PENNSYLVANIA’STRANSFER OF WEALTH

10th Annual Northwest PANonprofit Day – Erie, PA

October 21, 2010

625 Forster St., Suite 902625 Forster St., Suite 902

Harrisburg, PA 171020Harrisburg, PA 171020

(717) 787-9555(717) 787-9555

(717) 772-3587 fax(717) 772-3587 fax

www.rural.palegislature.uswww.rural.palegislature.us

Barry L. Denk, Executive DirectorBarry L. Denk, Executive Director

denkb@rural.palegislature.usdenkb@rural.palegislature.us

The Center for Rural The Center for Rural PennsylvaniaPennsylvania

A legislative research agency of the Pennsylvania General Assembly(Act 16, 1987)

Mandates•Administer grants to conduct research on rural conditions.

•Maintain a database on rural conditions and needs.

What’s Rural?

• HPSA/MUA Update and (Re)Designations

• Area Health Education Centers (AHECs)

• Community/Hi-Ed Councils• Private Well Water Quality• Main Street/Elm Street

Programs• Statewide Heritage Tourism • Agritousim• Childhood Asthma

The Center for Rural Pennsylvania

Research Efforts

Wealth Transfer - Why Pennsylvania?

Pennsylvania stands at a “quality of life” crossroads:

• Aging Population: By 2020, more 60+ year olds than 20 year olds.

• Demographic Shifts: In 2005 half of Pennsylvania’s counties had more deaths than births.

• Loss of Farmland: Since 1975, Pennsylvania has lost more than 1.9 million acres, or 20 percent, of farmland. This decline affects economic opportunities and quality of life issues.

• Missed Educational Opportunities: Pennsylvania is third in U.S. in the number of colleges and universities, yet ranks 27th nationwide in the percent of adults with a bachelor’s degree or higher.

• Economic Transition: Marcellus Shale potential; continuing manufacturing loss. Expansion of service based economy. Opportunities exist for entrepreneurial development.

History of Transfer of Wealth

1999 – Boston College researchers John Havens & Paul Schervish released “Millionaires and the Millennium.”

2001 – Nebraska Community Foundation starts TOW study, based on BC methodology. www.nebcommfound.org/

2001 to 2007 – Center for Rural Entrepreneurship completes statewide/regional studies for more than 10 states.

2007 – Center for Rural Pennsylvania sponsors TOW study.

2008 – Pennsylvania Wealth Transfer Report released.

TOW Studies in the United States

State and regions that have completed TOW studies

Why TOW?

1. Visualize the Opportunity

2. Address Compelling Needs and Maximize Opportunities

3. Create Clear Goals

4. Supports Sound Development Process

5. Understand What is Behind the Numbers

• FED – Current Funds Report

• FED – Survey of Consumer Finances

• U.S. to State Projection

• State to County Projection

• Verification Indicators

• Key Adjustments

• Getting It Right

• Scenarios

TOW Methodology

Change in U.S. Wealth

$0

$10

$20

$30

$40

$50

$60$

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2000 2001 2002 2003 2004 2005 2006 2007

Federal Reserve, 2007

• Educational Attainment: Net worth increases with education.

• Homeownership: Homeowners have higher net worth than renters.

• Race: Whites have higher net worth than non-Whites.

• Age: Net worth peeks for householders 55 to 64 years old.

• Employment: Self-employed have a higher net worth than employed persons.

Variables Affecting Net Worth

TOW Drivers

Population ChangeEconomic GrowthIncome GrowthWealth Formation RatesWealth Transfer Rates

Verification Indicators

Dividends, Interest & Rent

Income

Dividends, Interest & Rent

Income

AgeDemographics

Property

IncomeStructure Other

Factors

Getting It Right!

Technical Advisory CommitteeInstate ExpertsVetting and Review Process

Wealth in Pennsylvania

• Variations by Regions and Counties• Creative Economy Pockets• Immigrants• Retirees• Former Residents• Vacation Homes

$how Me The Money• Net Worth for Pennsylvania (2005) was

approximately $1.01 trillion ($216K per household)

• 50-year TOW for Pennsylvania is $1.17 trillion

• From 2005-2015, TOW is estimated to be $193.38 billion ($42,000 per household)

• Capturing just 5% of the 10-year TOW into community endowments across PA would net an estimated $9.67 billion fund

• Assuming a 5% payout rate on the $9.67 billion in endowed funds, an estimated $483.44 million would be available annually for community investments

Net Worth, 2005Statewide = $1.01 trillion

10-Year TOWStatewide = $193.38 billion

5% Capture for the 10-Year TOW(in $ Millions)

Pennsylvania's 5% capture total is $9.67 billion

Erie % of Wealth to be released from 2005-2055

• In 2005, estimates showed a total of $17.50 billion in private wealth in Erie County.

• From 2005 to 2015, $3.47 billion is expected to transfer from one generation to the next.

• Through 2055, it is estimated that more than $19.13 billion with be transferred from one generation to the next.

• Through 2015, if just 5 percent of this transfer could be invested in an endowed community fund, nearly $173.45 million would be gained.

• With a 5 percent grant payout, an estimated $8.67 million could be available annually to improve the quality of life in Erie County and secure its future.

Erie County Transfer of Wealth

Crawford % of Wealth to be released from 2005-2055

• In 2005, estimates showed a total of $5.54 billion in private wealth in Crawford County.

• From 2005 to 2015, $1.11 billion is expected to transfer from one generation to the next.

• Through 2055, it is estimated that more than $6.23 billion with be transferred from one generation to the next.

• Through 2015, if just 5 percent of this transfer could be invested in an endowed community fund, nearly $55.55 million would be gained.

• With a 5 percent grant payout, an estimated $2.78 million could be available annually to improve the quality of life in Crawford County and secure its future.

Crawford County Transfer of Wealth

How Do We Know the Numbers are Right? We Don’t!!

• Wealth Transfer is a scenario – not precise prediction.

• Study used best data available – numbers are conservative estimates.

• Change at national (recession) and state (Marcellus Shale) levels, affecting these scenarios, will occur.

• More important to focus on having community conversations about TOW – of any amount – and what that can mean for a community.

Getting the Word Out• PA General Assembly• Community Foundations• Lending Community – banks, credit unions, micro-lenders• Regional Grantmakers • Non-profits and their associations• United Ways• Community Organizations – fire companies, civic groups, etc.• Accountants /Financial Planners/Lawyers/Estate Planners• Penn State Cooperative Extension• Agricultural Groups • Economic Development Groups• Tourism Development• Media – print, TV, radio

• Developed in Nebraska• “Come-Back/Give-Back” approach to rural

community building– Mobilizing local leaders– Capturing wealth transfer– Energizing entrepreneurship– Attracting young people

• Examples– Providing non-traditional scholarships (plumbing,

nurses, etc.)– Creating a community youth foundation– Support affordable, high-quality child care center

HomeTown CompetitivenessHomeTown Competitiveness

Four Pillars to Build Community

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HomeTown Competitiveness

HomeTown Competitiveness (HTC) helps Communities:

Start and Grow Small BusinessesProvide Better Employment OpportunitiesBuild More and More Diverse LeadershipProvide a Better Reason for Young People

to Live and Work in their HometownProvide a Better Case to Donors

HTC has become a National Model

2004 Innovative Program Award from the International Community Development Society

2005 HTC Awarded $2 Million Entrepreneurship Development Systems Grant from the W.K. Kellogg Foundation (one of six selected from 180+ proposals)

17 HTC Academies completed in 8 states (787 participants)

HTC training/technical assistance now being provided in 12 other states (HTC developing affiliation model)

Young AdultsExpected outcomes from HTC

• Champions group recruited and involved

• Linkages: Leadership and Entrepreneurship

• Stronger, sustained connections with alumni

• Increased number of young adults returning

HTC Success in Valley County, NE

Economic development staff of three Ongoing business training & visitation Youth entrepreneurship fair 102 graduates of county-wide leadership class 67 $1,000+ founders of HTC endowment $7 million+ combined endowment and expectancies Retail sales +20% (statewide +16%) Per capita income +22% (statewide 9%) Population gain of 3% (first increase in 50 years)

Success in Elk County, PA

Women Who Care

• Originated in Feb.’09 with nine women to assist Elk County families, particularly female headed households

• Currently has 96 members across country

• Oct. ‘10 – awarded $12,000.• Domestic violence shelter renovations• Cancer biopsy equipment• Community Meal Table

“Scenarios are stories. They are works of art, rather than scientific analyses. The reliability of (their content) is less important than the

types of conversations and decisions they spark.”Arie de Geus, The Living Company

"Arie de Geus gives leaders of the future an indispensible guidebook in which commitment to values, people, learning and

innovation define the 'living company'. It's in my book bag."

Frances Hesselbein, President and CEO, The Drucker Foundation. Former CEO, Girl Scouts of America – Johnstown, PA native

Final Thought

One More Thought…….

“Tell me and I forget,Teach Me and I Remember,Involve Me and I Learn.” Benjamin

Franklin

Tell, Teach and Involve your Community about Transfer of Wealth and HTC.

Thank You!