, investment and expenditure of restricted funds donated to nonprofits, including colleges, hospitals and cultural institutions.

Introduced in New York last year, the bill is being reviewed by state legislators on the Committee on Corporations, Authorities and Commissions as AB7907/SB4778.

The biggest legal changes for charities would be the ability to spend a greater amount of endowments, but the bill also sets standards aimed at protecting the original intent of donors and encourages prudent management of investments.

It would also simplify the process of releasing restrictions on endowment funds whose purpose is no longer relevant.

Proponents say the time is right for an update - especially during a down market, when endowments are low and charities are hampered in their ability to provide services due to lower-than-normal investment returns. The law also will bring some change to organizations in terms of how much attention they pay to the quality of their investment managers and advisers, as well as the financial literacy of board members in general.

"If they don't have individuals who are financially literate on the board, then it's a bit of a stretch for them to say they've effectively reviewed the services of an investment adviser," Gracie says.

The intent of the original law from 1972 was to allow universities and other nonprofits to have access to modern portfolio investments and gave them greater flexibility to invest for growth, says Barry Hawkins, chairman of the national drafting committee for the UPMIFA for the National Conference of Commissioners on Uniform State Laws and a partner in the Stamford, Conn., law firm Shipman & Goodwin LLP.

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