May 26, 2005 | Read Time: 3 minutes
As lawmakers have been debating how to encourage greater foundation accountability, one simple, low-cost idea that could make a big difference has not gotten much attention. Congress should require donors to contribute at least $1-million if they want to create a foundation.
Foundation with assets of less than $1-million accounted for 70 percent, or 50,336, of the 71,541 informational tax returns filed by private foundations and just 5 percent of all foundation assets.
While many of those institutions are undoubtedly well run, others are not, and it is impossible for federal and state governments to monitor them effectively. Philanthropies with $1-million or less in assets seldom have staff members, typically do not produce annual reports or grant-making guidelines, and usually offer no means by which grant seekers can contact them. What’s more, most of those foundations do not join national or local professional associations, so they do not often get exposed to training sessions and educational materials that would help them understand changes in laws governing nonprofit organizations and learn how well-respected, effective grant makers operate.
Under such circumstances, it is difficult to imagine how the smallest private foundations can achieve the level of accountability that the public, news media, and government expect.
Plenty of options are available to donors who have $1-million or less to give away, so eliminating small foundations would in no way prevent anyone from donating generously to charity.
In the past, some experts have suggested setting a far higher threshold for the minimum amount needed to create a foundation. For example, New York Attorney General Eliot Spitzer in 2003 urged Congress to get rid of all foundations with $20-million or less in assets out of concern that too many small foundations were abusing tax laws. However, it makes little sense to get rid of so many foundations when the most-significant problems occur with foundations that are worth $1-million or less.
To be sure, for many donors, the social status they gain from creating a foundation is important. But foundations would have more prestige if their creators were a far more exclusive club — one reserved for people who have substantial assets to give away. And for people who want to start small and then expand their foundations, it would be a simple matter to distribute donations using another giving technique until the donor is ready to put $1-million or more into a foundation.
Private foundations are often created out of the donor’s desire to retain control over how his or her money is distributed. But donors can get such control over their assets in many other ways. They can write checks to any charity anytime they want and invest their own money in whatever way they think best. It doesn’t take a foundation to do that kind of giving, and, in fact, most financial and tax advisers do not think the expense of setting up a foundation and complying with government rules is worthwhile unless a donor has at least $1-million to contribute.
Millions of Americans successfully engage in philanthropy without taking on the responsibility of a private foundation. The smallest foundations will always find it difficult to meet the most basic accountability standards. And because they are so little, they rarely command attention until they have done something wrong.
The entire philanthropic field is tarnished when any foundation is discovered to be acting illegally or unethically. Philanthropy’s highest objective must be ensuring the integrity of the franchise. By eliminating the need for regulators to monitor the activities of a large number of the very smallest foundations, limited time and resources can be focused on the big private foundations that are better able to meet the growing demands for higher standards of ethics and accountability.
Emmett D. Carson is chief executive officer of the Minneapolis Foundation and chairman of the Council on Foundations. The views expressed in this article are his own and not necessarily those of either of the organizations he heads.
