From Technology to Tobacco, Myriad Sources Spawn Big New Foundations

Big sums of new money are expected to flow into foundation coffers in 1999 and beyond — and much of it could come from non-traditional sources.

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New funds are being created through a variety of business and legal deals, and several established foundations are expected to grow bigger with large infusions of cash from their donors.

One of the biggest sources of new charitable dollars has been people who have made their fortunes in the high-technology industry.

At the forefront: Microsoft founder Bill Gates and his wife, Melinda. The couple’s foundations are now worth a combined $6.6-billion after two huge gifts from the Gateses within the past month. The new gifts came through the transfer of 26 million shares of Microsoft stock to the funds.

Although officials could not yet provide budget estimates, the foundations are expected to make hundreds of millions of dollars of new grants in the coming years.

The $1.4-billion Gates Learning Foundation (formerly known as the Gates Library Foundation), in Redmond, Wash., will continue to support public libraries and is expanding its grant making to public schools and teacher training. The $5.2-billion William H. Gates Foundation, in Seattle — which now ranks as the sixth-largest private foundation in the country — will maintain its grant-making priorities: education, world health, and charitable causes in the Pacific Northwest.

One of the country’s newest software billionaires, Kenan Sahin, said he will set up a foundation within the next two years. Last month, he sold his software company, Kenan Systems, in Cambridge, Mass., to Lucent Technologies for $1.5-billion, the bulk of which he intends to give to the foundation. No plans have yet been made for the fund, although Mr. Sahin has said he would like to give software away for educational purposes.

Several foundations are expanding because of bequests from their creators. But some funds continue to be in legal limbo waiting for estate matters to be resolved.

The foundation created by the late Jack Kent Cooke, owner of the Washington Redskins professional football team, could be worth as much as $1-billion, pending the sale of Mr. Cooke’s assets. Mr. Cooke, who died in 1997, left the bulk of his estate to the philanthropy. The sale of the Redskins — which has been delayed by wranglings among football-team owners — could generate as much as $500-million for the foundation.

Another new foundation waiting for a big transfer from its benefactor’s estate is the $30-million Howard Gilman Foundation, in New York. Mr. Gilman, who made his fortune in the paper industry, died last year, leaving his estimated $800-million estate to the philanthropy. Mr. Gilman created the foundation in 1981 to support the arts, the environment, and medical research in the fields of AIDS, cardiology, and sports medicine. The foundation is expected to get its money after the Gilman Paper Company and other assets are sold.

Aside from such traditional bequests, big foundations are also being created in new ways.

A new billion-dollar grant-making organization is to be established in coming years with money from the settlement of the lawsuits that states have filed against some of the nation’s largest tobacco companies. The settlement requires the companies to pay money to a new grant-making charity, which will be set up either as a foundation, trust, or other kind of non-profit group. The fund will support research on the diseases associated with tobacco use, as well as educational programs to prevent young people from smoking. The fund is scheduled to receive at least $1.7-billion, with the first installment — $250-million — due next month.

A 1996 federal law governing the transfer of assets from non-profit student-loan organizations to for-profit businesses also has opened the door for money to flow to charity. The law requires that certain assets from the loan business, if transferred, be used for education-related charitable grants.

Nellie Mae, one of the country’s biggest providers of education loans, made the transfer last year, and now the new Nellie Mae Foundation, in Braintree, Mass., has $555-million in assets.

Three other non-profit student-loan groups have recently converted to for-profit status, creating charitable foundations in the process. The funds, in Nebraska, Ohio, and South Dakota, hold combined assets estimated at $288-million. At least 19 other loan organizations around the country are eligible for such conversions.

The past decade has also seen myriad conversions of non-profit health-care organizations to for-profit entities — some resulting in big charitable foundations, such as the $2.5-billion California Endowment, in Woodland Hills. In the last two years alone, an estimated 80 conversions were completed or are being negotiated.

Still, money for charity is not a sure bet with each transaction.

“We’re trying to safeguard these non-profit charitable assets,” says Julio Mateo, Jr., at Consumers Union, in San Francisco, a watchdog group that monitors the student-loan and health non-profit conversions. “But regrettably, you have to fight each fight all over again.”