Calif. Bill Would Require Greater Disclosure of Donor-Advised-Fund Activity

A bill designed to shed light on giving to charity through donor-advised funds has cleared an initial hurdle in the California General Assembly.

The legislation would only affect donor-advised-fund operations in California, but it could create momentum for national efforts to boost disclosure.

The California legislation, approved Tuesday by the Assembly Committee on Judiciary, would require donor-advised-fund sponsors to report disbursements on a fund-by-fund basis. Currently donor-advised-fund sponsors report how much their funds direct to charity in the aggregate, but they are not required to disclose activity at individual funds, prompting concern that money sits in many funds for years.

In 2018 the top 10 donor-advised-fund sponsoring organizations attracted $21.5 billion in contributions, up 24.7 percent over the previous year.

As donor-advised-fund accounts have grown, some critics say the accounts warehouse assets that should be directed immediately to education, the homeless, the arts, or other social causes.

Defenders of donor-advised funds say that most sponsoring organizations distribute far more than 5 percent of total assets each year, which is the minimum requirement of private foundations. They fear increased reporting requirements would jeopardize donor privacy.

Sharp Divide

Nonprofits and foundations in the state are split on the issue. More than 100 groups, including the California Association of Food Banks, the Golden Gate National Parks Conservancy, and the Silicon Valley Council of Nonprofits, support the bill. In a statement, the group wrote that the lack of information on individual donor-advised-fund account activity makes it impossible to determine whether donors, who get a tax break for depositing money in those accounts, are following up and directing money in their accounts to charitable purposes.

The bill “will help policy makers and members of the public analyze the charitable benefits that DAFs produce and understand how the state might regulate them to deter inappropriate use.”

The nearly three dozen opponents of the measure that signed a letter to the judiciary committee include community foundations in the state, such as the California Community Foundation, the Community Foundation for Monterey County, and the Silicon Valley Community Foundation; commercial donor-advised-fund sponsors started by investment firms such as Fidelity Charitable Gift Fund, Schwab Charitable, and Vanguard Charitable; and national philanthropy membership organizations such as the Philanthropy Roundtable and the United Philanthropy Forum.

In a letter to the panel, the group wrote that it had “deep concern” about possible unintended consequences if the bill passes.

“Many donors do not wish to have their giving made public as they may not want the attention it would draw,” the group wrote, adding that passage of the measure could crimp charitable giving.

Broad Exemptions

The bill would exempt donor-advised-fund sponsors with less than $300 million in assets from the disclosure requirements. Fund sponsors that direct more than 90 percent of their grants to a specific region or that distribute more than half of the aggregate value of total assets annually would also be exempt.

The bill would also require disclosure of the value of assets placed in mutual funds or other investment vehicles operated by a company that provides administrative support or services to the fund sponsor. That provision essentially gives preferential treatment to community foundations that manage donor-advised funds, as opposed to funds associated with commercial investment houses.

Alex Daniels covers foundations, donor-advised funds, fundraising research, and tax issues for the Chronicle. He recently wrote about philanthropy’s attempts to save democracy and about the termination of a partnership between Facebook and several foundations to study the effects of social media on democracy. Email Alex or follow him on Twitter.