Slow Growth at the Biggest Foundations

Assets of wealthy foundations rose by 2.8%, Chronicle’s study finds

The assets of the nation’s wealthiest private grant makers increased modestly last year, leading many foundations to increase their giving in 2006 or keep it about the same as last year, according

to a new Chronicle survey.

Gains in the U.S. stock market were the major reason for the growth in assets, but the returns for many large foundations last year were not as strong as in 2004 and did not keep pace with inflation. For the 120 foundations that reported data for the 2004 and 2005 fiscal years, assets grew a median 2.8 percent, meaning half increased by more than that, and half either saw smaller gains or suffered a drop in assets.

Even so, many foundations hope to step up their giving. Twenty-six of the 56 foundations that estimated how much they plan to donate this year said they expect to increase how much they give, while 26 said they would spend about the same as in 2005. Four said their contributions would decrease.

The Dyson Foundation, a Millbrook, N.Y., organization that primarily supports efforts to help needy people in the Hudson Valley, expects to increase its contributions this year in anticipation of its 50th anniversary in 2007, a move the foundation said it could not have made if its assets had not increased by more than $23-million, from $287-million to more than $310-million during the last two years.

“We are looking at a number of $5-million and $10-million grants, and I’m not sure that would have been possible or the board would have felt comfortable making those kinds of commitments if we had not done as well as we had in the last couple of years,” said Diana Gurieva, Dyson’s executive vice president. Ms. Gurieva said the foundation had not announced the causes the anniversary grants would support.

In San Francisco, the Richard & Rhoda Goldman Fund last year pledged $4-million over three years to build new facilities for Jewish organizations in the San Francisco area, a move the foundation said was unlikely in the years when the stock market was sluggish and its assets were not growing. “We took a hiatus on making future commitments when the economy was down,” said Amy Lyons, executive director of the foundation.

‘Many Foundations Fall Short’

But while some foundations may be increasing their grant making, a few nonprofit leaders argue that the foundation world should be spending a greater portion of its assets on contributions.

The Chronicle found that the 120 foundations that reported such data spent a median of 4.5 percent of their assets on grant making last year. (Foundations are required by law to give away 5 percent of their assets a year, but are allowed to include administrative expenses and other costs in that calculation, and to average their spending over three years.)

Jeff Krehely, deputy director of the National Committee for Responsive Philanthropy, an advocacy group in Washington, said the data “show that many foundations fall short of giving enough direct resources back to society, considering the sizable tax breaks that the foundation sector receives.”

At least one foundation official echoed Mr. Krehely’s remarks. “We just encourage everybody to think about giving their funds away today when there are so many needs that need to be addressed,” said Ms. Lyons, of the Goldman Fund, which distributed 8.6 percent of its assets in grants last year.

However, the Goldman Fund plans to spend all its money in the decade or so after Mr. Goldman dies and is not concerned, as many foundations are, with maintaining its endowment in perpetuity. (Mrs. Goldman died in 1996.)

More grant makers are starting to think about the issue of whether to distribute all their assets, said Virginia Esposito, president of the National Center for Family Philanthropy, in Washington. Some even fold discussions about perpetuity into the founding statements of their organizations, she said. Grant makers who opt to continue their endowment in perpetuity, she said, “want to contribute to [solving] tomorrow’s problems as well as today’s.”

For family foundations, she said, continuing beyond a founder’s death helps tie generations together: “Some want to create a vehicle for their family to build a charitable tradition.”

In addition, she said, spending all its assets on today’s charitable causes may cut off a foundation’s efforts to reach its fullest philanthropic potential. Because investments can grow significantly over time, Ms. Esposito noted, “a foundation that starts out with $25-million can wind up giving away far more than that.” And deciding to reserve assets for the future “has no bearing on that 5-percent requirement,” she says. “Many people that extend their endowment in perpetuity can be very generous.”

The Top 10

The foundations in The Chronicle’s survey represent a substantial portion of the foundation world’s wealth. In 2003, the most recent year for which data are available, the nation’s 66,000 private charitable funds controlled an estimated $476-billion. The 122 funds The Chronicle surveyed represent about one-third of that wealth, with assets equal to $166.5-billion at the end of their last fiscal year.

Among the other key findings of The Chronicle‘s survey:

• The foundation that spent the largest percentage of its assets on grants was the Whitaker Foundation, in Arlington, Va. Whitaker plans to close its doors June 30 and is giving away all its assets, which equaled nearly $38.9-million at the end of last year. Since its inception 30 years ago, the foundation has contributed $820-million, primarily to university biomedical-engineering programs. According to Frank Blanchard, Whitaker’s spokesman, the organization is continuing to allocate grants to universities to build engineering facilities. But, come this summer, all remaining funds will be transferred to the Greater Harrisburg Foundation, in Pennsylvania. (The foundation’s founder, Uncas A. Whitaker, hailed from Harrisburg and suggested to his heirs that he did not want the foundation to operate forever.)

• The Bill & Melinda Gates Foundation, in Seattle, was the wealthiest foundation in America for the seventh straight year. The foundation has $29.1-billion in assets and is expected to continue to grow as its founders fulfill a $3.35-billion pledge they made in 2004. Last year the Gateses gave the fund $320-million. The Gates organization also made the largest single contribution last year, giving $150-million to the Vaccine Fund, in Washington. The foundation made a five-year, $750-million commitment in 2005 to the vaccine effort, which provides immunization services for hepatitis B, yellow fever, and other diseases that plague people in impoverished countries.

• Grant makers spent a median of $2.5-million on administrative costs last year, according to data provided by 91 grant makers. The median amount spent on compensation was $436,038.

Relief and Recovery

In response to the large number of major disasters last year, including the earthquake in Pakistan and Hurricanes Katrina and Rita, foundations provided tens of millions of dollars in emergency contributions for relief and recovery.

Since the Gulf Coast disaster, American foundations have taken numerous steps to help the survivors of Katrina and Rita. Besides supporting the American Red Cross and other relief groups, philanthropies have pledged to pay for administrative costs at the Louisiana Disaster Recovery Foundation, supported charities that assist evacuees who were displaced across the nation, and even helped artists from the devastated region find new places to live and work.

Among survey respondents, the Ford Foundation, in New York, provided one of the largest amounts for hurricane-related causes — $12-million. The foundation expects to provide more money but is not yet sure how much, said Barry D. Gaberman, a senior vice president for Ford. “I do anticipate we’ll commit some additional funds,” he said.

In January, Ford’s president, Susan V. Berresford, and 19 other philanthropy leaders met with President Bush at the White House to discuss Katrina and Rita. During the meeting, the president thanked the grant makers for their efforts and said the federal government will need the aid of nonprofit groups to succeed in bringing back New Orleans and other ravaged cities. “We’ve committed $85-billion thus far,” he said. “But we also made it very clear that we’re going to need the help of — the continued help, I might add — of America’s charities and foundations.”

The president’s praise aside, some nonprofit leaders along the Gulf Coast have criticized grant makers for being too slow in allocating much-needed money to the affected areas. “We need more national foundations involved in New Orleans,” said Rosalind Peychaud, executive director of the Neighborhood Development Foundation, which lost its office there.

At least one large fund, the John S. and James L. Knight Foundation, in Miami, moved quickly to aid the region by helping the Mississippi governor’s office with the rebuilding process.

Among other causes, the foundation supports 26 cities and towns where the Knight brothers established local newspapers, including the Biloxi Sun Herald, in Mississippi.

Within six days of the hurricane’s landfall, Alberto Ibargüen, the foundation’s president, met with the editor of the Mississippi newspaper and toured the disaster zone, seeing miles of wiped-out houses and buildings.

“I come from newspapers, and in newspapers, stuff happens, you go see it, you write it up, and you don’t take secondhand information,” he said. “So within a week of the storm we were there.”

The foundation quickly gave $1-million for relief work, but also $1.25-million to help Mississippi underwrite the work of the Mississippi Renewal Forum, a government agency charged with planning the recovery of the state. Knight also tapped an architect who worked in Miami after Hurricane Andrew to solicit advice from Mississippians of all walks of life to make the rebuilding inclusive, and also relocated a foundation staff member from Florida to Biloxi.

Being located in hurricane-prone Miami, Mr. Ibargüen said, the foundation felt a special kinship with Biloxi. “It made us more understanding about the kinds of things you go through when everything you have is blown away,” he said.

He said the foundation was forced to tap into reserves for its hurricane-related grants because the money it allocated for emergency spending in 2005 had already been used to help journalists affected by the South Asia tsunamis. He said that the Katrina giving would not draw money away from other charitable contributions.

New Grant Programs

While many other foundations said disaster donations would not hurt their usual grant making, the Conrad N. Hilton Foundation, in Reno, Nev., was forced to shelve new projects to make money available for the hurricanes and the Pakistan earthquake.

“We were exploring some new major initiatives and basically what we did is we postponed putting those new dollars into new initiatives and funded shorter-term disaster relief,” said Patrick Modugno, Hilton’s vice president and chief financial officer. “Our board felt as though they wanted to do more.”

Mr. Modugno did not say which new charitable programs Hilton was considering.

Hilton spent $8.2-million on disaster relief in its fiscal year completed February 28, including $6-million on long-term efforts to help the Gulf Coast recover from last year’s hurricanes.

Foundations also said that last year’s disasters have made them re-examine their own business continuity plans and meet with local nonprofit and government officials to discuss emergency preparedness.

In San Francisco, for example, the Goldman Fund, the William and Flora Hewlett Foundation, and other grant makers have met to discuss how well the Bay Area is prepared for a major earthquake or terrorist attack.

The effort will make sure the foundations are “preparing, rather than scrambling at the last minute,” said Paul Brest, president of the Hewlett Foundation.

Foundations have also held discussions about avian flu.

The Council on Foundations, a Washington-based association of grant makers, organized a meeting in January of health experts and nonprofit leaders to discuss preparations for the flu, which is expected to reach North American shores as early as August.

While most grant makers said they are hesitant to make contributions related to bird flu, saying the prevention of a pandemic is primarily the responsibility of governments, some philanthropies said they may play a small role.

For example, the Gates Foundation may support advocacy efforts to make sure poor countries in Africa and elsewhere are part of the global discussion on fighting the disease, said Monica Harrington, a spokeswoman for the foundation.

Nonprofit officials also predicted that other African issues will be on foundations’ radar screen this year.

Since leaders of the world’s wealthiest countries pledged, during last year’s Group of Eight summit in Scotland, to do more to help the African continent, a growing number of philanthropies have become interested in helping Africa fight poverty and disease, said Mr. Brest of the Hewlett Foundation.

In 2005, Hewlett joined with five other large funds to provide $200-million to African higher-education institutions.

“My guess is generally that there has been broader national attention to development and to Africa in particular. Foundations are not immune to the zeitgeist,” Mr. Brest said, referring to advocacy efforts by the rock star Bono and other celebrities.

Niamani Mutima, executive director of the Africa Grantmakers’ Affinity Group, in New York, said that more philanthropies are interested in the continent, but she has yet to see that interest translate into dollars. “We are seeing smaller family foundations entering the field,” she said. But “there’s not been a significant increase in funding.”

Government Scrutiny

While economic development in Africa may be a growing focus for philanthropy leaders, many foundation executives have been attentive to a more practical concern: scrutiny from federal and state regulators.

Last month, Barry Munitz resigned as executive director of the J. Paul Getty Trust, in Los Angeles, after being criticized for his $1.2-million salary and the perks the foundation provided him, such as a $72,000 Porsche.

Getty has been the target of a six-month investigation by the California attorney general.

High-profile cases like the situation at Getty have led some foundations to trim salaries, travel costs, and other administrative expenditures. But many foundations defend their spending on administration.

The El Pomar Foundation, in Colorado Springs, which spent $7.4-million on compensation and other overhead costs last year — 58.9 percent of the amount it spent on grants — says its expenses are higher than those of many other grant makers because it manages several of its own charitable programs, including two museums, said Robert Hilbert, the fund’s senior vice president for administration. “Quite a lot of our philanthropy is direct operating programs,” he said.

Last year, El Pomar awarded $12.6-million — about 2.5 percent of its assets — to social-service groups, arts and cultural institutions, and other charitable causes in Colorado.

In part because of the government scrutiny, many foundations have invited feedback from outside observers and established new evaluation procedures to chronicle their accomplishments.

The David and Lucile Packard Foundation, in Los Altos, Calif., for instance, has hired a company to serve as an “ombudsman” between the fund and the charities it supports.

As of January, Packard beneficiaries can send e-mail messages to EthicsPoint, a Portland, Ore., company that helps organizations with governance practices, to comment about the foundation; the company will pass the messages along to Packard officials, making sure they are anonymous and confidential.

The James Irvine Foundation, in San Francisco, is inviting grantees and others to comment on the approach the foundation plans to take to measure its results.

But the renewed focus on measurement and evaluation concerns some grant makers.

Robert K. Ross, president of the California Endowment, in Los Angeles, said that while increased accountability and transparency will improve foundations, too much emphasis on them will distract philanthropies from their charitable missions.

“The unintended consequences of that attention is that foundations will become less risky and less bold at a time when the assumption of more risk is badly, badly needed,” he said.

The endowment, for its part, is supporting more efforts to bolster advocacy work among nonprofit groups. For example, the foundation built a 40,000-square-foot Center for Healthy Communities as a venue for nonprofit leaders, civic activists, and government officials to meet and discuss health issues. The center will open next month as part of a larger facility that will house the foundation’s staff.

Mr. Ross said he hopes the scrutiny by Congress and others will not prevent foundations from seeking out creative solutions for the country’s most intractable problems — lack of access to health care, substandard housing, and a failing school system.

“In my view, philanthropy has got to rise to the challenge of lifting up these ideas that are badly needed to address some of the pressing challenges that this country is facing,” he said. “It’s a perfect time to stick your head in the ground and lay low, but from the standpoint of the communities we care about, it’s the worst time.”

Candie Jones, Heather Joslyn, and Leah Kerkman contributed to this article.