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Congress Should Force Foundations and Donor-Advised Funds to Give More Now

By  Alan Davis
July 8, 2020

Many years ago, I went to Pamplona, Spain, for the Running of the Bulls. In a bar the night before the run, I was robbed by two clever thieves, one of whom distracted me while the other lifted my wallet. I was really angry about being robbed, but a part of me also admired the way they pulled it off.

That’s how I felt after reading about the much-lauded plan from the Ford Foundation and four other major foundations to increase their charitable giving in response to the coronavirus crisis — but with a catch. They wouldn’t be distributing more money from their endowments. Instead, they would borrow billions, asking the public to fund their giving through issued bonds.

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Many years ago, I went to Pamplona, Spain, for the Running of the Bulls. In a bar the night before the run, I was robbed by two clever thieves, one of whom distracted me while the other lifted my wallet. I was really angry about being robbed, but a part of me also admired the way they pulled it off.

That’s how I felt after reading about the much-lauded plan from the Ford Foundation and four other major foundations to increase their charitable giving in response to the coronavirus crisis — but with a catch. They wouldn’t be distributing more money from their endowments. Instead, they would borrow billions, asking the public to fund their giving through issued bonds.

Their plan is creative, I’ll give them that. But it’s completely contradictory to what these foundations claim to stand for. In this time of crisis, charitable foundations should be opening up their coffers and increasing the amount they give to meet the growing need in our society. Instead, Ford Foundation and the other four grant makers are robbing philanthropy of its spirit and finessing their civic duty.

For the most part, the foundation world’s response to the Covid-19 pandemic can be divided into The Good, The Bad, and The Ugly.

The Good: This includes foundations and donor groups like the Solidaire Network that have stepped up to the plate to address the crisis by raising their distributions to 10, 12, even 20 percent without worrying about saving money for a rainy day — because this is the rainy day.

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The Bad: Foundations such as Ford (and wealthy individuals) that are pretending to meet their philanthropic responsibilities but are actually falling well short. An article in the New York Times tried to paint the Ford Foundation as an innovator. In reality, while its grant making will increase, Ford’s financial maneuverings simply mask its unwillingness to dip into its endowment and respond unconditionally to the crisis.

Let’s look at the numbers. Ford has $13.8 billion in its endowment — $2 billion more than it had just three years ago. Assuming a reasonable 8 percent growth rate, Ford would earn $1.1 billion a year from its investments. This means a 10 percent payout would reduce Ford’s endowment by $300 million each year, still leaving it with $13.2 billion after two years. How is such a small short-term blip too great a sacrifice to make, especially when compared with the struggles facing those on the front lines of the pandemic?

The Ugly: The hundreds of large foundations that have not dipped into their endowments to address the current unprecedented need, claiming they must reserve their funds for future giving. This group includes Hewlett, Carnegie, and Rockefeller Brothers Fund, although the last just announced it would increase its payout from 5 percent to 5.7 percent. Foundation endowments have benefited from the S&P 500 more than tripling in the last 10 years. If now isn’t the time to spend, what is? These foundations are stockpiling wealth just for the sake of having it, like a dragon sitting on a pile of gold in a dark mountain lair.

This focus on hoarding wealth over addressing need is as a good an argument as any for shutting down these big taxpayer-subsidized foundations, or at least slapping a 10 percent mandatory payout on them. Many aren’t even trying to step up to the moment. And others are congratulated for increasing their giving even though their real priority is protecting their endowments. Ford and the other foundations issuing bonds are essentially telling the communities they serve, “We feel your pain and we’re going to help you, but only up until the point that help would stop us from growing our assets.”

Fortunately, some grant makers recognize the need for foundations to do more. A group led by Scott Wallace of the Wallace Global Fund, which plans to give out 20 percent this year, is lobbying Congress to enact the Emergency Charity Stimulus bill, requiring foundations and donor-advised funds to distribute at least 10 percent for three years.

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This would be a welcome change, but we shouldn’t have to wait for legislation. We in the philanthropic world should step up now and recognize the role we must play in addressing our nation’s many needs. Every foundation in America should pledge to increase its payout to at least 10 percent over the next two years.

When asked why he was advocating for the Emergency Charity Stimulus legislation, Scott Wallace put it this way: “If in our hour of greatest need, America’s greatest crisis in generations, philanthropies are planning to spend less, then they need a big kick in the butt.” Which in a funny way, brings me back to Pamplona.

We welcome your thoughts and questions about this article. Please email the editors or submit a letter for publication.
Foundation Giving
Alan Davis
Alan Davis is a member of the Patriotic Millionaires and president of the Leonard and Sophie Davis Fund.

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