Eleven members of the powerful Ways and Means Committee have signed a letter to their colleagues in the House expressing concern over “activist groups” lobbying for tighter regulations on donor-advised funds.
The bipartisan letter takes aim at the Accelerating Charitable Efforts Act without mentioning it by name. That bill is sponsored in the Senate by Angus King, an Independent from Maine who caucus with the Democrats, and Charles Grassley, a Republican of Iowa. The legislation also has bipartisan support in the House.
The bill would allow donors to get an upfront tax deduction for donor-advised-fund deposits only if they distribute the money within 15 years. Currently, donors who deposit money in those accounts can take an immediate tax deduction, and there is no limit on how long that money can sit in those accounts before being distributed to charity.
For community foundations and certain other organizations like Jewish federations, the bill would exempt donor-advised fund accounts of $1 million or less from any payout requirements; larger accounts would have to distribute at least 5 percent annually.
The legislation also includes an incentive, but not a requirement, for foundations to boost their annual payout from the 5 percent minimum required by federal law to 7 percent.
The letter notes the rapid growth in donor-advised funds, adding that “it’s important to make sure we protect this important form of philanthropy from some recent policy proposals that would put limits on how they’re used.”
The letter continues: “While these proposals are rooted in a positive goal — to ensure that charitable organizations receive funding as quickly as possible — they would produce the opposite result. Quite simply, these proposals would reduce the flow of charitable dollars and make it more difficult for donors to respond during future economic downturns.
Rep. Mike Kelly of Pennsylvania, a Republican on the Ways and Means Committee, signed the letter because, he said, he wanted to keep “the rules around donor-advised funds intact.” And Kelly dismissed worries about when donors get their tax breaks for giving.
“Americans are some of the most generous people in the world,” he said in a statement. “What matters the most is that charitable contributions quickly and effectively reach those in need, not when Washington gets its piece of the pie,” Kelly said in the statement.
Critics of donor-advised funds say they are warehousing money that should be going to work for charities rather than sitting in accounts generating fees for the entities that manage them. Data collected by the Chronicle and other researchers has shown that money is flowing into donor-advised fund accounts much faster than it is being distributed to charity.
The legislative effort to boost payout is based on a proposal developed by the billionaire philanthropist John Arnold and Boston College law professor Ray Madoff. Arnold and his wife, Laura, have established Arnold Ventures, a limited-liability company the couple uses for their philanthropic activities.
In response to the letter taking aim at the proposal, Kate Bernard, vice president of advocacy communications at Arnold Ventures, said bipartisan momentum was growing for tighter regulations for donor-advised funds.
“It’s clear the status quo around charitable giving needs to be reformed,” Bernard said in an emailed statement. “The gap has widened between charitable contributions and the actual dollars getting to working charities, leading to growing interest in Congress for reform.”
Jeff Hamond, a lobbyist who works on behalf of community foundations, disputed the idea that the effort to overhaul donor-advised funds has momentum in Congress. He noted that the Senate version of the bill hasn’t attracted any co-sponsors since it was introduced in June. However, Hamond noted that legislation overhauling the way charities are regulated could come up in a future session of Congress.
Hamond said he and others have worked on the letter for months. The goal, he said wasn’t to criticize the Accelerating Charitable Efforts Act. “I thought it was better to talk to some members about doing a letter that just talked about the positives of donor-advised funds and how useful a grant-making tool they are,” Hamond said.
Both Hamond and Bernard offered some words of qualified praise for a set of recommendations recently released by the Council on Foundations. While advocates of efforts to tighten regulation of donor-advised funds have complained that the council’s recommendations are so weak that they’re toothless, Bernard said the proposal was, at least, “a positive acknowledgment of this need for reform.”
Hamond said that while he wasn’t endorsing the council’s recommendations, he considered them “a good set of possible reforms or suggestions that the field should consider.”
