This is the smartest, ballsiest response I’ve seen to the omnipresent nonsense about how what’s wrong with philanthropy and charity is that they’re too soft-hearted and how all the problems of the world could be solved if they were just more rigorous and did their “due diligence” and brought other failed concepts and consultant buzzwords over from the for-profit sector. What refreshing thoughtfulness and appropriate humility. Bravo, Mr. Scanlan!
Posts Tagged ‘foundations’
There’s an old joke about a man who asks a woman to sleep with him for $1 million. She agrees, whereupon he asks her to sleep with him for $1. “What kind of a girl do you think I am?” asks the woman indignantly. “We’ve settled that,” replies the man, “We’re just arguing about the price.”
This came to the Nonprofiteer’s mind in response to this story about the price of the Broad Foundation’s generosity to the schools of New Jersey. A recent Broad Foundation grant stipulates that it will be available only as long as Chris Christie remains governor.
The Nonprofiteer has often argued that private philanthropy in education (and other areas) is at best a mixed blessing, because it reflects approval of the notion that public assets should be run according to private preferences. But she never imagined any philanthropy would go this far, offering its generosity only on condition that the public sacrifice its right to choose its own leaders. The question isn’t whether or not Chris Christie is a good governor; the question is whether the Broad Foundation—as opposed to the voters of New Jersey—should get to decide that.
Sure, you can say that no voter is likely to sacrifice his or her rights for a grant of $430,000, but then we’re just arguing about the price. And sure, in form, the voters of New Jersey still hold the power, but the Broad Foundation grant gives them to understand that the cost of exercising their power is losing a lot of money—or, put another way, that the cost of the money is their democratic rights. By comparison, “the vig” (excessive interest rates) charged by organized crime look like a bargain.
Not content with specifying the outcome of an election, the grant’s terms also exempt from disclosure anything having to do with the grant, purporting to provide it with immunity from application of the Federal Freedom of Information Act. Perhaps this was intended to minimize the impact of the grant on voters: What they don’t know can’t influence them. But when the subject of the grant is the most public of concerns—the education of the next generation—a commendable motive doesn’t excuse unacceptable means. Voters need to know on what basis decisions are being made about their schools so that they can change the decision-makers if they disagree. The grant terms are an effort to protect the foundation and its direct beneficiary, the current Republican government of New Jersey, from that straightforward democratic notion.
Defenders of charter schools and other forms of privatization of public schools argue that such restructuring attracts private philanthropy that would not otherwise be available to those schools. That’s probably true, but is that a cost or a benefit? It’s a slippery slope, from good-willed private philanthropy in support of public goals to a system in which private goals predominate—specifically the private goal of eliminating public input (or even public knowledge) from the governance of the public schools.
We could argue about whether the loss of public input would be worth it if the donation were $430 million. But under the current circumstances, just what kind of girl is New Jersey?
A cheap date, apparently.
I serve on the board of a nonprofit. 100% of our board gives in some form monetarily throughout the year through event sponsorship, general giving, donations at events, etc. With all the year-round giving, many of us were not making a gift to the annual appeal. Recently, we were informed that funders look at what percentage of our organization’s annual appeal total comes from board members. This has the board scrambling to make sure everyone gives a significant sum here at year’s end. It also has many of us questioning the timing of our gifts for the next year. Do we not sponsor the gala or give to summer programs, but instead save that donation for the annual appeal? There is only so much to give for many of us.
While I know that funders want 100% of board members to give, the desire for that giving to come in the form of the annual appeal is new to me. I find it especially surprising that they would ask what percentage of the annual appeal comes from board members. Have you heard about this stipulation? Is it widespread?
Obviously we all want what is in the best interest for our organization to be positioned for future funding. However, I don’t want to lose the help and momentum the organization gets from year-round board giving if it isn’t necessary.
Signed, Surprised and Scrambling
First, let the Nonprofiteer congratulate you on having a Board that gives 100%. It’s bizarre to imagine that some additional hurdle should be placed in the way of a Board which has already cleared that one. Institutional funders are notorious for always asking for one more thing; but this hoop is a brand-new one.
The Nonprofiteer suspects that what we have here is a failure to communicate*—that is, a misunderstanding of what the funder actually wants to know. If the program officer asks (or the guidelines say) “What percentage of your annual fund comes from your Board members?” the English translation is most likely, “What percentage of your annual donated income comes from your Board members?” NOT “Which appeal do your Board members respond to?”
The funder’s concern may be for institutions whose Boards donate 75% of the group’s contributed income, reflecting a failure to reach out into the broader stakeholder community. Conversely, the funder—which mostly doesn’t deal with Boards as generous and active as yours—wants to know if Board member donations are significant or merely pro forma: if every single member of the Board gave $1, that wouldn’t be the kind of Board participation the foundation wants to see, or intends to spark through its inquiry.
If in fact the funder cares about the Board’s response rate to the annual appeal, meaning the end-of-year solicitation letter, this is a classic example of a wider problem in the nonprofit community: the “it doesn’t count” syndrome. Oh, members of your Board buy and sell tickets to the benefit event? “It doesn’t count” because there might be something involved in the transaction beyond a straightforward check and tax receipt. “It doesn’t count” syndrome leaves Board members feeling unappreciated and nonprofit executives feeling unsupported; so repeat after the Nonprofiteer: money is fungible; IT ALL COUNTS.
And if the funder disagrees: so the funder is stupid! Having money is no guarantee of having brains, and that’s as true in the philanthropic sector as anywhere else, though it’s harder to remember when we’re spending all our time trying to please people with money.
The Nonprofiteer’s advice: call the program officer and say, “Do I understand you want to know what percentage of the response to our end-of-year solicitation letter—what we call the annual appeal—comes from the Board, or do you just want to know what percentage of our annual contribution income is donated by the Board?” If s/he really means the former, then yes, just shift the timing of your contributions in future years.
“Teach your funders well . . . . just look at them and sigh, and know they” don’t understand you at all.**
*Cool Hand Luke
**Crosby, Stills, Nash and Young: “Teach Your Children”
An op-ed piece a few weeks ago in the Wall Street Journal (behind a paywall) argued that donors should construct their foundations to spend down assets as rapidly as possible, lest the foundations end up supporting causes their donors would revile. This familiar argument comes with a familiar whipping-boy: the Ford Foundation, whose enthusiasm for assisting the poor and marginalized was certainly not shared by its eponymous founder Henry. The op-ed piece, like many of its kind, focuses on the question of donor intent, arguing that only a brief payout period can assure that the donor’s intent is served.
The Nonprofiteer has never cared particularly about the intent of dead donors. First of all, they’re dead, and while death may not extinguish intent as a matter of law it certainly does as a matter of common sense. Second, how much better off do we really think the world would be if Ford’s foundation had spent all its money on Ford’s enthusiasms, such as promoting publication of the scurrilous anti-Semitic tract The Learned Protocols of the Elders of Zion? Third and most important, the tax-free status of foundations is supposed to encourage philanthropy, not the accumulation of permanently idle tax-free money.
The Nonprofiteer has long argued that the minimum expenditure required of foundations is way too minimum, and that setting up a structure to give away 5% of income shouldn’t entitle a donor to a 100% tax shelter–whatever his/her intent. Most likely that intent was to escape from taxation, without too much more thought than that.
So let’s think about the issue not from the standpoint of donor intent but from the standpoint of social good. Which is more useful for a philanthropy: remaining around in perpetuity, to grapple with issues that may arise a generation or three from now, or spending down in the present and relatively short-term future on issues the donor understands and cares about and which in any case are currently urgent? From the phrasing you can tell the Nonprofiteer’s position: spend it down.
Julius Rosenwald saw the wisdom of this approach when he created a program of fellowships for African-American artists for their professional development. Rather than keep the fellowships around in perpetuity, he ordered that the principal be awarded completely within 5 years of his death. As a result, virtually every mid-20th-Century African-American artist you’ve ever heard of received a Rosenwald Fellowship: Ralph Ellison and Romare Beardon and Katherine Dunham and Gordon Parks and many others. The value of what Rosenwald did, giving artists enough money so they could work without fear or distraction, is literally incalculable.
But also as a result, virtually no one remembers Julius Rosenwald, or at least not his fellowship program. So that presents the question: are we in the business of fostering greatness, or memorializing it? Is remembering a donor as important as creating work through a donor’s generosity? Again, to the Nonprofiteer the answer is self-evident. She’d rather be grateful for Ralph Ellison than to Julius Rosenwald.
Look, here’s the deal: people will make money in every generation, and in every generation some people will make a lot of money. If we tax them properly they’ll look for the opportunity to shelter their money in philanthropy. Why shouldn’t we tax them so that they’re motivated to spend it philanthropically, too? Like the proverbial Fifth Avenue bus, another chunk of money will be along any minute.
Sure, there’s a risk of spending too rapidly and with insufficient research (or “due diligence,” as people are fond of saying when they want to pretend that the nonprofit sector is really just like a business). But the greater risk is the situation in which we find ourselves now, where philanthropies give out amounts insufficient to make any significant change. No, philanthropy isn’t supposed to be society’s primary source of support, but while people are busy starving government so they can drown it in the bathtub, private wealth can and should step into the breach.
Consider the contributions of the Gates Foundations to the Global Fund to Fight AIDS, TB and Malaria. Can anyone really argue it would be better to hold back on eradicating those diseases, in case there’s some bigger plague later on? If there is, as AIDS itself demonstrates, we’ll mobilize and raise money for it. Meanwhile, in case of every ailment, time is our enemy: the later we provide resources, the harder it will be for those resources to have impact. Thus wasting money is a less significant risk than failing to spend enough to make a difference.
Two things need to happen: philanthropists themselves need to organize their giving so that it ends within a reasonable time after their death, and Congress needs to modify the tax code to require philanthropies to pay out more each year to retain their tax-favored status. A 10% annual payout–double the current rate–may end up causing philanthropies to dip into principal, maybe even until they’re empty. But remember the words of Citizen Kane as he contemplated the financial difficulties of his newspaper empire: ” I did lose a million dollars last year. I expect to lose a million dollars this year. I expect to lose a million dollars *next* year. You know, Mr. Thatcher, at the rate of a million dollars a year, I’ll have to close this place in… 60 years. ” Let’s take a Kane-like risk of running out of money.
One more story: Some time in the ’90s Joan Kroc stood up at a Ronald McDonald House benefit to announce her annual gift. Rumor had it she was actually going to make a five-year pledge, and the Nonprofiteer’s table indulged in the parlor game of trying to figure out just how much that would be. We figured the previous year’s gift ($5M) plus a little bump (so $6M) for each of 5 years, and settled on $30 million. And then she rose to speak, a little woman holding a torn-off piece of yellow legal paper in her hand. And she said, “I was going to make a 5-year gift, but then I thought: ‘The need is now.’ So tonight I’m giving $50 million to Ronald McDonald Children’s Charities.” Everyone at the table fell back in her seat, literally knocked over by her generosity, and also by her insight: The need is now.
Aside from Ronald McDonald, Mrs. Kroc mostly supported causes her late husband disapproved of. If only he’d given more in the present, he wouldn’t have had to contemplate a future in which his money went to places he despised. So the donor’s intention and the sector’s need are in sync:
Spend it now.
Thanks to Thomas Cott of You’ve Cott Mail for pointing the Nonprofiteer to this article in Crain’s New York Business about the value of collaboration among small arts organizations as typified by the Lower Manhattan Arts League.
The league — which includes small groups like Access Theater and larger organizations such as Dance New Amsterdam and the Children’s Museum of the Arts — has monthly meetings where constituents help each other with everything from fundraising to legal advice. The groups have created a downtown cultural festival, which they produce in the fall and spring. The members even apply for some grants as one entity and lobby the city government as a pack. Individually, some members with budgets as small as $100,000 are barely on funders’ radar, but as a group the members generate around $14 million in economic activity per year and employ roughly 1,200 people full- and part-time. After years when none of the groups were able to score a grant from American Express, for example, the consortium applied together in 2009 and was awarded $100,000. They divvied up the money according to the size of each budget.
While the cheery tone of the article elides some of the serious difficulties arts organizations face in aligning their missions and needs with one another, the point is nonetheless well-taken: organizations too small to get attention on their own may be big enough when combined with others to secure foundation funding and government cooperation.
Such collaborations also serve as living ripostes to the chronic funder complaint that the supply of arts organizations exceeds the demand for them: if these disparate groups can work together without cannibalizing their audiences or funding, they must not be duplicating each other’s work. Or, as it is written: the whole [collaborative network] is greater than the sum of its parts.
Ellen Alberding’s interview with the Chicago Tribune in advance of the Independent Sector‘s meeting in Chicago earlier this week pressed nearly every one of the Nonprofiteer’s buttons. Ms. Alberding, head of the Joyce Foundation, described the Foundation’s approach to what even she characterizes as a perfect storm of increased need and reduced resources in the nonprofit sector:
We do what any good business person would do when faced with reduced resources. We have become very focused on first maintaining support of our core grantees. Foundations are required to spend a minimum amount — 5 percent of our assets. On occasion, we will overspend that in order to keep our grantees whole.
In other words, business as usual. Most likely the Joyce Foundation’s governing documents prevent its Board from spending its assets down to zero, but there’s no reason why the Foundation shouldn’t use more than the statutory minimum 5% of its $800 million in assets to sustain the work it exists to support. Foundations are NOT businesses; they exist to give their money away, and only in some vague theoretical sense is an institution with $800 million facing constraints preventing it from giving away more than $40 million.
If Joyce gave only 6% instead, that would be another $8 million available to nonprofits in its areas of concern—a not-insubstantial 20% increase. What is stopping the Foundation from doing this, other than a misguided sense that preserving its capital is more important than doing its job?
And then the cherry on the sundae:
It’s the position of the Independent Sector that a cap [on charitable deductions] will reduce charitable contributions across the board and diminish support for nonprofit organizations. I believe it’s the administration’s view that the 28 percent cap might have some impact, but it wouldn’t have a dire impact. (But) I think we have to listen to the organizations themselves, who feel otherwise.
In other words, notwithstanding reality, the prejudices of self-interested parties will dictate the organization’s behavior. Their minds are made up—don’t confuse them with the facts. But as President of the organization, doesn’t it behoove Ms. Alberding to make sure her members don’t make their decisions based on fantasy?
In fundraising there’s an old saw that if you want someone’s money, you ask for his advice. Leave it to the ever-innovative Rahm Emanuel to turn this observation into an ultimatum, telling people equipped with useful advice that it won’t be heard unless it comes wrapped in money.
That, in effect, is the meaning of Mayor-elect Emanuel’s request to a group of Chicago foundations that they pay the costs of his transition, costs traditionally covered by leftover campaign funds, of which Emanuel has plenty. In a city whose political culture has long consisted of being punished for disagreeing with or disobeying the mayor, the foundations faced an unattractive choice: call the mayor-elect on his inappropriate pick-pocketing and look forward to 40 years in the desert, or pay the man the $2 (or $2 million, as the case may be) in order to be heard.
The Nonprofiteer doesn’t blame the foundations for ponying up, though she wishes they hadn’t: their job is to influence public policy and make change, and the mayor’s office is an important route (sometimes the only route) to doing so. But the Emanuel administration-in-waiting should never have asked for this sort of tribute. Whether intended or not, the request makes it appear that access to city government is restricted to those who tithe. There’s nothing new about that—the title “City That Works” has always ended in a silent “For Pay”—but Chicagoans might be excused for having hoped for something new post-Daley.
Many in the nonprofit sector are dismayed at having to compete with city government for the foundations’ largesse, and that’s a legitimate concern, though a belated one: the Daley administration never hesitated to ask private and foundation donors to subsidize city expenses with money that would otherwise have gone to independent community groups. (Can you say “Millennium Park”? “Olympic bid”?) But the Nonprofiteer is more concerned about a new mayor’s implying, and establishing a precedent for the idea, that even being heard on the 5th floor requires big bucks.
Some wag once said that New York was about culture and Washington about power, but Chicago was all about money. Plus ca change . . .