Foundations Don’t Need Eternal Life

To the Editor:

Pablo Eisenberg has it exactly right in his opinion piece on foundations (“Don’t Cry for Thee, Foundations,” May 29), and might have gone even further. The real question isn’t whether foundations have to shell out 5 percent or 6 percent, but why, with a tax subsidy from the American people, they are set up in perpetuity in the first place. Though there may be some social benefit in everlasting life, it is outweighed by the encrustation, self-aggrandizement, social conservatism, and removal from the real world that characterize many people or institutions with too much money.

In 2001, Giving USA reported that foundations distributed about $26-billion. Assuming the 5-percent figure as a constant (some gave away more), that leaves at least $520-billion locked away, unavailable for charitable use.

Putting aside the present crisis in support for human services, children, and people in poverty — the hardest hit in today’s dismal economic climate — the broader public-policy question is how best to serve the greater good. Our tax laws have created a vast wealth and tax shelter for family control beyond the grave. That money would do more good if it were spent on the charitable purposes for which foundations are legally established.

Except for community foundations, which I would allow in perpetuity, all others would be limited to a corporate life of no more than 50 years. I exempt community foundations from my one-generation rule because they have public boards, professional management, efficient overhead costs, and generally modest lodgings, they distribute the assets of multiple donors, and they offer the recognition many donors crave. Moreover, community foundations are required by law to pass the same public-support test required of other charities, but not of private foundations. I also believe community foundations are an appropriate last stop for the assets of foundations forced to go out of business by term limits, assuming they haven’t given themselves into poverty first, as many term-limited foundations have.

Serious foundation reform last erupted in the U.S. Congress in 1969, when populist Texas Congressman Wright Patman held extensive hearings, and excoriated the Ford Foundation and a few other big ones, mainly because they were making grants of which he disapproved, i.e., they were too “liberal.” Modest changes resulted, and business went on, more or less as usual. Indeed, since 1970, foundation giving has grown more than fivefold (adjusted for inflation).

In these times, charities are expected to hunker down, become more efficient, and to squeeze out all the fat. I have trouble believing a fractional increase in their payout rate will put any foundation out of business anytime soon. Rather, charities will benefit, and perhaps for the first time in nearly 25 years, the philanthropic community — grant makers and beneficiaries alike — will be moved to consider the social implications of eternal foundation life.

Henry Goldstein
President
Oram Group
New York

To the Editor:

Pablo Eisenberg’s piece deserves a warm round of common-sense applause.

Upon hearing the outcry by (mainly large) foundations to the proposed legislation to prohibit them from counting administrative costs in determining whether they meet the 5-percent distribution requirement, I was at first saddened, then annoyed.

As someone who has worked with many nonprofit organizations, large and small, I can say unequivocally that any additional funds that could be made available to them would be most welcome and appreciated.

We are talking about foundations that are sitting on millions, made when the going was good, who now claim that to give out more would prevent them from helping people they are in business to assist.

What is most upsetting is that, had the foundations reacted in a more benevolent way, they would have demonstrated to the general public that they understand that their existence is a privilege and, yes, “we” can give more money. Money that was made through a system created to transfer earned income from one group to another.

In a time when all businesses are being scrutinized, wouldn’t it also be a good strategic decision to take an action that shows you have nothing to hide? Come on, how big must the asset “mountain” be before taking a little off won’t cause an avalanche?

Alan Siege
Principal
Small Business Management Consulting
Brooklyn, N.Y.

To the Editor:

Mark Kramer implies that those who support Section 105 of HR 7 [the provision that would prohibit foundations from counting administrative expenses toward the 5-percent payout] want foundations to consist merely of “a computer, printer, and stack of blank checks” (“Members of Congress Don’t Understand What Good Grant Making Takes,” May 29). Hardly.

As one of the measure’s supporters, the National Committee for Responsive Philanthropy envisions a more effective foundation community that is more transparent and accountable to all.

By making foundations’ minimum required charitable spending consist of all grants, there would be no mystery concerning the real percentage of assets each foundation actually gives to nonprofit groups.

A 5-percent spending rate would mean that 5 percent of a foundation’s assets were spent on grants to nonprofits, and not that 3.2 percent went to nonprofits and 1.8 percent toward internal foundation operating costs.

“Distinguishing between administrative expenses that create social value and those that uselessly increase transaction costs requires a line that is much too subtle for Congress to draw,” asserts Mr. Kramer.

But that is not the line that Congress is drawing here. We agree with Mr. Kramer that wise spending on administrative costs is essential to good grant making. But that is one of the reasons we support HR 7, as the measure offers foundations an incentive to make wiser and more efficient decisions about their administrative costs by ensuring that those costs will come out of their own bottom lines rather than at the expense of charitable grants.

Mr. Kramer suggests that HR 7 would radically change the way that foundations give away their money, shifting them toward using nonprofit intermediaries to do their grant making.

If his fears were realized, lawmakers could rightly question whether foundations were violating their original charitable purpose and whether their behavior ought to disqualify them from continued preferential tax treatment. Given the current erosion of public trust in foundations and charities, foundations would draw even more undesired attention from lawmakers if they were to further violate that trust by dramatically weakening the way they do business.

Jeff Krehely
Research Director
National Committee for Responsive Philanthropy
Washington