Go to content Go to navigation Go to search

November 07, 2008

Philanthropy Roundtable
Nonprofit Leaders Debate Foundation Disclosure

Should Congress require foundations to disclose information about how much of their giving supports the poor and minorities?

During the Philanthropy Roundtable’s meeting, two nonprofit leaders clashed over this question.

Aaron Dorfman, executive director of the National Committee for Responsive Philanthropy, a foundation-watchdog group in Washington, argued that new regulations are needed to improve philanthropy.

Calling foundations “some of the most loosely regulated organizations” in the country, Mr. Dorfman said federal lawmakers should tighten rules to prevent foundations from financially benefiting their founders or their family members and improve oversight by the Internal Revenue Service.

In addition, he said charitable funds should be required to publicly say what their governance policies are and share demographic data about what populations their grants are benefiting.

According to a study his organization is conducting, only one-third of giving by large foundations benefits “marginalized communities,” which he said included impoverished people, racial minorities, disabled people, and women.

Too much charitable money goes to “patronage giving” that only serves the elite of society by supporting arts institutions and universities, he said.

“Philanthropy is an underperforming national treasure,” he said.

Federal and state lawmakers have expressed similar concerns as Mr. Dorfman.

In California, state legislators proposed last year a bill that would have required philanthropies to make public the ethnic and racial composition of their staff and board members, and of their grantees. After 10 big foundations in the state agreed to provide more funds to minority-led organizations, the legislation was withdrawn.

But members of Congress, most notably Rep. Xavier Becerra, a Democrat from California, have said they may introduce disclosure rules similar to California.

Mr. Dorfman described the California effort as a “noble, but flawed” idea that could be revised at the federal level. “If drafted properly, it would improve foundations’ effectiveness and their impact,” he said.

Mr. Dorfman said disclosure requirements would not threaten the freedom of grant makers to decide what causes their money goes to, but simply provide a window into what philanthropy is doing. He compared them to the Food and Drug Administration’s rule that food products must include labeling with nutritional information.

“Let me be clear: I don’t believe that politicians should decide where foundation dollars go any more than I believe the government should mandate how much protein should be in a frozen pizza,” he said.

But Heather R. Higgins, president of the Randolph Foundation, strongly disagreed with Mr. Dorfman, arguing that such federal rules would discourage wealthy people from setting up philanthropies in America.

“Under the law, the only rule is to be charitable,” she said about foundation giving. “We don’t say some charity is more equal than others.”

“Under the guise of punitive transparency laws,” she said, “if you bureaucratize philanthropy, if you raise legal fear in the people who are involved in it, if you compromise the joy and personal fulfillment that comes from spontaneity, innovation, opportunity, and the sense that you act efficiently and are actually making a difference, then you will have killed the goose that produces those golden eggs.”

Despite their debate, the two nonprofit executives did find common ground.

Both said all of the money generated by the excise tax — a federal tax on foundations’ net investments — should support federal oversight of philanthropies, and that foundations should exclude administrative expenses from their calculation of their mandatory payout. (The federal government requires foundations to give 5 percent of their assets to charity each year.)

To be sure, while the two agreed on the latter point, they took different approaches. Mr. Dorfman said legislators should make a new law to exclude overhead costs, while Ms. Higgins proposed abolishing the payout rule altogether; she said if given the freedom to decide their giving, many donors who establish foundations would choose to give a greater percentage of their assets to nonprofit causes.

— Ian Wilhelm

Friday November 7, 2008 | Permalink

Comments

1. I run a non-profit that serves primarily Hispanic youth and over 70% low-income. I’d like to think that my agency is a most favored status. If the law made it so, or even if the perception were such that people (foundations) believed it to be true. I believe I would actually get less money contirbuted.

   It is the donor’s money. Whether that donor is a person or a foundation, they have the right to make their gift to whomever they want. I happen to think that we are a great agency and run a spectacular program, but nobody can “make” somebody give to me.

   Congress and the IRS set up rules that says this group of agenies meet the criteria to receive tax deductable contributions. There are many agencies that serve middle and upper income individuals who could not survive without charitabale contirbutions. These agencies make our communities better places to live.

   There are already laws set in place to make self-serving foundations illegal. (i.e. I cannot set up a foundation to pay my daughter’s tuition to a private school.) We are the most generous nation in the world. Our system works. Making a foundation give money to minority or low-income agencies won’t get them more money, it will simply make the person quit giving at all.

   — GF    Nov 17, 05:05 PM    #

2. Needed paradigm? Identification of the lack of support for Disabled Veterans Incarcerated with untreated combat-related psychological injuries. As a former VA and Prison Chaplain I quickly learned, under The Hatch Act, I had to keep my mouth shut about the needed paradigm for this unique community. Any Chaplains or friends please help this War Widows systemic change (educational programs) to gain partnerships?
   www.veteranschamberofcommerce.org

   — Chaplain Mary Murphy    Nov 25, 08:24 PM    #

3. It is regrettable that two genuinely great and personable leaders in the philanthropy movement cannot find common ground. While I appreciate and understand both perspectives, it seems to me that both are arguing their points from a flawed logic – that is, each argues in favor of a position that cannot be achieved. One argues in favor of giving more to the poor while the other argues in favor of retaining more for the rich. It is a sad day in America when the common ground of giving is bashed about and ridiculed for either not doing enough or too much!

   I wonder whether we could find common ground in recognizing that value of the donors’ requests should be honored, even with some legislation that says we need to be and become more accountable and transparent. Neither seem to find this important enough to find common ground.

   While I do not doubt there is some level of corruption within the philanthropy community by being self-serving and wanting to support one’s own causes, the beneficiaries of each charity are the consumers of the donors’ generosity. Can we move on to a place where we can agree to value that which is given instead of arguing over how it should be used?

   — Jay Tatum    Dec 1, 05:11 PM    #

Commenting is closed for this article.

Previous: Education Efforts Need Philanthropic Money to Expand Nationwide
Next: Amid Challenges, Nonprofit Leaders See Big Opportunities

---

Copyright © 2009 The Chronicle of Philanthropy