Private Funds Spend 7 Percent on Administrative Costs, Study Finds

The country’s biggest private foundations collectively spent 7 percent of their charitable distributions on

operating and administrative costs in 2001, according to one of the first comprehensive looks at foundation expenses.

But the percentage spent by individual foundations varied widely, from less than 5 percent to more than 50 percent. More than one-fourth of the grant makers reported no charitable administrative expenses.

The study of the 10,000 biggest private, community, and corporate foundations — designed partly to provide data to Congress as it considers changes in charity and foundation regulations — examined expenses that count toward the federal requirement that foundations distribute at least 5 percent of their assets to charitable causes each year.

Foundations are allowed to count administrative expenses related to their charitable missions, such as some staff compensation, office space, travel, publications, and legal and accounting fees, but the practice is controversial.

Some nonprofit groups have been pushing Congress to make it illegal for foundations to count any administrative expenses when figuring out if they have met the federal minimum standard for distributing their assets to charitable causes.

Two years ago, two members of Congress introduced legislation that would do just that. However, the legislation never got anywhere, in part because foundations protested that such a change would force them to cut staff members and ultimately harm the quality and quantity of their grants.

Still, aides to the Senate Finance Committee, which is expected to propose new charity and foundation rules soon, say they are now considering limits on foundation spending.

One-Third Pay Officials

The study was conducted by the Urban Institute, the Foundation Center, and GuideStar.

It found that the median salary of chief executives at the foundations was $100,209. But the range was enormous, from $88 paid to an executive director with a 20-hour work week to almost $2-million paid to an executive who received a $1.5-million bonus from the sale of foundation assets.

Almost 24 percent of private foundations paid their board members, compared with 7.6 percent of corporate foundations and 3.2 percent of community foundations. Median compensation was $7,750, with a high of $211,538.

Only about one-third of the entire group of foundations reported any compensation to either employees or trustees as part of their charitable distributions.

The study analyzed data from informational tax returns for 2001, the most recent year for which a complete set of data was available. The organizations, none of which were named in the report, accounted for 78 percent of all foundation giving, or $24-billion, that year.

The interim report, “Foundation Expenses and Compensation,” includes the most detail about the 8,876 private foundations in the study. The final report, which will be released later this year, will include more information about corporate and community foundations.

One of the study’s authors, Elizabeth T. Boris, director of the Urban Institute’s Center on Nonprofits and Philanthropy, said the data show that the amount of money foundations spend on administrative costs is influenced by their size and whether they operate internationally, have paid staff, or operate charitable activities themselves.

Policy makers need to take that into account as they consider proposals to regulate such spending, she said. “My overall take is that foundations and the work they do is more complex than it appears on the surface,” she said.

Among the study’s other findings:

• The median amount spent by private foundations on charitable administrative costs was $16,935.
• About one-fourth of private foundations had paid staff members. Staffed foundations that awarded more than $50-million in grants in 2001 spent a median of 5.9 percent of their charitable spending on administrative expenses, while those awarding less than $500,000 in grants in 2001 spent 8.3 percent on such costs.
• Staffed private foundations that operated charitable activities, such as services, research, fellowships, awards, and conferences, spent the highest percentages of their distributions on administrative costs, with a median of 8.4 percent for those awarding more than $50-million in grants and more than 30 percent for those that gave less than $1-million.
• Private foundations that gave internationally spent a greater percentage of their payouts on administrative expenses than those that gave only locally or nationally — a median of more than 15 percent, compared with less than 10 percent.

The study’s authors say they uncovered shortcomings in the way data about expenses and compensation are supplied to the Internal Revenue Service and will recommend changes to informational tax forms. For example, Ms. Boris said it was especially difficult to tell when trustees were doing double duty as staff members.

The report is available free at http://www.urban.org/url.cfm?ID=411195.