What went wrong with the Christchurch Foundation?

Saturday, 22 June 2024

The Christchurch Foundation was launched to considerable fanfare in 2017 with a pledge to establish generational wealth that was “of and for the city”. Seven years on, critics call it a flagrant waste of ratepayer money. Its champions say it is misunderstood. What, if anything, went wrong? MICHAEL WRIGHT and KEILLER MacDUFF report.

The Christchurch Foundation is “drastically” cutting its costs, its new chairperson says, after seven troubled years of high overheads, low returns, a string of operating losses and the departure of chief executive Amy Carter and most of its board.

The foundation may even record a surplus this financial year after slashing its budget and receiving a $20k bailout from the Christchurch City Council. It comes after years of scrutiny, including a 2021 Deloitte report that slammed its operating costs, which culminated in Environment Canterbury (ECan) voting last month to ditch its philanthropic contributions and a city council staffer observing in a report the foundation’s model was not working.

An investigation by The Press and examination of its books has found:

• The foundation spent nearly twice as much ($215,567) as it made ($114,578) on the events it hosted.

• It spent nearly $100,000 on travel, including numerous overseas trips by Carter.

• About $438,000 the foundation claimed it “raised on behalf of Christchurch (sic) Cathedral” from UK donors for its restoration was in fact raised by the Anglican church.

• A project to produce its own artisanal gin, which Carter said in January “remains our most successful means of raising money”, has earned a profit of $4706.

• The foundation has just under $1 million in cash reserves. A capital endowment fund has been set up but is empty for now.

• The foundation was highly regarded for its work distributing more than $12m from the Our People, Our City fund to victims of the 2019 Christchurch mosque shootings, but was hit hard a year later by the Covid-19 pandemic and subsequent economic downturn.

These were the circumstances inherited by Anake Goodall, when he took over from Christchurch businessman Humphry Rolleston as chair of the foundation in December 2022. Asked about its balance sheet, Goodall is diplomatic: “The previous model did what it was designed to do, which was to get some things done,” he said. “I want to be careful of my language because I'm not looking to criticise anyone. But [it] sort of missed a trick not to put a little bit more weight onto the other side of the portfolio”. By this, Goodall meant had the foundation focused less on delivering short-term projects and more on attracting endowment capital ‒ a pot of money to be invested providing interest for grants ‒ it would be, “less operationally constrained than we are now”.

“Operationally constrained” is one way of putting it.

In the beginning, the foundation enjoyed $600,000 annual funding from the city council. More recently, ECan committed $100,000 a year for a decade to a green philanthropic fund with the caveat the foundation would raise $600,000 for the fund itself in three years (It raised just $36,000, prompting the ECan councillors’ vote).

The city council money has also dried up, although the foundation is seeking $50,000 a year for the next three years in the Long Term Plan. Goodall thinks $250,000 is a good goal for an operating budget. Last financial year it was more than $500,000. As it stands, the foundation can cover its costs for one year, Goodall said, but no more. “Our future operational funding needs to change quite drastically…We've halved the burn rate [cash spent on overheads] in the last few months.”

How did it get here?

The Christchurch Foundation was a child of necessity. After the 2010-11 earthquakes the council entered into a cost-sharing agreement with central government to fund anchor projects that would drive the recovery. One of those projects, the only one the council would lead by itself, was for a new central library. The government would provide the land and the council would manage design and construction. The cost breakdown was $20m from the Crown, $60m from the council and $10m from “non-commercial (philanthropic)”.

Former Christchurch mayor Lianne Dalziel said the philanthropic part was initially the government’s responsibility. Until it took advice that it would need to set up a separate charitable entity because philanthropists didn’t give money to governments for public works projects. The government decided that was the council’s job.

“It wasn't discussed with us,” Dalziel said. “It was just handed to us. We were talking to these people and doing library [construction] work.”

The foundation was launched in 2017 as a one-stop philanthropic shop for the city. Initially known as the City Foundation, it started with $2.5m from three donors ‒ Spark, TSB Bank and Southbase Construction ‒ to go towards the new library. Dalziel, a founding trustee, spoke at the launch. “It’s not going to be just a library but rather a 21st century knowledge centre that will connect Christchurch people locally, nationally and internationally.”

The foundation itself, inaugural chair Humphry Rolleston said, would help donors support an array of worthy causes, “thereby creating a legacy for the long-term benefit of Christchurch”.

This model ‒ known as project and endowment ‒ set the tone for the foundation. It would do things as well as raise and invest capital. Depending on who you talk to, the way this played out was either exactly as intended or the cause of all its problems. Dalziel is in the former camp. The foundation needed to get as much money as possible out the door, “To give people confidence that anything raised was going to be passed through”.

“That was the basis for funding it completely from the outset,” she said. With the council underwriting costs, every donated cent could go to projects and worthy causes. Dalziel questioned whether councillors, “particularly new ones”, understood this.

Goodall takes a different view: “If the foundation had charged even modest rates of a 10% pass through fee … that would already be the thick end of $2m that could be in the foundation's bank account today. It's not.”

The overheads

Money out the door wasn’t just about distributions. As the foundation developed so did claims of exorbitant overhead costs. In 2021, a council-commissioned report by Deloitte found the foundation incurred 56 cents of costs for every donated dollar (Carter and Rolleston refuted the finding. Deloitte had discounted $11.4m the foundation was distributing from the Our People, Our City fund, but not the costs associated with that work. Once that money was included, the real cost ratio was a fraction of 56c, Carter said). In a testy exchange at the time, Councillor Sam MacDonald asked Rolleston: “Mr Chairman, I'd be really interested to know what this review has cost you?' “I don't have that answer now,” Rolleston replied, “But it would be less than our contribution to you I am sure.”

Carter, who declined to comment for this story, bore the brunt. The face of the organisation, she took a “significant” voluntary salary reduction and the bonus scheme was ditched. She no longer rented a car park from Perception PR ‒ the marketing company she ran at the time. When the Deloitte report was discussed in 2021, she told the council the foundation had been rigorously audited and she was confident it would be self-sufficient by July 2023, when the city council funding would end. She also said the organisation planned to (and subsequently did) take less than the $600,000 funding available annually from council until then. “We’ve got nothing to hide.”

The foundation’s travel costs, in particular, drew criticism ‒ $93,450 over five years (domestic and international). “Certainly there was concern over things like the travel budget,” Cr Yani Johanson told The Press. “There were concerns about what it was focused on, what it was achieving.” The foundation planned to establish UK and US branches to tap expatriate wealth. According to her LinkedIn page, a portion of Carter’s travel was to these two countries. A UK arm ‒ with pro bono trustees ‒ was established in 2019. There is no US office.

UK charities provide less information than New Zealand ones, but financial statements record just over £350,000 in income through the UK branch over three years. Its most high-profile contribution has been towards repairing the city’s earthquake-damaged cathedral. Its 2022 annual report trumpeted $NZD438,000 “raised on behalf of Christchurch (sic) Cathedral”.

However, cathedral sources say the foundation did little more than provide a UK bank account to allow donors to claim back the tax on a charitable donation. When Mark Stewart, chair of Christ Church Cathedral Reinstatement Ltd, appeared before the city council in April he was asked directly about the foundation’s role. “They said it was their fundraising, but it was actually ours,” Stewart said. “I wouldn't go close to the Christchurch Foundation. It doesn't seem to be going very well.”

Another source with knowledge of the cathedral project echoed Stewart. “It was all raised in the UK through functions that [Christchurch Bishop Peter Carrell] had held and through the Lambeth Conference (A longstanding assembly of Anglican bishops, most recently held in 2022),” they said. “[The Christchurch Foundation] never raised the money.”

The same source, who has experience in the philanthropic sector and asked to remain anonymous to protect donor relationships, said the foundation’s overheads were indefensible. Particularly Carter’s initial salary of $220,000. “You are raising money,” they said. “[Your salary] should always be based on what you bring in.” $100,000 was a more realistic remuneration, the source said ‒ “$150,000 max” ‒ with performance targets attached. “Money in and money out. Bringing [return on investment] down, amount of donors, repeat gifts, interaction with donors. That’s what I couldn't quite understand with…the Christchurch Foundation, they had a whole lot of funds but how is Christchurch growing through that?”

Dalziel and Rolleston both told The Press they had no issue with the travel or salary costs. “The CEO’s market salary package was fair value for the foundation,” Rolleston said. “The travel budget was good value for what has been achieved in London and potentially the USA.”

Goodall said the current international travel budget was zero. The foundation would be attending the Community Foundations Aotearoa New Zealand annual conference in October ‒ in Christchurch. Would he have seen money spent differently if he had been chair before 2022? Perhaps foreseen the looming financial sustainability problem?

“Well, this is very much the board agenda now,” he said. “So I think that answers your question.”

Carter’s exit

Amy Carter stepped down as chief executive of the Christchurch Foundation last month. By that time, she was its only employee (down from a height of four), working part-time and then as a contractor. Goodall took over as chair from Rolleston in December 2022 and philanthropy expert Lynne Umbers has joined as interim general manager. Goodall is optimistic the foundation will record a small operational surplus this financial year (In FY2023 it reported a $3358 loss, down from a $147,695 loss the year before).

In its short history, the foundation has faced more than its share of challenges. It was barely three years old when the Covid pandemic hit and philanthropy fell down the world’s priority list. At the same time, it was consumed with another job ‒ distributing the more than $12m donated to the Our People, Our City fund. A massive undertaking that “swallowed us whole for a year and a half,” Carter said at the time.

That money also had a distortive effect on the foundation’s books. Its donations entries fluctuate wildly: $7.4m and $4.3m in 2019 and 2020 and just $89,600 and $522,000 in 2022 and 2023. Charities specialist Michael Gousmett, who examined the foundation’s financial reports for The Press for this story, said the statements met the reporting requirements of charities but had a couple of oddities. Starting in 2021, basic expenditure items such as stationery, bank fees, phone and internet and ACC payments were all recorded as ‘$0’. Two new line items ‒ ‘other administration expenses’ and ‘other operating expenses’ appear from 2021 on, totalling nearly $167,000.

“Total expenditure suggests a decline in activity,” Gousmett said. “It seems to me they’ve taken on lots of little projects, rather than concentrating on fundraising.” He cites the gin project, the effort to re-introduce tui to Christchurch, the ‘thinker in residence’ who visited the city in 2018 to some controversy and a “Moon Dinner” that earned $315 in 2022. Over six years, the foundation spent $215,567 on ‘events’ that delivered revenue of $114,578.

Notwithstanding a minimalist approach to accounting, the foundation’s proponents still champion the idea behind it, if not every part of the execution. “Perhaps the one thing I can concede is that there is a misunderstanding as to how long it takes for it to become self-sufficient,” Dalziel said. “I never expected it to be self-funding within five years. No way. But somewhere along the line, I think it was around 2020, that became the expectation. I think the foundation itself agreed with that publicly…I do hope the councillors realise that this is a long burn.”

Rolleston said the recent council report that summarised the foundation as essentially an arm of the organisation, “unfortunately sums up the council’s thinking”. “The seed funding supplied was a grant,” he said. “Not equity or a loan. The foundation is therefore not an arm of the council’s. Unfortunately the council at a number of levels thinks it is, which is a pity as this thinking seems to have confused them.”

The council is still to consider the foundation’s application for $150,000 over three years. The $20,000 bridging grant passed almost unanimously, but several elected members worry the larger sum will be good money after bad. “We provided a heck of a lot of money [and]…it's hard to see the benefits that have accrued from such a significant investment,” Johanson said.

“What's really clear is that something's gone wrong and we've still not really been given any rationale or explanation as to what.”