TOWER- The Gundersen Trust Board met with Duluth Superior Area Community Foundation (DSACF) Development Officer Mark Danielson on April 6 to iron out the details of an agreement that will turn the Gundersen Trust monies into a permanent community endowment fund administered by DSACF that will provide an annual return to the city.
“This will be a fresh start,” said Danielson.
The board has renamed the fund the Gundersen Endowment Fund.
A community foundation approach creates a stable source of investment profits, guaranteeing a specific return on the funds invested, mostly between four and five percent. Any income earned in a year above that amount gets reinvested in the principal and helps create a cushion for years if the market is poor. The foundation manages over $100 million in assets in a total of about 450 individual funds. The foundation would charge a 0.55-percent annual fee on the total amount in the fund. DSACF is also hiring a new investment manager, and that charge will total 0.1 percent. Moving the money to a community foundation removes any local responsibility for attorney and audit oversight.
One detail that needs to be addressed in the final fund agreement is that the city borrowed money from the trust and still has $196,000 outstanding to be repaid by 2036. While the city is paying interest, it is lower than the expected return on the money that will be managed by the DSACF.
Gundersen Trust Board members discussed asking the city to consider repaying the loan faster, using the income it will be receiving from the new fund.
“This would grow the endowment faster,” said board member Dena Suihkonen.
Estimated annual payments to the city on the entire endowment account are $40,000, with 75 percent earmarked to the city’s general fund, and 25 percent to be distributed as grants to local non-profits, with the awards to be decided by a new Gundersen Fund Committee. It is expected the committee will grant funds to organizations that help provide recreational, educational, environmental/conservation, artistic, and human services to the community, as set forth in the foundation agreement.
This is a more flexible agreement than the one currently in place, which specifies 75 percent of any income above the rate of inflation (CPI) to the city, and the remainder for recreation in the city’s forest lands and community education.
Davidson was not sure how the foundation would like to deal with the loan issue. But after the meeting, he researched the issue and told the city it would not be a problem to hold the loan as part of the fund’s portfolio of investments.
Once the details of the fund agreement are settled, the city must petition the court to have the money moved from the trust fund to the community foundation. The Gundersen Trust Board is working with attorney Bradley Hanson, of Quinlivan and Hughes, who specializes in this area. The change will also require approval from the IRS and the Minnesota Attorney General.
While there is no guarantee the move to the foundation will be approved, the attorney expects a positive outcome since the actions fit with the original creation of the trust.
The balance of the trust fund at the end of March was $983,738. The board owes about $2,780 in attorney fees from last fall. The trust has received a little less than $25 in interest payments on its CDs and money market accounts, along with $2,272 in interest from the city of Tower’s loan repayment. Additional attorney fees will be incurred when the city petitions the court to make the change to the DSACF.
The trust has struggled in recent years with balancing minimal returns from low-interest government-backed investments against annual attorney and accounting fees. There has been little to no money available to support the city, which was the goal when the trust was established about 30 years ago. Board members also felt they did not have the required expertise and financial experience to determine the best investment options. Additionally, questions were raised about the trust’s non-profit status because of decisions made by the city’s attorneys and auditing firms after the trust was created.