One thing is for sure—the work of nonprofits is no longer a luxury or added benefit. Our community depends on nonprofits doing their good work on our behalf every single day. Whether its healthcare or food and shelter or child care or the environment or the arts, Santa Barbara County cannot survive without thousands of nonprofit staff and volunteers operating a wide variety of programs. Of course, delivering these services and maintaining fiscal sustainability depends on a steady source of donations from individuals, businesses, and foundations.

Our community is known for its philanthropic generosity. Whether wealthy individuals, large or small businesses, community or family foundations, or even school children, Santa Barbarans enthusiastically contribute to our local nonprofits. Are we doing all we can? Are there other ways of giving we should consider? What can we add to our current charitable practices that will contribute even more to financial sustainability?

We had the pleasure recently of interviewing a master philanthropist, Tom Parker, president of the Hutton Parker Foundation. He has some unique answers to these questions. In fact, Parker’s exceptional approach to philanthropy has been heralded across the country. His book, The $100 Million Secret, explains how we can generate astounding investment returns by investing in our community rather than Wall Street. Now buckle your seatbelt as you read about Parker’s remarkable financial blueprint for investment success for the benefit of nonprofits.

Sustainability for nonprofits is more important than ever.

Nonprofit sustainability encompasses two main areas: mission implementation and fiscal responsibility. Both the board and staff have a responsibility to ensure the organization is actively living out its mission and maintaining a strong fiscal position. Most people associated with nonprofits have passion for the mission. Often the mission and services the organization is trying to provide can be daunting and huge and all-consuming. At what point do you come to grips with the difference between your capacity to provide the service versus the demand for that service? Trying to figure out how to balance the passion, the heart, and the fiscal sustainability for an organization is a common dilemma for nonprofits. In fact, this epitomizes the problem we have as a sector.

We’re involved with nonprofits because we want to make a difference and we care; but if we lose sight of our fiscal responsibilities we may not be able to perform the mission at all. I’ve seen this scenario play out consistently over time. The problem we’re faced with now is nonprofits don’t have the luxury of closing their doors or falling apart anymore. We’re no longer a boutique or value-added sector. We are a safety-net for children, seniors and the underserved. We don’t have the luxury of not being well aware of the fiscal responsibility for sustainability. We need to pay attention and tighten up our business model or we will lose it all.

It’s becoming more difficult to pick up the pieces when programs fall apart due to lack of funding because these programs are becoming more essential to the clients. We need to make sure we can continue to provide those services. If it means making the hard choices of not being able to meet all the needs, we have to make those difficult decisions. We must learn to live within our means no matter how much it hurts our heart because we have a responsibility that is much larger than it ever was.

Foundations should consider a different investment strategy.

Most charitable foundations are living in the Dark Ages as they continue to invest their assets in Wall Street rather than their own communities! The new economic reality says investing in our local communities is not only more mission-oriented, it is more profitable. Over the past 17 years, the Hutton Parker Foundation has demonstrated this reality by nearly doubling our assets by investing in our community. This does not include new donor money, but profits from our own asset-investing strategies. It is highly doubtful that we would ever come close to matching this amount by relying on Wall Street managers. In fact, I believe the Wall Street model is becoming outdated and inefficient.

To a large degree, our numbers tell the story. The Hutton Parker Foundation’s total assets increased from $45 million in 1998 to nearly $88 million in 2012 using our community-based investment strategy. Had we used the traditional Wall Street investment model our assets would have decreased to $35.5 million! Also, during this 14-year period, we were able to distribute more than $36 million in grants, which was about $3 million more than we could have using the traditional model. We were also able to provide about $1.2 million each year in reduced rents and below-market loans to nonprofits.

At its core, our blueprint involves a unique real estate investment formula. This approach has enabled us to build a model wherein rents received by nonprofit tenants housed in Foundation-owned commercial properties, provide enough cash-flow to exceed the annual 5% distribution requirements. Traditionally, cash for grants comes from investment returns, often including the sale of investments, in order to meet this minimum annual distribution requirement. Among other things, our model does not require the sale of assets in order to meet this minimum distribution. Real estate historically appreciates over time. This means our assets consistently increase, protecting us from downturns in the market.

Switching to community-based investing could have a powerfully positive economic ripple effect throughout the U.S. This should be looked upon not only as a tremendous opportunity for foundations, but perhaps even a duty that we have as directors, presidents, and CEOs of organizations that can provide such a boost to our communities. Investing in our communities is much like watering a thirsty plant – you can virtually see the local economies springing back to life.

Biographical information for Tom Parker

Tom Parker is a 3rd generation Santa Barbara native. He received both his undergraduate education and MBA at California Lutheran University.

Parker is currently Chairman of the Board of Hutton Companies and President of Hutton Parker Foundation. He is responsible for all fiscal and operational management of Hutton Parker Foundation and its holdings.   The Foundation’s primary areas of interest include Education, Health & Human Services, Civic & Community Development, Youth and Family Services and Arts & Culture. Total distributions have ranged from $2.6 to $3.2 million annually. Hutton Parker Foundation also owns and manages more than 250,000 square feet of office space in 17 buildings serving more than 90 local area nonprofit organizations.

In addition, since 1999, the Foundation has awarded and managed more than 25 Program Related Investments (PRIs) or loans totaling $7.3 million to local area nonprofit allowing an organization to purchase property for their use, make tenant improvements or refinance an existing mortgage. Other unique funding opportunities include marketing and media grant programs developed in partnership with several local media outlets allowing nonprofits with better outreach and communication tools.

Parker is active not only at Hutton Parker Foundation, but has served on numerous nonprofit agency boards and committees including: Past President of The Foundation Roundtable; Santa Barbara Foundation Board of Directors and Investment Committee; The Foundation for Santa Barbara City College; past President of The Santa Barbara Museum of Natural History Board; Goleta Valley Cottage Hospital Foundation Board and The Coalition to Provide Shelter for Santa Barbara Homeless, The Santa Barbara Center for the Performing Arts (The Granada).

The work of Hutton Parker Foundation and Parker’s individual efforts have been honored by the presentation of several local awards including: Philanthropist of the Year for Santa Barbara County; Santa Barbara Newspress Lifetime Achievement Award; Independent Local Hero; Santa Barbara Chamber of Commerce Albert Julius Boeseke Founders Award; Anti-Defamation League Distinguished Community Service Award; Women’s Economic Ventures Man of Equality; Goleta Man of the Year; Dream Foundation’s Dream Maker Circle; Santa Barbara Education Foundation Hope Award and the Santa Barbara Museum of Natural History Legacy Award.

Parker lives in Montecito with his wife Susan and has two sons, Jess and Christopher.