News and analysis
October 24, 2012

20% of Grant Makers Gave Much More in Recession Than the Law Requires

During the recession, one in five grant makers gave away at least 10 percent of their endowments, exceeding the 5-percent minimum required under federal law, according to a new study.

Still, most of the 1,000 big grant makers examined by the Foundation Center did not give away a lot more than required: Forty-six percent awarded 5 percent to 5.9 percent of their endowments to nonprofits from 2007 to 2009.

The more a foundation’s endowment increased, the smaller the share of the assets it gave during the recession, the study found.

Among the grant makers with the highest payout rates were those that planned to close by a certain date, rather than exist in perpetuity. Other reasons for high payout rates were that some donors put money into their foundations every year and distribute it all within a short time, or they may have made large one-time grants. Because this is the first time the study was conducted, the Foundation Center said it could not tell the extent to which the payout rates were affected by the bad economy.

Nearly one in 10 grant makers gave out less than 5 percent of their assets in 2007 to 2009 because their endowments had grown quickly or because they were giving more than 5 percent in other years. Federal law allows foundations to average the percentage they give away over three years.

Administrative Costs

In addition to studying the amounts that foundations distributed, the Foundation Center examined administrative expenses in a separate study. Among the key findings:

• One in eight foundations surveyed said they included no administrative expenses when they calculated the amount they provided to charities, even though they are allowed to count in that figure some of the costs of giving away money. That’s probably because the foundations didn’t have a paid staff or the fund’s benefactor paid for such expenses, the Foundation Center said.

• One in three foundations had no paid staff members.

• Foundations with paid employees spent a median of about 8 percent of their overall budgets (including grants) on administrative costs, while foundations without paid staff members spent a median of less than 1 percent on such costs.

Both studies, “Understanding and Benchmarking Foundation Payout” and “Benchmarking Foundation Administrative Expenses: Update on How Operating Characteristics Affect Spending,” can be downloaded free from the Foundation Center’s Web site.

Send an e-mail to Maria Di Mento.