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Grex > Coop11 > #89: Life Memberships in Cyberspace | |
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prp
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Life Memberships in Cyberspace
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Apr 14 23:34 UTC 1999 |
A while ago, someone suggested offering life memberships for
$1000, in addition to the regular memberships for $50/yr. If I have
remembered my formulas correctly, here is a table showing how the two
compare.
+------------------------------------------------------------+
| || Value of an annuity || $50/yr |
|rate||--------------------------||--------------------------|
|%/yr|| 20 yrs | 30 yrs | 40 yrs || 20 yrs | 30 yrs | 40 yrs |
+----||--------------------------||--------------------------+
| 4 || 13.590 | 17.292 | 19.793 || 679.52 | 864.60 | 989.64 |
| 5 || 12.462 | 15.372 | 17.159 || 623.11 | 768.62 | 857.95 |
| 6 || 11.470 | 13.765 | 15.046 || 573.50 | 688.24 | 752.31 |
+------------------------------------------------------------+
It looks like the $1000 figure could be a bit steep. $750 looks
about right.
Starting a life member fund could help stabilize the finances. The
only catch I see is that the charter might have to be changed to say that
if Cyberspace dissolves, the life members get there share of the fund back.
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| 62 responses total. |
steve
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response 1 of 62:
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Apr 14 23:55 UTC 1999 |
I think we'd want it in the upwards range, like around $1000. This
kind of membership can be useful, but it doesn't want to be common
enough that many people get them, since they aren't going to pay again.
I know of a club that was so successful at selling lifetime memberships
they nearly went bankrupt because of it. The purpose of this, as I see
it, would be to generate a fat enough chunk of money to be able to go
out and buy something reletively expensive, which doesn't occur that
often.
You could also argue the case that lifetime memberships aren't a
reasonable thing for Grex at all. I'm not sure we need them, but I
once again playing catch-up on coop so perhaps there is something I
haven't seen yet.
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cmcgee
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response 2 of 62:
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Apr 15 00:03 UTC 1999 |
Yearly memberships are $60, to start with.
I would not want life memberships to have any lien on Grex assets. If I know
this crowd at all, we'd run Grex to the very last minute, using every penny
we can spend. If life members saw their "investment" losing value, they might
create a lot of pressure to close Grex down early so that they could get their
money back.
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prp
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response 3 of 62:
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Apr 15 00:07 UTC 1999 |
They didn't nearly go bankrupt from selling life memberships; it
was from miss-management.
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scg
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response 4 of 62:
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Apr 15 01:40 UTC 1999 |
The idea of a lifetime membership would be to invest it so that it would keep
paying money, rather than spending it all at once, so if we set the lifetime
membership high enough that the money it pays out in interest or dividends
is similar to what we would get in from non-lifetime membership payments, I
guess I don't see how we lose with it.
I'm a little confused by cmcgee's #2. If the lifetime memberships are a
donation, presumably they're not something people could get back by forcing
Grex to shut down early.
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mdw
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response 5 of 62:
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Apr 15 01:51 UTC 1999 |
The major risk of lifetime memberships is that it leaves grex "cash
rich". That's bad, for all sorts of reasons. The most obvious problem
is that it's easier to ignore small "cash flow" problems until they
become big problems. A less obvious problem is that it makes grex more
vulnerable to dishonest people. Right now, grex has no assets worth
talking about, and the only reason to serve on the board is if you
really care about grex. If grex had, say $20K or $100K in the bank,
that all changes, and more money involved, the more serious the problem.
There are, in fact, people who specialize in doing things like serving
on the boards of rich non-profits, and making a pretty good living doing
things like buying themselves expensive board rooms, investing the money
in various dubious investments, paying themselves nice fees, and so
forth.
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rcurl
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response 6 of 62:
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Apr 15 04:43 UTC 1999 |
Not at all. As Steve points out, the sane way to manage life memberships
is as an investment, with the return on the investment being that
required to "service" the membership (and maybe a little more). You
attain this objective by protecting the investment from any possible
raid by future boards. There are many instruments for doing this.
Another organization I know puts 60% of life membership income into
an Endowment Fund with a Michigan Community Foundation. They pay
about 5% interest but more important, a) the principle can never be
recovered, and b) half the donation is a Michigan tax deduction (up
to $200 for a couple filing jointly). The effect of this is that for
a person in the (say) 20% federal tax bracket, a $1000 life membership
would actually cost them $1000 - $200 (federal tax deduction) - $200
(Michigan tax credit), or $600. A 40% "discount" for a $1000 life
membership is pretty attractive to donors.
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scg
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response 7 of 62:
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Apr 15 04:45 UTC 1999 |
I suppose the question in that case is whether there are circumstances where
we *would* want the full life membership amount available.
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rcurl
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response 8 of 62:
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Apr 15 05:39 UTC 1999 |
Don't even consider it. If you need a large sum for operating or
capitalization, raise it. People are more ready to donate for projects
they forsee benefiting themselves (improved services) than they are
to donate for the future good of the organization (life membership
funds in an endowment). There is also a problem with having a large
cash balance - it violates your 501(c)3 exemption, as the law requires
that in general donations are put to the non-profit charitable
purpose for which the organization was given the exemption, and in
good time.
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mdw
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response 9 of 62:
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Apr 15 11:05 UTC 1999 |
Investments are all well and nice, but only if you have honest people.
Now, all of us are of course honest people, but not everyone in the
world is honest, and I have seen more than one organization's worth of
money disappear in very "interesting" ways. Some of these organizations
were local charities and clubs. Others include the Ypsilanti school
district, and a commercial company (NETI) that I once worked for.
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scott
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response 10 of 62:
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Apr 15 11:50 UTC 1999 |
I don't see that our finances need "stabilization", since I think we are
plenty stable as it is. I don't think that life memberships are necessary
or even desirable.
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cmcgee
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response 11 of 62:
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Apr 15 14:06 UTC 1999 |
My comment was in response to the statement in #0
"The only catch I see is that the charter might have to be changed to say
that if Cyberspace dissolves, the life members get there share of the fund
back."
To play the devil's advocate with Scott: it's true that our funding is
stable now. If we wait until it is not stable, and *need* these lifetime
memberships, we will have waited too long to set up the system.
I, personally, don't want to see lifetime memberbships.
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rcurl
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response 12 of 62:
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Apr 15 15:48 UTC 1999 |
#'s 9 and 11 still miss the point that you are not allowed by the rules of
501(c)3 tax exemption to accumulate significant funds. However you can
still create an endowment to provide a steady income by setting aside
donated funds as *unspendable* investment assets.
Also, one does not wait to *need* lifetime memberships, because if you
need them, you cannot afford them - that is, that money would be spent and
not set aside to service those life memberships for the liftime of the
donors. One *needs* life memberships precisely when you do not need the
money, so that it can be used to create the endowment.
Almost everyone seems to be thinking of life membership dues as income.
They are not: they are a liability. They create a lifetime obligation to
the donor, and have to be handled so to meet that obligation.
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jep
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response 13 of 62:
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Apr 15 16:08 UTC 1999 |
I'd like to see life memberships as an option, though I can't see there
being much demand for them. It just provides another option for people
to use to give money to support Grex. If someone ever sends a check
for $1000, great. If no one does, no harm done.
As with any membership, it should be made explicitly clear to the donor
that nothing is being promised or guaranteed, and that the donation is
non-refundable. Unless Grex is, in fact, making guarantees of anything
in exchange for donations, which I don't think it should be.
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aruba
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response 14 of 62:
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Apr 15 17:53 UTC 1999 |
Rane could you explain how community foundations work? My guess is this: we
give a community foundation the $1000 that a user pays for a lifetime
membership (or does the user give it directly to the foundation?), and then
the foundation sends us a check for $50 (5%) once a year. Is that right?
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rcurl
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response 15 of 62:
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Apr 15 19:45 UTC 1999 |
That is correct. In addition, the donor only paid $600 (per earlier tax
example) to put that money in the CF, so the return on the money the donor
is 'out of pocket' is really 8+%. (The state and federal governments are
subsidizing this.) The donation is sent directly to the CF 'for deposit to
the Endowment Fund' of (say) Grex.
We are using this leverage in another organization. Since life membership
there is $480, the out-of-pocket for the donor is $480 - $96(irs) -
$200(state) = $184, so the 5% interest is leveraged to an equivalent 13+%.
You find the state tax credit on the state form among donations to
MI universities, etc.
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aruba
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response 16 of 62:
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Apr 15 19:50 UTC 1999 |
Hmmm. What would it take for Grex to establish an endowment fund? Once it's
established, can anyone in Michigan then give $200 to it and get a full tax
credit?
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prp
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response 17 of 62:
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Apr 16 01:18 UTC 1999 |
An addition to the table:
+----------------------------+
|| || Value of $60/yr ||
||rate||--------------------||
||%/yr|| 20yr | 30yr | 40yr ||
||----||--------------------||
|| 4 || 815 | 1038 | 1188 ||
|| 5 || 748 | 922 | 1030 ||
|| 6 || 688 | 826 | 903 ||
|| 7 || 636 | 745 | 800 ||
+----------------------------+
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prp
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response 18 of 62:
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Apr 16 01:33 UTC 1999 |
The 5% return from the community foundation seems a bit low, given
the long term nature of the investment. What happens to the Comunity
Foundation Fund if Cyberspace dissolves?
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rcurl
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response 19 of 62:
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Apr 16 05:10 UTC 1999 |
The Community Foundation invests its assets and then a) makes grants to
community functions, and b) pays interest on the endowment funds. This is
why the interest on the funds is relatively low. In the organization I
have been referring to, which has its endowment with a Community
Foundation, we also applied for and received a grant - which amounted to
several years interest on our endowment - for a project we undertook in
the CF's service area. Applications for grants from non-profit charitable
organizations are handled without regard to whether or not the
organization has an endowment with the CF. Grex would be eligible now to
apply for a grant.
To get information on establishing an endowment fund, contact the Ann
Arbor Community Foundation. Anyone that pays taxes in Michigan can get up
to a $100 tax credit for a $200 or more donation (the limit for persons
filing singly).
If Grex dissolved, the money with the CF would revert to simply part of
the CF's total assets. Of course, Grex would not need income from it
anymore. What the CF law does is set up a situation where donations to a
CF serving the community can be "labeled" as endowments of a non-profit,
which receives interest. But the donation is to the CF.
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aruba
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response 20 of 62:
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Apr 16 13:28 UTC 1999 |
Thanks Rane. I get it now.
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lilmo
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response 21 of 62:
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Apr 16 23:16 UTC 1999 |
I like the CF endowment idea. That allows us to help the community, as well
as ourselves. If we wanted to make such contributions part of a "lifetime
membership", and expect to get $60/year out of it, tho', then $1200 would be
the bill. Also, for how long has our current membership rate structure been
in place? Considering the rising cost of "everything", how often should we
think about the rates, and seriously discuss whether they should rise a bit,
to reflect increasing costs of (virtual) life?
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rcurl
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response 22 of 62:
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Apr 17 03:59 UTC 1999 |
One can reasonably opt for a lower return than the annual dues, by
considering the life-member income from the CF to be to support that
membership for the life of the member, which is less than the dues.
(That's because the dues also support capitalization as well as
operation.) For example, the organization to which I have been
referring splits life members dues 60% for the endowment and 40% for
capitalization. The rule-of-thumb for life membership dues is 20X
annual dues, but that's not immutable. What is important is to give
some serious thought to setting aside enough money from life memberships
to support that membership. The ultimate benefit to the organization
comes when the life member dies, and that membership need no longer
be supported, while the income continues. Also, don't forget inflation -
the income from the endowment per life membership will decrease in real
terms as time passes because of inflation.
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aruba
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response 23 of 62:
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Apr 17 04:43 UTC 1999 |
Re #21: Membership rates have been the same since the founding of Grex, just
over 8 years ago.
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scott
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response 24 of 62:
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Apr 17 13:13 UTC 1999 |
Personally, I wouldn't do a life membership. I really don't know if Grex will
even make sense in 20-40 years. If I had $1000 and was feeling charitable
towards Grex, I'd give it all as a donation, most likely.
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