Giving's Rough Edges

Charitable groups and the foundations that fund them have had a difficult time of late. The rate of giving has barely grown, and government grants to nonprofits have shrunk.

News stories about some foundation trustees with excessively high salaries, along with other stories of fraud and abuse in the nonprofit world, even problems in distributing 9/11 donations, no doubt have made American donors more cautious.

No wonder there's more pressure on nonprofits and the foundations that fund them to open their books - and their spending spigots.

One measure pending in Congress would disallow including "administrative costs" in a foundation's calculation of its total giving. (In order to maintain tax-exempt status, foundations must pay out 5 percent of their assets per year.) The bill's sponsors assert administrative costs have no business being counted as part of a foundation's outlay. One watchdog group predicts the bill could yield $4.3 billion more in grants each year.

But many foundations have "administrative" costs that go well beyond simply writing checks. Often, they include commissioning research on issues, and providing other forms of assistance to grantees, such as needed business strategies and planning.

Leaner economic times have forced some foundations to curb costs by holding the line on staffing, and trying more efficient methods of identifying potential donors. Others are paying more attention to age-old questions of how best to assess grants, hold grantees accountable, and measure their effectiveness. The Edna McConnnell Clark Foundation of New York, for instance, now provides a high level of assistance to a small number of nonprofits, making larger, more focused, grants over multiple years. Before, it had a wide variety of program areas, and processed lots of smaller grants.

Trends such as "venture philanthropy" are helping cut costs, too. The focus is on funding programs that could become self-sustaining, or even revenue-generating on their own.

Foundations do need more transparency, and better oversight; experts agree there's little IRS scrutiny of a foundation's complex tax filings.

But better for Congress to more precisely define just what "administrative" costs and "charitable contributions" are, before forcing a one-size-fits-all requirement on the foundations doing good work, just to keep others from spending too much on overhead.