Since writing “Building Our Building,” it has become clear some additional clarification is in order.
Endowment, Quasi-Endowment, Sustainability Fund
Over the course of the project, VCA has maintained its commitment to establishing and maintaining funds for supporting the long-term financial stability of the organization. Indeed, it would have been less than prudent for the Board to undertake construction of the building without such funds.
Over the last several years we have used the words “endowment,” “quasi-endowment,” “sustainability funds,” and others in connection with these funds. Unfortunately, these different terms have proven confusing.
Strictly speaking, an endowment is a donation that is given to a non-profit institution on the condition that it is used for the benefit of that organization. That is an accurate description of the financial resources available to VCA.
It is also true that many endowments preserve the principle (sometimes referred to as the “corpus”) and use money earned via interest, dividends, or gains to fund either operations or some specific purpose. As of this writing, VCA does not manage its financial resources in this way. We do, however, have a plan to do so in the future.
Catching a Falling Knife
Some have questioned the Board’s sense of urgency in getting the project started when we did. There were at least three factors at play.
Runaway construction costs. By 2014, construction costs were clearly on a dramatic upswing, creating a concern VCA would struggle to close the gap between projected costs and available funds in 2014 or any subsequent time frame. As it happens, the concern was well founded as construction costs have continued to accelerate.
Kay’s Lifespan. The impossibility of knowing the date of Kay’s passing introduced significant actuarial risk in attempting to value the 2008 Trust for planning purposes. It can’t be overstated how important it was to everyone involved, including the guys wearing hard hats, that the project be completed in Kay’s lifetime. But nobody could accurately predict how much time that gave the project.
More to the point, it’s important to remember that as long as Kay was alive, the single largest component of the funding strategy (Kay’s 2008 Trust) was inaccessible to VCA, either as a source of cash or as collateral against a loan.
Accessing Appropriations and Grants. In statements I made both on the radio and in Building Our Building, I inaccurately asserted the following:
“We were literally on a countdown clock to break ground by the end of 2014 or lose the $3 million in State and County grant.”
Later in the same document, I also said the following:
The drama involved with securing a “not to exceed” contract and starting work before the $3 million in grant money went away dominated everyone’s thinking at the time. Having said that, nobody involved, least of all Kay, was interested in building something that couldn’t be sustained and her estate left VCA with significant financial resources with that in mind.
My error in both these statements was to conflate the terms of the $1 million grant from King County with the $2 million appropriation from the State of Washington. Clearly, they are not the same thing and were moving on different time scales.
Although we had been assured a $1 million grant from King County, we did not actually submit the paperwork until the fall of 2015. No falling knife there.
The two-million-dollar appropriation from the state was another matter entirely. In a letter from the Department of Commerce dated August 19, 2014, we were specifically notified we needed to “cash out” our “grant” no later than June 30, 2015. Further, and this is a key point, we were specifically counseled by one of our well known political allies that the funds would definitely not be reapportioned if we were unable to start the project and cash out by that date.
Equally animating was the requirement from the state that no monies would be available until such time as VCA could warrant it had sufficient funds to COMPLETE the project.
. . . .
In the end, it was these three factors that spurred the Board to work with Kay to restructure her 2008 Trust and thus to complete a funding package of sufficient to start the project as soon as possible in 2015.
Thus the “falling knife.”