Payments on hold as CCT/Searle Fund fight continues.

A high-stakes dispute between The Chicago Community Trust (CCI) and one of its main grantmaking sources, the $280 million Searle Fund, has affected millions of grant dollars to Chicago area nonprofits and could impact future grants.

And, the case could also have broader implications on the definition of donor advised funds.

An estimated $36 million from the Searle Fund in 2001 and 2002 awaited distribution when Illinois Attorney General Jim Ryan filed the lawsuit this past September, seeking a resolution to the disagreement after months of failed talks. Approximately $17 million of the $36 million is from 2002, and usually would be available to CCT after Jan. 1, 2003, according to court documents.

The ongoing dispute between the CCT and descendants of John G. Searle, who made his fortune in the pharmaceutical business, hinges on an interpretation of Searle's will. Under it, a charitable lead trust was set up with CCT. The dispute, in part, concerns whether the family, who are consultants to the fund, can switch administrators to Northwestern University.

Family descendants argue the multimillion dollar account is a donor advised fund, and that CCT hasn't properly consulted them about grant distributions. The Searle family contends that there has been a substantia1 change in the relationship, which triggers a clause in Searle's will, thus allowing the family to switch administrators.

"The family wants to be involved in the distribution of these funds, and they haven't been able to do that," said Tina-Marie Adams, a Searle family spokeswoman.

CCT officials counter that it is a charitable lead trust with John G. Searle as the donor, and that CCT meets consulting requirements of the fund. The fund, established by Searle who died in 1978, has been used in a consistent manner, said Jennifer Jobrack, a CCT spokeswoman.

A donor advised fund is an outright gift to a charity in which the donor makes recommendations about grant distributions. Under the provisions of a charitable lead trust, a nonprofit uses the interest on a gift for a specific amount of time, and returns the principal to somebody else when it expires. In the Searle case, the principal will return to the family in 2038.

"This is really an administrative dispute," said Floyd Perkins, Illinois assistant attorney general at the charitable trusts and solicitations bureau. "It's who gets to decide to pick the charities."

Perkins, who has worked with both sides for months trying to settle the dispute, said the groups are working to distribute $19 million, withheld as a result of the dispute. Several grants have been agreed to in principal since the case went to court in September, he said.

The Searle family also filed a lawsuit against the CCT that restates the claim to switch administrators and asks for better accounting of grant distributions.

"Regardless of the donor adviser debate, the family should get complete accounting of how money is being spent," Adams said.

The attorney general's lawsuit also alleges that the CCT has an "inherent conflict between prompt grant making ... and delayed grantmaking." The reasoning is that CCT's fees to the Searle Fund, totaling $1.6 million in fiscal year 2001, are based, in part, on earnings of Searle Fund charitable grants that are on hand. CCT had been getting a bulk payment of grants from the fund, but not immediately distributing them because of various delays. This resulted in a complicated and prolonged accounting process, according to court documents.

Carol Crenshaw, chief financial officer at CCT, said the fees and accounting of grant distributions are proper but declined to provide more details until CCT finished its response to the lawsuit.

Perkins said there are ways to settle the accounting problems, such as getting the trustees to hold the money until checks are written. He said that the CCT is entitled to a fee, but there should be a structure that others can review.

What it means

One thing is certain, if the Searle family is allowed to switch administrators, CCT's grantmaking budget will take a significant hit and Chicago-area nonprofits that rely on its grants may be searching for other sources.

"The climate in the Chicago area generally is very, very difficult for nonprofits at present," said Kristin R. Lindsey, senior vice president of Donors Forum of Chicago, an association of Chicago-area grantmakers. State government is facing severe cutbacks and foundations of all types have less money than they did a few years ago, Lindsey said. CCT is a member of Donors Forum of Chicago.

Many Chicago-area nonprofits are tightlipped about the case, presumably because of pending grants. But it's apparent the nonprofit community is concerned about the situation's impact on their bottom line.

The Searle Fund accounts for roughly half of CCT's total grantmaking budget. CCT committed grants of approximately $39.6 million, in fiscal year ending Sept. 30, 2001. CCT had to cut its grantmaking budget for the May, 2002 cycle by $10 million because of the dispute, a CCT spokeswoman said.

"We're not making any commitments that we don't know we have the money for," Jobrack said.

Both sides assert that multi-year grants from the Searle Fund will be honored.

Although the Searle case takes extra staff time and impacts CCT grantmaking, it hasn't detracted from asset development activities by development officers and gift planning people, Jobrack said. Jobrack pointed out a recent deal with Chicago-based Northern Trust in which CCT is the sponsor of donor advised funds and Northern Trust manages the investments. Donors must give an initial contribution of at least $50,000 to participate.

It's still possible the two sides could settle out of court, Perkins said.

"If we can't settle the case, and we have to litigate the issue who gets to do this, we're not going to hold up grantmaking. Charities that would be in this process are going to have the opportunity to get these grants," Perkins said.