California State legislation that would require greater disclosure of donor-advised-fund account activity stalled in the Assembly appropriations committee in the face of fierce lobbying opposition.
The bill would have required organizations that manage donor-advised funds to report how much each fund receives in contributions and directs out to charity. Currently, donor-advised-fund sponsors report such information in the aggregate, across all the funds they manage, but not on a fund-by-fund basis. As a result, say proponents of the bill, it is impossible to know how many accounts sit inactive.
The bill was scheduled for action in the Assembly appropriations committee Thursday, but the bill’s sponsor, Assemblywoman Buffy Wicks, said she pulled the legislation from the agenda to “strengthen its language and address outstanding privacy concerns.”
She expects to file replacement legislation by the end of February.
The bill has a long list of powerful opponents:
- The Nonprofit Alliance, which includes the American Cancer Society, Disabled American Veterans, and the Nature Conservancy among its members. These kinds of nonprofits with big fundraising operations are “very hostile” to the bill, says Robert Tigner, general counsel for the alliance.
- The 32-member California League of Community Foundations, which includes the powerhouse Silicon Valley Community Foundation, where billionaires including Google co-founder Sergey Brin, Twitter founder Jack Dorsey, and Go-Pro founder Nicholas Woodman have placed their charitable contributions.
- Donor-advised fund sponsors, including Fidelity Charitable, the National Philanthropic Trust, Vanguard Charitable, and Schwab Charitable, that have connections with commercial investment companies.
- United Philanthropy Forum and the Philanthropy Roundtable, two prominent national philanthropy membership organizations.
Opposition Arguments
The opponents of the bill say it would be costly for donor-advised funds to track and report donations at the individual account level. They also say the legislation would jeopardize donors’ privacy, leading to a reduction in charitable giving.
Ultimately, they fear a reporting requirement is a prelude to a mandated payout, similar to foundations, which generally must spend 5 percent of their assets annually on charitable activity. They argue that while some funds may sit idle for long periods of time, overall donor-advised funds distribute a higher percentage of their assets to charity each year than private foundations.
On the other side of the melee is a group of more than 100 California nonprofits, including the California Association of Museums, Jewish Family Service of Los Angeles, and Meals on Wheels San Francisco. They contend that they don’t want to force a minimum payout. In their view, the bill would shed a little light on the opaque practice of giving through donor-advised funds, including instances of donors using their accounts to give to other donor-advised funds, a practice that boosts aggregate payout without directing money to working charities.
Proponents of the bill dismiss concerns that the reporting requirement would be onerous because sponsors already provide donors with a report on their annual giving.
The funds have become a dominant force in charitable giving. In 2018 the top 10 donor-advised fund sponsors attracted a total of $21.5 billion in contributions.
The funds allow donors to take a tax deduction in the year they make a gift to a sponsoring organization, even though the money may not be distributed to charities for years or even decades.
Lobbying Heats Up
Critics of the bill fear the legislation could spur other states or even Congress to follow suit. They’ve spent hundreds of thousands of dollars trying to influence the California General Assembly and the governor’s office, a foreshadowing of the kind of lobbying activity that might follow any attempts to impose new regulations on the funds in Congress or in other states.
California doesn’t require lobbyists to report how much they spend trying to influence lawmakers on each specific bill, making it impossible to calculate precise lobbying activity on the donor-advised fund bill. But the bill has undoubtedly spurred significant lobbying activity.
During the first three quarters of the year, the most recent figures available, the Nonprofit Alliance and Fidelity each spent $72,000 trying to influence lawmakers. The Silicon Valley Community Foundation spent $67,500, Charles Schwab spent $36,000, and Vanguard spent $20,000.
Last week the bill cleared the General Assembly’s judiciary committee, and today, debate on the measure will begin in the appropriations committee.
Jan Masaoka, chief executive of the California Association of Nonprofits, which is pushing for the bill to pass, predicts the national funds and community foundations will continue to lobby heavily against the bill.
“We’re up against big money that’s willing to spend money,” she says.
Masaoka’s organization spent $51,219 on lobbying the state legislature during the first three quarters of 2019. And others with deep pockets chipped in. NextGen California, a group founded by billionaire philanthropists Tom Steyer (who is a Democratic candidate for president) and his wife, Kat Taylor, spent $198,000 lobbying legislators on a number of bills including the donor-advised fund measure.
A Billionaire Weighs In
Taylor says she and Steyer have used donor-advised funds for years, making gifts through them in the “millions” of dollars. She doesn’t fear that the proposed disclosure requirements would put her privacy at risk.
Under the current system, she says, superrich donors can make a splash with a huge gift to a donor-advised fund — without following through with gifts to charity.
“You have a lot of influence in society if you’re walking around with a $100 million [donor-advised fund] even before you’ve given any of it away,” she says. “You get a lot of attention, and people view you as a powerful person.”
Taylor says it’s possible that a reporting requirement would reveal that there are very few funds that aren’t active. However, without the reporting requirement, the public and policy makers will never find out, she says.
“We want to be sure that the philanthropic deduction is given in the public interest and those funds get put out expeditiously to nonprofits who are doing work in the world,” she says.
Moving Money Quickly
About 50 United Ways across the country manage donor-advised funds, according to Peter Manzo, president of the United Ways of California, who testified in favor of the bill. Manzo agrees with Taylor that under current law it is impossible to know if donors are simply parking money in their donor-advised fund accounts.
“If you wait for many years, your long-term judgment has got to be razor sharp if you’re going to do better than starting to spend the money now,” he says. “You have more impact the sooner the funds go to work.”
United Ways of California didn’t have to file lobbying reports, he says, because the organization didn’t hire outside lobbyists, and the time he and his staff spend lobbying doesn’t cross the threshold that would require a filing.
Defending the Current System
There are plenty of reasons for a fund to have periods of inactivity, respond the bill’s opponents. Sometimes a donor has an unexpected windfall because of a death in the family and hasn’t had a chance to devise a charitable strategy. Sometimes, a donor may want to accumulate enough charitable dollars to have a big impact on a specific cause with a future gift. Or perhaps, like many family foundations, the donor wants to instill a philanthropic practice that lasts generations.
“The sponsors of the bill really don’t seem to be willing to acknowledge that the philanthropic world has a long tradition of endowed philanthropy,” says Dan Baldwin, president of the Community Foundation for Monterey County, who opposes the legislation.
Donor-advised fund sponsors like Monterey with assets less than $300 million would be exempt. By Baldwin’s count, only seven regional grant makers in the state would be affected. Still, he may decide to encourage donors to the funds across the state to make an all-out push against the bill if it continues to gain traction. He fears that the state’s attorney general, who would manage the fund records, or any inquiring member of the public, could “reverse engineer” large gifts to charities to identify individual donors and all the gifts they’ve made through their fund.
Tigner of the Nonprofit Alliance agrees that the privacy concerns are real and substantial. “There are plenty of instances where donors would not necessarily want it to be known that they’re attached to, say, an activist 501(c)3 promoting a very contentious public policy,” he says. “I don’t want demonstrators in my front yard, thank you very much.”
