Foundations enjoined to be more charitable

Propelled by America's economic expansion and fattened by an unprecedented transfer of wealth into their hands, the nation's charitable foundations are giving more than ever before.

Schools, symphonies, and soup kitchens are all benefiting from the open wallets of individuals like Bill Gates and institutions like the Ford and Rockefeller foundations.

Yet America's philanthropic institutions are, on the whole, unjustifiably stingy, according to an increasingly vocal set of critics, who are waging an aggressive campaign to shame givers into doing more.

On the surface, the argument is about whether private foundations should give more than the minimum - law requires them to give at least 5 percent of their asset base annually.

But the issue cuts more deeply, touching on what obligation the wealthy, and often clubby world of private foundations, have to society as a whole, given their privileged tax status.

"The debate comes down to what's right, and the question of whose money is this anyway," says Mark Dowie, who is writing a book about American philanthropy and social responsibility.

Mr. Dowie and others say the tax breaks that private foundations enjoy justify greater accountability for how much money they plow back into society.

Pushing for 6 percent

The National Network of Grantmakers and the National Committee for Responsive Philanthropy are launching a campaign next week to push foundations to give at least 6 percent of their assets yearly.

Such a change may seem small. But given the total size of the nation's foundations, that slight bump in giving would send an additional $4 billion flowing into nonprofits.

The issue will be debated next week at the annual meeting in Los Angeles of the Council on Foundations, the largest regular gathering of the philanthropic world.

The gathering comes at a time of unprecedented prosperity for the nation's foundations. According to the New York-based Foundation Center, large-foundation giving jumped 22 percent in 1998, the latest full year of data.

Yet as the stock market pumps up foundations' assets, and gifts to new and existing endowments increase, that giving looks puny to some observers.

All the more so, say critics, when contrasted to the need.

Citing the growing gap between rich and poor in the US, the rising number of homeless, and the high rate of child poverty, Rob McKay of the McKay Foundation says foundations "are not exactly stepping up to the plate." The McKay Foundation gave out about 20 percent of its assets last year.

The 5 percent rule was legislated by Congress in 1981, and foundations must give that amount to qualify as nonprofit and remain nearly tax exempt. And while foundations can always give more, and some do, the benchmark has become the norm. Critics say that payout rate has become the ceiling, when Congress meant it only as a floor.

While much of the current pressure to increase giving is coming from activists and organizations that back a more-liberal social agenda for philanthropies, those on the right have long favored greater giving, too.

Yet many of the nation's largest and oldest foundations are resisting any change, claiming more rapid spending will erode their asset bases and cut into long-term giving.

Dueling studies

Each side has its own supporting studies.

An analysis by DeMarche Associates in 1990 and updated in 1995 found that 5 percent is the right amount of giving to ensure no threat to the foundations' future asset base. Foundations invest their endowment funds and count on stock-market earnings to offset, over time, the sums they give away each year.

But a more-recent study by Perry Mehrling of Columbia University concludes that giving away more would not threaten foundations' assets. Looking at a 20-year period beginning in 1974, the study concludes that giving away as much as 8 percent would not have reduced the asset pool.

More important, the study says the growth of foundation assets is increasingly being fueled by new gifts rather than investment income. And with projections showing a huge transfer of wealth into foundations during the next several decades as the baby boomers age, it contends a higher rate of giving is not only possible, but appropriate.

Priority No. 1

Many critics charge the philanthropy world has become overly worried about managing assets and less concerned about its mission.

"We're working to make foundations more about grantmaking and less about investment banking," says Teresa Odendahl, director of the National Network of Grantmakers, which advocates programs for social change.

But so far, the heavyweights in the foundation world are not convinced that giving more is prudent. While the Council on Foundations says the amount of giving is up to each organization, it has told its members that "the current 5 percent rule strikes an appropriate balance" between expenditure and maintaining the value of the endowment.

(c) Copyright 2000. The Christian Science Publishing Society