To the Editor:
As a member of the Council on Foundations and the leader of a community foundation, I disagree with the position taken by the council’s chief executive, Kathleen Enright, in her recent opinion piece, Donor-Advised Funds Are Essential to Democratizing Philanthropy.
Rather than applauding DAFs as a tool for “democratizing philanthropy” for donors, I believe it’s time to focus on the rampant inequities in charitable giving to marginalized people, including those in the rural communities my foundation supports, and update our charitable giving laws in response.
Historically, community foundations served communities by hosting donor-advised funds, giving donors some authority to parse out their charitable assets over time to address local needs. It was a great idea and worked well for a time — until things began to change. Community foundations started expanding to serve larger territories, bring in more assets, and manage more investments. They began to look more like investment firms than community foundations.
Then big investment firms decided, with the blessing of Congress, that they could also host DAFs. Using these funds to invest in a community through a foundation was no longer necessary. Now people could simply move their assets from a regular investment to a charitable investment account. In return, they got an immediate tax deduction, while their assets continued to grow.
Most of those DAF assets remain in the funds indefinitely, resulting in a system that prioritizes donor needs, with little if any regard for the charitable needs those untaxed dollars were meant to address. The National Philanthropic Trust report on DAFs, cited by Enright to support her argument, also shows that approximately 82 percent of assets stayed in donor-advised funds in 2020, a time of extreme challenges for communities struggling with the pandemic’s onslaught. During that same year, DAF assets grew exponentially to nearly $160 billion.
A report from the Boston College Law School Forum on Philanthropy and the Public Good found that the rise of DAFs contributed to the loss of $300 billion in additional revenue for charities during a five-year period. It also found a shift in giving toward DAFs and private foundations and away from direct donations to charities. Giving by individuals as a share of income has hovered at about 2 percent during the past 40 years while contributions to DAFs and private foundations have grown from 5 percent in 1991 to 28 percent of all individual giving in 2019 — a 460 percent increase.
The Accelerating Charitable Efforts Act, known as the ACE Act, is a simple effort to begin addressing these gross injustices. But lobbyists and trade organizations, such as the Council on Foundations, are taking elaborate measures to squash it.
This makes little sense. The legislation would merely ensure that charitable donations that receive tax benefits actually support charities — rather than languishing indefinitely in private foundations and donor-advised funds. Importantly, the ACE Act also includes a community foundation carve-out that recognizes the important role organizations like mine play in promoting informed local giving to address current needs while building assets that serve communities long term. These rules strengthen community foundations and are the reason why many of us who lead them view the legislation as an opportunity to create change at a time when philanthropic wealth and the inequities it reinforces are finally taking center stage.
The ACE Act provides an opportunity for grant makers to engage in a national conversation about what’s working and what’s not. On the positive side — investors are clearly willing to move their assets to charitable funds. On the negative side, there is little incentive for them to put those assets to charitable use. The ACE Act encourages donors to seek out and engage in relationships with community foundations that can help bridge that gap.
Many of my colleagues in the field can’t or won’t see this broader opportunity. Instead, they are spending tremendous amounts of energy to kill the legislation with sounds bites such as “a solution looking for a problem” or “democratizing philanthropy” — with no regard for the insult those words bring to people whose ZIP Code and race too often define their destiny.
Philanthropy must change, and that change needs to be defined by the people and organizations closest to the need — not those who get the most benefit from maintaining the status quo. The ACE Act may not be perfect, but in my decades of following legislation, I have never seen a bill look the same when it is passed as it did when it was filed. Let’s use this opportunity to start some real dialogue around philanthropic equity, including making sure DAF dollars go to the Indigenous, minority, rural, and other marginalized people and communities that need them most.
The ACE Act provides a platform for just that kind of discussion. More philanthropic leaders need to be willing to join the conversation.
Gerry Roll
CEO
Foundation for Appalachian Kentucky
