The pandemic is a clarifying moment for philanthropy. A spotlight is shining harshly on the familiar endowed foundation model. It is being aimed even more pointedly at the form of endowed philanthropy known as the donor-advised fund or DAF. The point is sharp: in this time of crisis like no other, when charities and communities need resources more than ever, can there be any justification for foundations and DAFs not to spend much more and much faster? Donors have received a tax advantage for their decision to give away some wealth to a foundation or DAF. So, isn’t this the time to put much more of that money into the hands of those who need it, and to do so unconditionally? Indeed, is this not the time when foundations and DAFs should spend themselves down entirely?
The needs created by the pandemic intersect with the longer-standing needs of less advantaged, more marginalized organizations led by people of colour and Indigenous peoples which have generally received less from foundations and DAFs. This has sharpened the critique of “traditional” endowments. Edgar Villanueva, criticizing DAFs in particular, puts it bluntly: “ Part of philanthropy’s mandate in this critical moment is to interrogate the ways in which our old structures uphold white supremacy…As traditionally structured, DAFs operate under the assumption that the presumably white, wealthy donor knows what’s best.”
Some voices today in the United States, and in other countries including Canada and the United Kingdom where the endowed private foundation or fund is a well-established philanthropic structure, are calling on these funds to substantially increase their giving. This has been the principle behind the collective statements issued by philanthropy-serving organizations and funders in Canada, the United States and the UK. Some donors to DAFs are calling personally on other donors to give more. An example is the HalfMyDAF campaign, calling on DAF donors to step up significantly.
Evidently, there are those who believe that a response that is left up to individual donors is not sufficient. In their view it would be in the public interest for governments to impose a higher mandated payout. An American example of this is the Emergency Charity Stimulus campaign which is calling on Congress to mandate a temporary increase in the disbursement quota or payout from 5% to 10% and its extension to individual DAFs (which do not have individualized requirements either in the US or Canada). John Hallward joined the debate in Canada with the recent argument that government should increase annual foundation disbursement quotas (from current 3.5% of invested assets) so that foundations can help cover the increasing financial needs of charities due to the pandemic.
Some go so far as to suggest that the whole model is wrong in this time and place. The idea that the public should provide incentives to the wealthy to set aside money in perpetuity for philanthropic purposes with no requirements to disburse beyond 3.5% or 5% per year seems particularly wrong at a time of enormous need. Interestingly, the idea that foundations should endure indefinitely has not always been the standard model or belief. In a valuable commentary on the history of the idea of perpetuity, Benjamin Soskis, a philanthropy historian, points out that until well into the second half of the 20th century, foundation donors and boards had “fluid attitudes toward foundation life span and spending rates that had not congealed into philanthropy-wide norms.” In his view, it was in fact largely an attempt by government (Congress) in the Tax Reform Act of 1969 to impose a lifetime limit on foundations that “rallied foundation allies — both around federal spending requirements, seen as an alternative to lifetime limits, and also around a defense of the right to perpetuity, which became a stand-in for the defense of foundation independence more generally….Congress had meant the payout requirement to serve as a substitute for a foundation lifetime limit by instituting a condition on continued life based on a minimum responsibility to the current moment; but it ultimately became more commonly regarded as a guarantor of perpetuity.”
This American lead established the example for Canadian regulators who began to regulate foundations through minimum disbursement quotas in the 1980s. There has never been an expectation that foundations should be forced to spend down. Arguably, the expectations among provincial regulators and accountants that charities should behave prudently in stewarding their funds has suggested to foundation and charity boards that they invest with a long-term and low risk conservationist perspective. Government regulation does not always have the consequences that one would expect.
But today we face a financial crisis for the charitable sector of a magnitude that none of us have ever experienced before. As Soskis rightly says, “this is no time to rely on settled practice, on defaults, on unexamined institutional traditions. Even if foundations stop short of taking (former Ford Foundation President) McGeorge Bundy’s advice to “regularly ask [themselves if they] could do more good dead than alive,” they should fully recognize that, at this moment, grappling with the temporal dimensions of philanthropy is a matter of life and death.” I agree with those who maintain that this is the time for extraordinary giving. I think it must remain an individual decision based on philanthropic mission whether to spend down or remain focused on the longer term with reserves of capital to support work that will take many years (climate change adaptation and mitigation would be an example). But in 2020/2021, and maybe longer, granting MUCH more than the minimum disbursement if a foundation, and definitely more if you advise a DAF, is a MUST. Phil Buchanan of the Center for Effective Philanthropy put it best in a recent blog : “Now is the time for leadership. None of us will look back at this time and wish we did less.”