To the Editor:
In an op-ed last week in the Chronicle of Philanthropy, Alan Cantor criticizes community foundations for opposing federal legislation that aims to speed up distributions from donor-advised funds. He suggests that this opposition is the work of lobbyists and hints that community foundation leaders are somehow not smart enough to recognize a good deal when they see it.
But here’s the truth: Most community foundation leaders oppose this bill, known as the Accelerating Charitable Efforts Act, because they know it’s a bad deal for the field, for local nonprofits, and for their communities.
On the surface, the legislation, sponsored by Sen. Angus King (I-Maine) and Sen. Charles Grassley (R-Iowa), seems like a gift for community foundations. Crafted with the goal of speeding up the rate at which private foundations and DAFs make grants to nonprofits, the bill includes a carve-out designed to exempt community foundations from many of its provisions.
When you look under the hood, however, it’s clear this legislation could endanger the future of community foundations and disrupt support to local nonprofits.
Community foundations will stand behind smart reforms that bring more money to charities. But this legislation falls well short of accomplishing that goal. It would create disadvantages to community foundations and lead to less, not more, community-focused giving. Here are some reasons why:
The carve-out would exclude many community foundations. For years, community foundations have engaged in conversations with DAF critics about how to address perceived abuses. We have consistently expressed opposition to a carve-out for community foundations only and were not consulted to help create the exemption in the King-Grassley bill. We are against a carve-out because we don’t want to be separated from the charities we partner with to tackle local problems — and because carve-outs create inequities.
Beyond those concerns, we can’t support a bill that defines community foundations in a way that excludes many of them. The carve-out would disqualify any organization with more than 75 percent of its assets in DAFs, effectively excluding many small community foundations in rural communities and towns. Even worse, these smaller foundations serve areas with little private philanthropy to make up the difference.
The bill also poses problems for several community foundations in fast-growing cities, including Houston, Atlanta, Las Vegas, and Washington, D.C. In many cases, these foundations rely largely on the support of living donors who have yet to make the big, permanent legacy gifts that support more established community foundations. Consequently, they, too, would not qualify for the carve-out.
The legislation would eliminate the ability of many community foundations to accept complex nonmonetary gifts. Community foundations are often the only charity in a region with the expertise to accept gifts of real estate, closely-held stock, or other assets. It’s a critical part of the value they provide local donors, who rely on community foundations to help them easily liquidate such assets and make contributions to local charities through their DAF.
But the legislation would change the rules around such gifts for DAFs, while leaving current law in place for other charities. This action would make donors far less willing to use community foundation DAFs for these gifts and more likely to take their giving to other large charities that can process them. A better way to address perceived problems with these gifts would be through modest reforms that would apply to all public charities.
The measure would imperil family legacy giving. Many donors rely on community foundations to help them make multi-generational family legacy gifts that provide nonprofits with steady, predictable giving through endowed, community-based funds.
The King-Grassley measure would disrupt this type of giving — and hurt community foundations and the nonprofits they support — by eliminating upfront tax benefits for donors who don’t intend to grant every dollar from their DAFs within 15 years. For example, the bill doesn’t exempt endowed DAFs, which are permanent gifts that legally cannot be unwound in a certain number of years.
Many advocates assume that if DAF rules are changed, all the money currently contributed to those funds will instead go directly to private charities. But community foundations know their donors. They know that if giving becomes more difficult, many gifts will disappear. Without the incentive to make a legacy gift, many families will choose to use their money in other ways. Many won’t give at all. The bill aims to speed up grant making, but it’s impossible to “speed up” a gift that isn’t made in the first place.
The act would create competitive disadvantages. Cantor asserts that the bill would give community foundations an advantage over other large DAF sponsors. In fact, it could do the opposite.
The legislation would require community foundations to track funds valued at more than $1 million. But they would also have to track funds under that threshold in case Congress changes the rules in the future or because some funds might later exceed that threshold. The likely result is that all DAF sponsors would need to implement what’s known as a first-in, first-out tracking system to place time stamps on every gift coming into and every grant going out of each fund.
Implementing these reforms would be much more difficult and costly for small community foundations than larger organizations. Community foundations already have higher fees than other DAF sponsors. We object to the idea of spending money to prove we are doing something we’re already doing. Those increased costs would push donors on the margins to use other options for their giving.
We’re not arguing other DAF sponsors should be disadvantaged. But we also don’t want to create more bureaucracy, raise fees or fund minimums, and risk more donors choosing other options because cost differences become untenable.
It’s clear why many community foundations have strong reservations about a bill that would create inequities and negatively affect donors and nonprofits in our communities. DAFs are popular with donors because they are flexible and easy to use. When giving is easy, people give more. If we make DAFs hard to use, people will give less. As always, community foundations are in favor of targeting abuses where they exist — and stopping them. But let’s focus on how to get people to donate more to charity, not on overregulating the tools they use to give.
Director, Philanthropy Practice
Van Scoyoc Associates
Hamond represents the Community Foundation Public Awareness Initiative at Van Scoyoc Associates.
President and CEO
Nevada Community Foundation
President and CEO
Community Foundation of the Ozarks