For the last several months, a mismatch has been building between the rhetoric of unprecedented global crisis and the attending philanthropic response. Not to say that philanthropy has been MIA or brazenly derelict in addressing the novel coronavirus. Far from it.
But at least by the terms easiest to track — dollars committed and disbursed compared with funds available — you could be forgiven for thinking that outlays from the largest foundations and wealthiest individuals haven’t yet approached a level commensurate with what many leading donors themselves have categorized as a generation-defining emergency.
An announcement this month seems to bring the scale of crisis and response into closer alignment. A partnership of five legacy foundations, led by the Ford Foundation and including the W.K. Kellogg, Doris Duke Charitable, and John D. & Catherine T. MacArthur foundations, committed to giving away an additional $1.7 billion in grants over the next three years.
For Ford, which committed to $1 billion, this will mean a payout rate during the next two years of over 10 percent, nearly doubling its current rate.
But it isn’t just the amount committed that seems to acknowledge the tug of this moment’s gravity. In a groundbreaking approach, some $1.2 billion of those funds will come through debt financing. Ford plans to issue $1 billion in debt in the form of 30- and 50-year notes, while MacArthur will issue $125 million in bonds and the Duke Foundation $100 million.
Foundations have used debt before to fund capital projects (and, before the practice was more heavily regulated in the 1960s, to pursue unrelated business interests), but this is the first time that debt has been used explicitly to expand grant making. Kathleen Enright, CEO of the Council on Foundations, told the Chronicle it was the most significant new development in her quarter century of working in philanthropy. As Ford President Darren Walker explained, “The Ford Foundation recognizes that this once-in-a-century crisis — and the overwhelming need to emerge from it with a more just and equitable society — requires a once-in-a-century response.”
Of course, this response did not just come in the midst of a single crisis, but in the midst of two, intertwined crises. As Walker phrased it, “During these last few weeks, one pandemic has collided with another, as tens of thousands of protesters take to the streets to demand justice for George Floyd’s murder, for all the violence against black people that has gone unfilmed, and for a history of white supremacy and racial terror that remains unreconciled.”
Yet “these intersecting, cascading crises,” as Walker described them, have also collided with another, a crisis over the legitimacy of philanthropy that’s been brewing for the last decade. The commitment to increased spending from Ford and the other grant makers promised to address all three. That’s one reason there was an almost palpable sense of relief from many philanthropy watchers when news of the heightened spending commitment broke.
But as with nearly all major gift announcements in recent years, critical notes broke through the commendation. The interplay among these reactions is worth paying some attention to. It highlights the different approaches philanthropy can take in justifying its legitimacy and value during times of crisis and how those approaches might collide in the years to come.
A Test for Philanthropy
From the earliest days of the pandemic, commentators suggested that it represented a test for philanthropy. There was no consensus as to what passing that test required, but a safe assumption was that it demanded a significant boost in giving.
After a few headline-grabbing mega-gifts from a handful of tech moguls, there was a moment when it seemed as if living donors might be up for that boost. Some of the most prominent among them had committed to spending their fortunes in their own lifetimes rather than setting up foundations that last forever, suggesting that they would have little reservation about opening up their virtual wallets during an unprecedented global crisis.
Yet, as a recent survey by the Washington Post makes clear — the paper analyzed the publicly announced pandemic-related giving of the nation’s 50 wealthiest citizens and families — there isn’t much evidence that the nation’s billionaires are digging that deep, at least relative to their wealth.
The Post calculated that the collective net worth of these individuals was some $1.6 trillion, and of that amount, they had donated $1 billion, “which sounds like a lot of money but adds up to less than 0.1 percent of their combined wealth.” (Keep in mind that between mid-March and mid-May, according to the Institute for Policy Studies, the net worth of the nation’s billionaires rose by more than $430 billion.) So if this was a test, billionaires have at best earned an incomplete.
For foundations that decide not to increase payout for fear of shrinking their endowments, does cutting back on existing programs to make way for emergency spending represent an adequate sacrifice?
It’s hard to know if Darren Walker was throwing any type of shade when he explained that he didn’t approach living donors about his debt financing scheme since, as he told the Chronicle, many philanthropists could choose to put more money into their own foundations without using the debt approach. (There’s a lot of judgment packed into that single word “could.”)
But it’s clear that with the announcement, the five leading legacy foundations were affirming that they took their responsibility to the present just as seriously as, and perhaps even more seriously than, living donors. And they did so without disclaiming a responsibility to the crises of the future. Debt financing provides a way of reconciling these two time-based imperatives — or at least of sidestepping debates about their relative sway.
The low cost of borrowing faced by these foundations, coupled with the likelihood of higher investment returns, led Ford, MacArthur and Duke to believe they could spend now without having to take a large chunk out of their current endowments, while still honoring capital and interest payments on the bonds over the next several decades.
As Daniel Hemel and Joseph Bankman recently pointed out in the Chronicle, this does not mean that they have avoided an actual trade-off between the financial resources used today and those available for the future, as funds that might have supported grant making will instead be directed to bondholders. But by amortizing that trade-off over many years, so to speak, they have staked their public claims to legitimacy to both the call of current crises and future ones.
Time-Based Priorities
This question of how to weigh time-based giving priorities has long been a key part of the test that philanthropy has found itself facing in the midst of crises.
Foundations have most often approached that test along instrumental lines — that is, by demonstrating the good that grants can do. But this has posed a particular challenge during emergencies. On the one hand, philanthropy tends to come under enormous pressure to direct funds toward the relief of immediate needs. In past crises, many foundations have answered this call, if sometimes grudgingly.
But philanthropy has long preferred to define its prerogatives and privileges against an ethic of “charity” or governmental aid. Its champions have promoted its attention to root causes and long-term needs. As the historian Maribel Morey has shown, in the depth of the Great Depression, for instance, Carnegie Corporation president Frederick Keppel acknowledged “that complete detachment which would assign for possible future usefulness sums which might otherwise relieve desperate present necessity is too much to ask of any board of trustees, or for that matter of any executive.” Yet Keppel insisted that foundation leaders “must never forget that their real responsibility lies deeper. It is for them to determine what in the long run represents the wisest use of the funds at their disposal.”
The focus on structural inequities provoked by the coronavirus crisis and the protests over anti-Black racism have provided philanthropy with a way of meeting the challenge posed by emergencies.
So in announcing its current spending increase, MacArthur explained that although it has contributed to several local and state-based relief and response funds, the funding stemming from the Covid-19 bond offering will not be directed to “emergency relief” but to “hastening recovery and reinvention.”
The five foundation partners also highlighted the precarious state of the finances of the nation’s nonprofits, which imperils not merely nonprofits’ ability to meet the enormous demands of the moment but also their capability to help shape the world that emerges when the pandemic subsides. The foundations are stepping in to help shore up nonprofit financial health as much for “future usefulness” as for the present.
But there is another understanding of the crisis-based test philanthropy now faces, one that also sees expanded giving as a means of addressing longer-term needs and that aligns with the reckoning over structural inequities and the historical legacies of racism. It was possible to hear traces of it in some of the less-than-enthused responses to Ford’s “social bond” announcement.
As Justice Funders pronounced on Twitter, “Rather than using the full power of their tax-protected assets for the common good, this allows foundations to continue preserving their existing wealth while accessing and controlling even more resources.” Similarly, journalist Oscar Perry Abello pointed out that if Ford had simply spent $1 billion in endowment capital, instead of borrowing it, it would have removed that much from foundation investments in private equity and venture capital that are likely contributing to the social problems it seeks to address.
In other words, this viewpoint regards large-scale institutional philanthropy more as a symptom of crisis than as a remedy to it. In these terms, somewhat paradoxically, spending from endowment can be understood not merely as an exercise of philanthropic power by accessing more funds for grant making, but as a surrender of power by shrinking the capital and investment base of philanthropy.
As philanthropy activist Edgar Villanueva expressed it, this would involve appreciating the crisis as a moment to “liberate” capital as opposed to merely “reallocate” it. Such a charge complicates Darren Walker’s invocation of an ethic of sacrifice in his statement on the debt financing plan. The crises we face “will demand that the privileged among us not only give something back,” he wrote, “but also give something up.”
But what does it mean for a foundation to give something up at a time of crisis? Does it mean offering grantees general operating support, which Ford and MacArthur have championed? Does it demand an increased payout rate or also a permanent and immediate diminution of its own power? For foundations that decide not to increase payout for fear of shrinking their endowments, does cutting back on existing programs to make way for emergency spending represent an adequate sacrifice?
Tallying Grants Not Enough
The fact that these questions remain so profoundly unresolved suggests that grading philanthropy on the test it faces during this current tangle of crises will be more complicated than merely tallying up grant amounts.
It will likely require even more than an instrumental justification of philanthropic legitimacy, a justification that focuses on the needs philanthropy can meet and the undisputable good philanthropy can do with its resources. Alongside an accounting of investment returns, debt-service costs, and payout rates, there will also have to be a more subtle bookkeeping of power augmented, power preserved, and power surrendered.
