The charitable world has been buzzing about a new idea from the Minneapolis Foundation: the Pay It Forward Forever Fund, an unusually structured community endowment that launched last year. Many people call the fund farsighted, but it strikes me as precisely the wrong sort of innovation. Its founders misunderstand the needs of society and the appropriate role of a charitable endowment.
As The Chronicle has reported, here’s how the fund works: One hundred donors will each give $25,000 to the Minneapolis Foundation. It will invest that $2.5 million for 50 years without making any distributions. In 2065, 80 percent of the fund — which the foundation estimates will by then be worth $29 million — will be allocated to meet challenges facing the city at that time. The remaining 20 percent will be reinvested for another 50 years. In 2115, 80 percent of the fund will again be distributed. And so on.
It’s a philanthropic perpetual-motion machine, and the concept is getting a good response: So far, the Pay It Forward Forever Fund has received commitments from 70 donors.
Organizers of the effort say that if donors had done something like this in the 1930s, the community could have had a source of ready capital in the 1980s to combat the AIDS epidemic. That seems compelling. But it misses the point.
Problems Grow Worse
Common wisdom has it that building up charitable dollars for a community’s future use is an unalloyed good. I assert that it’s not. Certainly the money would be nice to have in the future. The problem is that the funds won’t be put to any good use in the interim, so that societal problems — many of those very problems to be addressed in 2065 and beyond — actually grow worse.
There are community needs that are crying for attention now. If we do more to deal with those problems today rather than deferring them to the future, the solutions will be less expensive, the human cost more modest, and the consequences less dire.
Consider the following questions:
If we have the choice, should we:
- Spend money now on research to kill the HIV virus and end the AIDS epidemic, saving tens of millions of lives, or
- Invest that money for 50 years and have funds at that point to respond to whatever health crisis we are then facing?
Similarly, should we
- Spend money now to stem the tide of otherwise irreversible climate change or
- Invest that money for 50 years and have funds to spend on climate change once all our coastal cities are under 40 feet of water and human habitation on the planet is unalterably compromised?
Or should we:
- Spend money now to educate promising young people, including future scientists, doctors, entrepreneurs, and teachers or
- Invest that money for 50 years, educate fewer people in the meantime, and then have funds to spend on the children and grandchildren of these undereducated and overlooked folks?
If you chose the first answer to these questions, you understand what I mean. If we can cure diseases, stop environmental degradation, save endangered species, educate future leaders, feed toddlers, rehabilitate drug addicts, and house impoverished families today, that is what we absolutely must do. All of those uses of charitable money, and a thousand more, provide a vastly better return than investing in stocks, bonds, and hedge funds for a charitable payout half a century from now.
Saving Lives Today
But people love this sort of scheme. Why? I think the root of the problem is that people apply inappropriate lessons from their personal investment experience.
Think about how we prepare for retirement. When we’re 35 or 50, assuming we have surplus income, we work to put as much money as we can into our retirement accounts. That way, when we’re 80, we’ll be able to support ourselves. If we’re currently earning enough, our most pressing concern is for our future.
But with charitable causes, the need is now. Certainly, there will be need later, too, but there are lives and a planet to save today.
So why is the Minneapolis Foundation pushing this idea? Certainly it is motivated to promote philanthropy and the notion of investing in the community. But the Pay It Forward Forever Fund also connects it to donors — 24 percent of whom are new to supporting foundations, according to The Chronicle. These relationships can lead to more significant gifts, of course. It’s also worth noting that, while the Pay It Forward Forever Fund won’t be making any grant distributions for 50 years, it will undoubtedly be paying management fees to the firms handling the investments.
This care and feeding of the philanthropic machinery is a cost most people typically don’t think about, but the expense is noticeable when it is associated with a fund that will produce not a penny of community benefit for half a century.
We need to remember that any endowment fund, by its very nature, defers charitable impact until the future. But at least with traditional endowments, some money is distributed every year to meet current needs, to help mend the fabric of broken lives and repair an endangered planet.
The benefits of the Pay It Forward Forever Fund are all off in the future, with absolutely nothing going to help with the problems now or in 10 years or in 30 years. It sounds good. It has a catchy name. It resonates with donors. But it makes no sense.
Alan M. Cantor is a consultant to nonprofits.