How to Measure Foundation Giving

To the Editor:

You perform an important service in reporting annually on giving by private foundations. Unfortunately, some of the information on individual foundations in your article “Slow Growth at the Biggest Foundations” article and its companion “How Much Foundations Spent on Administration and Compensation” (March 23) was misleading and misrepresents how the foundations in question spend their money.

The problem is twofold: 1) the information in the articles is based on data submitted on foundations’ federal tax returns, which are seriously flawed documents for conducting research on what foundations do; and 2) the tables do not reflect the fact that private foundations don’t just give away money — indeed, the best of them conduct research intramurally, work as partners with grantees in designing projects, and conduct communications programs assuring that the results of grants don’t just sit on the proverbial dusty shelf. Thus it is a mistake to label any foundation expenditure that is not a grant as “administration,” which your article generally does.

A group of experts is working with the Internal Revenue Service to revise the private-foundation tax return so that it shows accurately the functional allocation of a foundation’s spending — between extramural grants, programs that foundations operate themselves, development and management of grants, the costs of managing the endowment, and true general- administrative expenses.

Until the IRS private-foundation tax return is appropriately revised, I would suggest that your annual article on foundations not be based on a survey basically pulling information off lines in the tax return, but instead on functional allocations of expenses provided by the foundations you survey.

In the case of the Commonwealth Fund, you report that the percentage of a grant dollar spent on administrative costs in 2004 was 59.6 percent. In fact, 80 percent of the Commonwealth Fund’s spending is in grants and intramural research and communications toward achieving a high-performance health care system; 12 percent goes to assuring a strong grants portfolio; 2 percent to managing the $660-million endowment; and 6 percent to general administration.

To achieve real impact, the very best foundations spend considerable money to leverage the effect of their grants programs, which, given the magnitude of the problems they address, can never be large enough in and of themselves to bring about the necessary social improvements.

John E. Craig Jr.
Executive Vice President and Chief Operating Officer
The Commonwealth Fund
New York