On April 1, 2022 we posted the following graphic and caption on our social media channels:
US philanthropic foundations have vowed to spend down ALL of the $1.3 trillion of assets they currently hold to make sweeping, systemic changes that are needed now in the United States.Currently, foundations are only required to give away 5% of their holdings per year. You won’t want to miss how this simple, long overdue change in approach will impact our nation in positive, strategic ways. Visit the news link in our bio to learn more!
If you haven’t already figured it out, this was an April Fools’ Day prank post to highlight how extraordinarily transformative a decision like this could be, but how it would also require bold changes and not the “we’ve always done it this way” style thinking that can dominate so much charitable work.
Imagine for a moment if the $1.3 TRILLION currently held by charitable foundations in the US was instead all donated – yes, all of it this year, just given away – to organizations working on challenges to our democracy, the housing crisis, feeding hungry families, poverty, and much more. How would this impact our current lives in the United States? How would it impact future lives? How would donating even a third of the amount at about $433 billion affect real change?
We aren’t the only ones to ponder these topics. One of our favorite bloggers, Vu Le writes:
Instead of working to address these critical issues, we see left-leaning institutional philanthropy, who for better or usually for worse sets the tone and strategies for our sector, continuing to engage in its delusional, out-of-touch practices. It still rationalizes foundations existing in perpetuity by protecting endowments for the future instead of spending out to solve issues now. It still refuses to engage in crucial battles, thinking that protecting basic and vital civic rights like voting is too “political.” It still wastes nonprofits’ time and energy through archaic, burdensome grantmaking practices. It still opposes efforts to advance even the mildest of reforms, like the ACE Act. It still remains a vehicle for corporations and wealthy individuals to avoid taxes and hoard wealth, while funding commissions to spend years studying why poor people haven’t been giving as much to nonprofits.
Why is it hard to institute sweeping change like this?
With foundations, some of the answer is found in the way they are set up. A principal donation (with tax incentives for a donor) sets up a foundation, but a foundation never touches that principal. Instead, they spend the capital gains that are earned each year on that principal. This means if your foundation has a $10 million principal donation, and you earn 10% on that principal in a year (which is an average stock market return) you have $1 million of earned assets to spend from – and this will vary each year depending upon donations to the endowment and how much interest the principal earns each year.
To add to that, current IRS rules say private foundations are only required to “make eligible charitable expenditures that equal or exceed approximately 5% of the value of its endowment.” The 5% consists of grants (donations) and any qualifying expenditures (such as paying staff, operations costs, etc.) so most foundations are giving well below what they could be.
Organizations like the Initiative to Accelerate Charitable Giving are working to change this. And, as Vu writes:
We have to snap out of it. We do not need more toolkits and logic models; we need to significantly fund the organizations and movements working to protect voting rights and prevent the worst of humanity from getting elected. We do not need more commissions and white papers on giving patterns; we need corporations and wealthy individuals to pay their fair share of taxes. We do not need more discussions on grant processes; we need to release the trillions of dollars warehoused in foundation endowments and DAFs.
If you want to take action, please check out our Dismantling Systemic Racism in the Nonprofit Sector program, and/or sign up for our newsletter to learn more. We’d love to have you join us in this work to do better, together