Nov 29, 2007

‘Tis the Season

by Laura Starita

With the holiday season now underway, we enter into the season of giving—and of the “giving section”, those special annual editions put out by major media outlets which highlight the years’ trends in philanthropy. The New York Times went to press first with theirs, mostly a collection of profiles of little-known charities doing something unconventional. But there were two real gems in the section.

The first was was the lead article by Stephanie Strom highlighting that more trusts, foundations and universities are accumulating, rather than distributing, assets. Legally foundations must spend a minimum of five percent of assets on programs each year. Strom points out that this required minimum spending has become a de facto maximum for many organizations. Their focus, in short, is on institution maintenance, not on fulfilling the institution’s mission, and this trend is causing Washington to question the tax-exempt status of certain nonprofits, most prominently hospitals and universities. The second was a small piece by David Cay Johnston on an initiative by the IRS that requires small charities to file a special status form if they want to maintain their nonprofit benefits. One person quoted in the piece estimated that as many as 20 percent of charities with less than $25 thousand in revenue will turn out to be defunct. Together, these pieces contradict one of the most frequently heard pieces of received wisdom in philanthropy: that there just isn’t enough money to go around.

Rather, the pieces suggest that funds are either frozen in untouchable endowments, or spread out in small amounts over hundreds of thousands of tiny organizations, many of which overlap in mission and approach, and are too numerous for the government to monitor properly. This says nothing about the few hundred not-so-small foundations that Strom wrote about a month ago, which have fallen under bank control after their founders’ deaths, and whose five percent-a-year payouts more or less go to bank management fees. In short, there is a lot of ‘unproductive’ philanthropic capital out there, distorting a market that is reportedly bringing in $300 billion in donations every year.

This is not to say that everyone in the nonprofit sector is flush with cash. As Jack Siegel mentioned in his Charity Governance blog recently, very few nonprofits are in the position of Harvard University or the Ford Foundation with their huge, stable sources of money. Yet donors should sincerely consider where their money is going: is it being used to perpetuate the existence of an institution, or is it being used to fulfill a need—perhaps in such a way that the institution itself will eventually no longer be necessary?

A generation ago perhaps this debate would not have found room in print, but philanthropy is changing. Or perhaps it is simply that philanthropists are changing their ideas about what it means to leave a legacy. More wealth-holders are openly saying they want their fortunes spent in their lifetimes, or within a reasonable posthumous time frame. Certainly Gates and Buffett (now joined by the no-longer anonymous founder of the Atlantic Philanthropies, Chuck Feeney) are the most prominent holders of that opinion, but they aren’t unique: Eugene M. Lang, one of the wise givers profiled by Barron‘s this week, was quoted in the New York Times twenty years ago saying that people should neither inherit nor die with great amounts of money; The Jacobs Family, another wise giver, shares this view: their Market Creek initiative was launched in part as a large-scale, sustainable project that could fulfill the requirement that the family foundation pay out its assets within a pre-determined time frame after its founder’s death.
 
New York Times: Special Giving Section