As Government Funds Dwindle, Giant Foundations Gain Too Much Power

At its birth a century ago, “big philanthropy” provoked hostility across the political spectrum. To detractors, the new giant foundations were centers of plutocratic power that threatened democratic governance and civil society.

Today giant foundations are more powerful than ever. That is not only because of their greater number but also because of the context in which they operate: dwindling government resources for public goods and services, the drive to privatize what remains of those, an increased concentration of wealth in the top 1 percent, celebration of the rich for nothing more than their accumulation of money, virtually unlimited private financing of political campaigns, and the unenforced (perhaps unenforceable) separation of legal educational activities from illegal lobbying and political campaigning.

Some of the biggest foundations (Gates, Walton, and Broad, to name a few) have too much influence over public policy. They’ve developed a new style of philanthropy for exercising power: programmatically aggressive, publicity-seeking, and pushing against the remaining limits on political activity. They devote substantial resources to advocacy—selling their ideas to the media, to government at every level, and to the public. Many have preconceived notions about social problems and solutions, and they finance researchers likely to produce studies that support their ideas. They hire or create myriad nonprofits to run projects they’ve designed themselves.

This kind of big philanthropy undermines civil society. By taking over the roles of project originator and designer, by exercising top-down control, giant foundations increasingly stifle creativity and autonomy in other organizations. Some even mobilize vast resources to defeat grass-roots opposition to their projects.

Giant foundations also weaken democracy. They have the power to influence public policy as they see fit, and the public subsidizes their private decisions through the tax exemption and charitable deduction. Citizens end up forgoing tax revenue (which they should control in a democracy) in exchange for public policies that they didn’t approve.

Consider the case of public education in the United States. For a dozen years, large foundations have been financing a massive crusade to remake schooling for poor and minority children in the image of a private business. The foundations offer money (the amount fluctuates, but a fair estimate is about $1-billion annually) to grantees that will adopt the foundations’ favored policies.

Resource-starved states and school districts feel compelled to say yes to millions of dollars even when many strings are attached or they consider the policies unwise. To win political battles, the foundations rely increasingly on ginned-up political activity designed to appear unsolicited and rooted in a local community without being so.

The best way to demonstrate this is to describe how large foundations actually operate. Take, for example, their key role in creating and using controversial “parent-trigger laws” to replace traditional public schools with privately managed charter schools.

California enacted the first of these laws in January 2010: If a California school doesn’t produce test scores that meet federal and state standards and if the parents (or guardians) of at least half the students sign a petition, the signers can choose to replace the school principal, replace the entire staff, shut down the school, or replace it with a privately operated charter.

The law provoked vociferous opposition: The petition process is open to abuse and outside manipulation, and it is bound to divide communities. But most significantly, the law destroys the democratic nature of public education. The parents of this year’s students should have no right to close a public school or give it away to a private company any more than this year’s users of a public park can decide to pave it over or name a private company to run it with tax dollars.

Voters—directly or through their elected officials—must decide on and pay for public institutions in a democracy.

The foundations’ role began with Green Dot Public Schools, a charter-school organization with money from the Annenberg, Broad, Gates, Walton, Wasserman, and other foundations. Green Dot created a nonprofit called Parent Revolution to press for and then use the trigger law. The Broad Foundation was one of Parent Revolution’s first financial backers in 2009. Once the law passed, 17 other foundations jumped in.

Parent Revolution now operates nationally and has received more than $14.8-million—almost all of it from large foundations. Walton has given $6.3-million (43 percent of the total); Gates, $1.6-million; Arnold, $1.5-million; Wasserman, $1.5-million; Broad, $1.45-million; and Emerson Collective Education Fund, $1.2-million.

Once the law passed, Parent Revolution didn’t wait for actual parents to initiate the trigger process; it hired canvassers to find a serviceable school.

The choice was McKinley Elementary in Compton, a city of about 97,000 (97 percent African-American and Latino) in Los Angeles County.

Parent Revolution drafted the petition, which specified that a charter company called Celerity Education Group would take over McKinley school. Paid canvassers, along with 15 recruited parents, collected signatures and submitted the petition to district headquarters in December 2010.

Then the conflict erupted.

Some signers maintained they hadn’t realized they were choosing the charter-school option. Fifty or 60 parents rescinded their signatures.

Other parents and the district claimed the petition was invalid because Parent Revolution had imposed not only the charter option but a specific company. Each side accused the other of harassment, including threatening undocumented residents with deportation. After a court ruled that the petition was invalid, the parent-trigger drive at McKinley ended, leaving community members divided and bitter.

According to a report by the National Conference of State Legislatures, parent-trigger legislation has been brought up in at least 25 states as of March 2013 and enacted in seven.

Much credit for this rapid expansion goes to the American Legislative Exchange Council, or ALEC, the now-notorious organization of businesses, private foundations, and conservative state legislators that drafts model legislation.

Despite its obviously political agenda, ALEC is a tax-exempt nonprofit. Its foundation contributors have included Allegheny, Lynde and Harry Bradley, Castle Rock, Gates, Charles Koch, Claude R. Lambe, and (until 2005) John M. Olin

Large foundations also undermine democratic governance by trying to influence who holds public office and by paying the salaries of high-level government staff whose work the foundations favor.

The Broad Foundation stipulated in its contract for a $430,000 grant to New Jersey’s Board of Education that the money depended on Gov. Chris Christie’s staying in office.

David Sciarra, executive director of the Education Law Center, which forced the release of the contract by using the state’s Open Public Records Act, told the Star-Ledger he was disturbed that the foundation is “driving public educational policy that should be set by the Legislature.”

In the Los Angeles Unified School District, private foundations paid the salaries of more than a dozen senior staff members. According to the Los Angeles Times, these privately financed “public” employees worked on new systems to evaluate teachers and collect immense amounts of data on students. Much of the money came from the Wasserman Foundation ($4.4-million) and the Walton Family Foundation ($1.2-million); Ford and Hewlett made smaller grants.

The Broad Foundation covered the $160,000 salary of Matt Hill to run the district’s Public School Choice program, which turned so-called low-performing and new schools over to private operators. A Times editorial asked, sensibly, “At what point do financial gifts begin reshaping public decision-making to fit a private agenda? … Even the best-intentioned gifts have a way of shifting behavior. Educators and the public, not individual philanthropists, should set the agenda for schools.”

Big philanthropy is overdue for change.

The goal should be to reduce its leverage in civil society and public policy making while increasing government revenue. Some possible changes seem obvious:

• Don’t allow foundations’ administrative expenses to count toward the 5-percent minimum that grant makers must distribute every year.
• Increase the excise tax on foundations’ net investment income.
• Eliminate the tax exemption for foundations with assets over a certain size.
• Replace the charity tax deduction with a tax credit available to everyone.
• Require foundations to spend all of their endowments over a designated number of years.

In addition, strict Internal Revenue Service oversight of big philanthropy—especially all the “educating” that looks so much like lobbying and campaigning—is crucial.

Meanwhile, the public needs more critical, in-depth information. The mainstream media are, for the most part, failing miserably in their watchdog duties. They give big philanthropy excessive deference and little scrutiny. Public television and public radio live on big philanthropy’s largess. With so many major media organizations now producing programs underwritten by large foundations—especially on health and education issues—the tough questions don’t get asked.

Early-20th-century skeptics were rightly suspicious of plutocrats deciding how to improve the human condition and then paying to translate their notions into public policy. Now it’s time for a new progressive era—complete with muckrakers and trust-busters to cast a critical eye on big philanthropy.