A group of nine philanthropic membership and advocacy organizations called on foundations to increase their giving in response to the coronavirus pandemic, even if their endowments take a big hit.
“The strength of a funder’s grantees at the end of this crisis will be a much better measure of the significance of a foundation than the size of its endowment,” the letter says.
The letter notes that the Cares Act, the recently enacted $2 trillion federal stimulus law, will benefit nonprofits and the people they serve, but accessing government assistance may be difficult for nonprofits.
The groups signing the letter are BoardSource, the Center for Effective Philanthropy, Council on Foundations, Grantmakers for Effective Organizations, Hispanics in Philanthropy, Independent Sector, National Center for Family Philanthropy, National Committee for Responsive Philanthropy, and United Philanthropy Forum.
Foundations that have been created to last in perpetuity limit their grant making so they can maintain and grow the size of their endowments. It’s a way to ensure they will be able to respond to needs decades into the future.
Phil Buchanan, president of the Center for Effective Philanthropy, said foundations should focus on the enormity of the present crisis rather than investment returns.
“This is an unprecedented time, and we think it’s going to require funders to be willing to up their spending even as their endowment values plummet, Buchanan said. “Perpetuity is a long time, and they’ll have plenty of time to get back to where they were.”
Digging Deeper
Already more than 400 foundations have signed a pledge to make their grant making more grantee-friendly. Among other things, they have promised to provide general operating support rather than project-specific grants and relax reporting requirements.
Those actions are a huge step, said Dave Biemesderfer, president of the United Philanthropy Forum. But given that nonprofits are facing a “double whammy” of reduced revenues and increased demands for services, foundations should dig deeper.
Said Biemesderfer: “The crisis we’re in calls for taking more risk than these funders have ever taken before.”
A few grant makers, including the Mary Reynolds Babcock, Libra, and MRG foundations, and the North Star Fund, have announced plans to give more this year.
Buchanan said he hoped the letter would provide a strong argument for foundation leaders trying to persuade their boards to follow suit. While he said nonprofits face urgent needs, he isn’t disappointed more foundations haven’t already announced plans to raid their endowments. Many are probably wrestling with how to adjust their investment portfolios to minimize losses, and some may be trying to determine which of their grantees are in the most dire straits. There’s no need, Buchanan said, to siphon off a foundation endowment to support a large nonprofit with its own large endowment.
“There are a lot of reasons why it might take weeks, not days, to figure out what is the right approach,” he said. “I think it’s too soon to either castigate or celebrate philanthropy’s response.”
Opposed to Mandate
Joanne Florino, vice president for philanthropic services at the Philanthropy Roundtable, said her group was not contacted to sign the letter. The roundtable, a network of philanthropists and foundations, opposes any mandate that foundations spend more than 5 percent of assets annually, as required by federal law.
However, she said the group has always urged donors to give generously and for foundations to consider spending down their assets in a specified time frame. She predicted a range of responses to coronavirus and noted that many foundations will likely spend well above the 5 percent minimum because their asset base has been slammed on the market — just to keep their current program supplied with cash will take a larger percentage of their endowment.
Florino pointed out that a change in the foundation excise tax enacted late last year will make it an easier decision for foundations to increase their payout rates. Previously foundations that paid out at a higher rate than the previous five years were required to pay a 1 percent excise tax, and those that paid out at a lower rate paid 2 percent. The new law provides a single tax rate of 1.39 percent.
Florino says the old two-tiered excise tax punished foundations that bumped up their giving in a single year.
“Now, there’s not a price to pay on the other side,” she said.
