WHEN the Council on Foundations released its agenda this spring
to outline its hopes for the 112th
Congress, some parts were predictable. Most notably, the
grant-makers group once again
asserted its 11th commandment: “Thou shall not increase
the payout rate.” That foundations continue to lobby tenaciously to give just 5 percent of
their assets is shortsighted and
against the interests of the non-profit world, but what made the
agenda even less sensible was
how the council handled other
issues that also matter a lot to
nonprofits.
In particular, the wish list
for Congress misses the real opportunities to make change in
rural America or ensure that
money is spent on charitable
causes and not on exorbitant
trustee fees. That is part of a
pattern of failing to take on key
public-policy matters, especially
the diversity of those who give
away tax-exempt money, a subject that has become the topic of
legislation in states like California and Florida.
Here are some of the key public-policy issues on which the
council should rethink its position:
How much foundations
should give.
Under federal law, foundations are required to give at
least 5 percent of their assets to
charitable causes, on average,
every year. The council called
that “appropriate” and suggested that the law stay in place.
It said it would oppose any
arbitrary adjustments to the 5-
percent rule that are not supported by commonly accepted
data, ignoring the fact that the
current percentage is itself arbitrary.
Based on the assumption of
average investment returns of
8 percent and an inflation rate
of 3 percent, the council overlooked the much greater than
8-percent returns foundations
have achieved in recent years
and inflation rates lower than 3
percent. Nor did it acknowledge
studies other than its own that
concluded that higher distribution rates—for example, 6 or 7
percent—would also ensure the
perpetuity of foundation assets.
Those studies show that not
only are the higher percentages
consistent with the goal of operating forever but that all of that
amount could be distributed in
the form of grants without unduly eroding the endowment.
Currently foundations are allowed to include other expenses
in the calculation of how much
they give, such as the costs of
consultants and publicity campaigns.
More important, the agenda
did not mention the critical fi-
nancial needs of nonprofits in a
time of staggering fed-
eral and state budget
cuts that have severe-
ly crippled America’s
social safety net and
many of the nonprof-
it organizations that
carry out the missions
foundations say they
care about.
With a few excep-
tions, big national
foundations have pre-
ferred to give their
money to national or-
ganizations, most of
them with few ties to
rural communities. Lo-
cal grass-roots groups
rarely receive the attention of
these big foundations. Since
relatively few corporations have
headquarters in rural areas,
few businesses channel philan-
thropy to such groups, either.
When Hurricane Katrina hit
states like Alabama, Louisiana, and Mississippi, it quickly
became apparent that they did
not have enough nonprofits to
help provide the type of emergency assistance and rebuilding efforts that were needed at
the time. Foundations had totally neglected this portion of
the country.
But an appeal to the federal
government is not the best way
to use scarce federal funds or to
build rural endowments. It is
the large foundations that have
the capacity, and indeed the ob-
ligation, to create philanthrop-
ic institutions that could prime
the pump of economic develop-
ment and strengthen local char-
ities in rural areas.
The council has always been
neutral on the question of
whether foundations should pay
trustees for their time, but its
neutrality has in fact condoned
the practice. It is time for the
council to take a stand against
trustee fees and ask Congress
to limit or eliminate their use.
It is an irony of the nonprofit
world that many of the wealthiest and most highly paid professionals, namely those who serve
as foundation trustees, should
be paid for their foundation
work, while people with more
limited means are expected to
volunteer their time to serve on
nonprofits’ boards.
Although the majority of
foundations don’t pay their
board members for their services, a large number, especially
at the large institutions, do so.
Some pay upward of $50,000
to $100,000 a year to trustees
for a job that rarely requires
Continued on Page 35
STEVE GUNDERSON
How Nonprofits Can Best Capture Rural America’s Giving
IGREW UP in Wisconsin, so I can tell you one truth about rural America: Timing is
everything. Whether it’s planting or harvesting, if you get the
timing wrong, you can lose it
all. Philanthropy is in danger
of missing out on a timing opportunity in rural America,
where the peak transfer of
wealth will occur in the coming
years.
In much of rural America,
we’re doing virtually nothing
to capture even a small part
of this for philanthropy. It’s
no one’s fault, really. Philanthropy simply lacks the voices
to speak about its potential in
rural America—to tell families
the difference they can make in
their communities by converting part of their estates into local philanthropic gifts.
In my home state, a transfer-of-wealth study commissioned
by the Donors Forum of Wisconsin estimates a transfer of
$687-billion from one generation to the next by 2050. Unfortunately, much of this wealth is
leaving as many residents move
out of rural areas.
In Trempealeau, my family’s
home county, many residents
are farmers and small-business
owners, and their annual in-
comes are below the state aver-
age. Still, the transfer-of-wealth
study estimates county resi-
dents will transfer $2.16-billion
to the next generation by 2050.
If just 5 percent of this money
was given to philanthropy, that
could create a countywide en-
dowment of $108-million for
new resources to support spe-
cial projects and other needs. In
Montana, a similar study pro-
jects that $8.8-billion of wealth
will have been transferred from
2007 to 2016. If just 5 percent
of that amount was set aside for
community philanthropy in the
state—and assuming all foun-
dations distributed the mini-
mum 5 percent of net assets re-
quired by federal law—it would
mean $22-million a year to sup-
port charitable causes.
Philanthropy
simply lacks
the voices to speak
about its potential
in rural America.
to communicate about, and
to capture for philanthropy, a
small part of these assets being
transferred from one generation
to the next.
We can make up for lost
ground, however. Here are four
simple ways to do that:
Expand philanthropy’s
partnership with the fed-
eral government into rural
America.
Over the past two years, the
Obama administration has
reached out to philanthropy to
create a new generation of partnerships at the federal level.
Examples include the Green
and Healthy Homes Initia-
tive, Investing in Innovation
and Race to the Top education
funds, and the Social Innovation
Fund. In every case, the federal
government has asked founda-
tions and other private donors
to match government dollars in
ways that will enhance innova-
tion in housing, education, or
other vital services.
Steve Gunderson is chief ex-
ecutive of the Council on Foun-
dations.
