Analysis

Trailing Downward

Why Federation's General Fund reserves dropped so dramatically.

HARRY KIRS BAUM
StaffWriter

Ziff ichigan Jewish
Conference Director
Susan Herman, who
operates from Lansing,
represents the public policy concerns
of the Detroit Jewish community.
Supported by the Jewish Federation of
Metropolitan Detroit, the Conference
rented office space across the street
from the Michigan Capitol. "You need
to have quick access to the Capitol,
and you want to maintain your visibil-
ity," she said.
Now that Federation is adjusting
her $94,000 budget by $30,000, or
about 30 percent, she will have to
relocate to an office in the Michigan
State University Hillel, about 20 min-
utes away. "It's going to be much more
difficult being housed in the student
activity center on campus," she said. .
The Michigan Jewish Conference is
just one of a number of programs and
services that will have their Federation
allotment reduced due, in part, to
investment losses sustained by
Federation's General Fund, an unre-
stricted "rainy day" fund.
-'
The United Jewish Foundation,
Federation's financial arm, established
the General Fund in 1984 with $15
million, representing a consolidation
of unrestricted gifts to Detroit Jewry.
By the 1998-1999 fiscal year, the
General Fund reserves swelled to near-
ly $70 million, and the Federation
board voted to share the wealth with
the urgent needs of the larger Jewish
community.
In the wake of declining stock divi-
dends, which contributed to the
General Fund dropping to $20 million
over the past five years, Federation has
been forced to lay off some of its staff,
and its Planning Division has been
•
forced to reduce the size of allocations
to some of Federation's agencies (see

accompanying story).
Although $50 million may have been
lost in the market slide, that's only half
the story, said Mark Davidoff,
Federation executive director and chief
operating officer. He said two separate
$50 million figures explain Federation's

Related Editor's Notebook: page 5

current budget situation.
"During the period of 1999 to the
present, $50 million is a combination
of both spending and investment loss-
es," he said. "Since 1994, a total of
$50 million has been spent from the
General Fund" (see accompanying

chart).
Davidoff said the investment return
on the fund since 1994 was basically
break-even.
"The gains we had in the early years
were almost dollar for dollar offset by
the losses we had in the later years," he
said. "The number spent on average
for the nine-year period to help sup-
port the overall cost of running-the
Federation was about $2 million a
year, with the balance coming from
the [Annual] Campaign."
The dollar
amount going to
Federation from the
General Fund
changed when the
stock market made a
powerful run in the
late 1990s.
With almost $70
Davidoff
million in the Fund
in 1998-1999,
Federation voted to dip into the prin-
cipal.
-
"We decided to declare a dividend

to the community," said Mark Hauser,
Foundation president. "We would
allocate 10 percent of the principal of
the General Fund to the annual grant
[to Federation for dispersal], with a
minimum of $5 million.
"We were spending a little more
than we thought that we could earn
because we thought we had a lot in
reserves and the community needed
the money," Hauser said.
The General Fund is the only unre-
stricted fund of the 1,000 funds that
the Foundation handles. These funds
include support foundations, restricted
funds and philanthropic funds; togeth-
er, they totaled $353.7 million in fiscal
year 2002-2003.

Benchmarks

The General Fund
was based on a
structured invest-
ment program, with
outside advisers and
an investment com-
mittee currently
chaired by Phillip
Hauser
Fisher and James
Grosfeld that meets
quarterly, said Davidoff.
"Today, our investment approach is
approximately 65 percent equities and

35 percent fixed income," he said.
"What we never had was junk bonds,
derivatives, oil and gas futures, or pork
bellies. We're in high-quality govern-
mental bonds. We index a lot of
funds, we buy the S & P, the Wilshire
5000 — we basically own the entire
market."
Federation's outside consultant,
Cambridge and Associates of Boston,
concluded that the General Fund per-
formed at a negative 4.7 percent, bet-
ter than its customized benchmark of
negative 6.2 percent in the last three
years.
The loss still affects the entire
Detroit Jewish community, and caused
Federation leadership to defend its
spending patterns.

Perceptions

Federation's leadership has concerns
about how the spending predicament
may play out.
"If I was sitting in the community
out there, I might say to myself, 'My
God, how did they squander our com-
munity's unrestricted funds?" Aronson
said. "I think it's very important for
the community to understand that the
dollars that were spent out of that
reserve were spent to build this com-
munity"
Aronson cited emergency alloca-
tions to Yeshiva Beth Yehuda, the
purchase of Congregation Beth
Achim and transforming it into
Yeshivat Akiva, and $2.5 million allo-
cated to the Jewish Community

TRAILING DOWNWARD on page 14

GENERAL FUND NET ASSET GROWTH

(In Millions)

$70

$60

$50

$40

$30

$20

$10

$0

1994 1995 1996 1997 1998 1999 2000 2001 2002 Dec.
2002

FROM 1994 TO THE PRESENT, FEDERATION SPENT $50 MILLION FROM THE GENERAL FUND.
FROM 1999 TO THE PRESENT, THE GENERAL FUND'S VALUE HAS SHRUNK $50 MILLION.

4/18

2003

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