The rate of grant making from donor-advised funds tends to be resilient during economic recessions, making those accounts crucial “rainy-day” sources of funding for charities during economic downturns, according to a new study.
The researchers also argued that donor-advised-fund account holders are far more generous than some other studies suggest.
The independent study, by Dan Heist, a Ph.D. student at the University of Pennsylvania, and Danielle Vance-McMullen, an assistant professor at the University of Memphis, used Internal Revenue Service data from 2007 to 2016 to assess 996 donor-advised-fund sponsors.
Rather than looking simply at payout rates — the amount made in grants each year relative to total assets — the researchers calculated what they call the “flow rate” to present a more complete picture of donor-advised-fund activity.
“Some people donate money in and out of DAFs within the same year,” the researchers said. “We try to account for this activity by comparing grants to contributions within each year.”
The median flow rate for donor-advised funds is about 85 percent, the researchers write. “In other words, for every $1 million in contributions, $850,000 is redistributed in grants during the same year.”
The study also found:
- National sponsors, like Fidelity, Vanguard, and Charles Schwab, have the highest payout rates, averaging around 22 percent, but the lowest flow rates, around 70 percent.
- Community-foundation donor-advised funds, however, have lower median payout rates over time, about 10 percent, but higher flow rates, at 82 percent.
- Single-issue charities have the highest flow rates, at 100 percent, “indicating that, for a typical single-issue sponsor, annual contributions into the fund equal grant making out of the fund,” Vance-McMullen told the Chronicle.
Legislative Action
The new research could provide ammunition for donor-advised-fund advocates who are fighting efforts by some members of Congress to impose more restrictions on the funds.
The Council on Foundations and other philanthropy associations oppose legislation that would impose minimum payout requirement on donor-advised funds. However, Nicole Taylor, the new chief executive of the Silicon Valley Community Foundation, told Recode that she would consider supporting a required asset payout of 5 percent annually.
Vance-McMullen and Heist found that most donor-advised-fund sponsors exceed the 5 percent payout minimum imposed on private foundations. An example from 2015 showed that only five donor-advised-fund sponsors out of 897 reported no payout in grants.
The researchers acknowledged that their study doesn’t offer an analysis of how individual accounts are performing. Rather, it is an overview of donor-advised-fund sponsors that shows they may be valuable during a recession.
Correction: An earlier version of this article said Dan Heist was a professor at the University of Pennsylvania instead of a Ph.D. student there.