The Donor Revolt for Charity Reform
Prominent philanthropists, national funders, and policy organizations are launching a campaign to call for common sense charity reforms.
CORRECTION: This piece originally surfaced doubt that the 15-20 percent of SVCF’s asset base that the foundation gives out annually is better than the 5 percent required of private foundations because a “high percentage of the dollars the Foundation gives out each year aren’t actually grants at all, but simply money transferred to another DAF sponsor.” This was incorrect: SVCF articulated to us that they do not include DAF-to-DAF transfers when calculating their payout ratio, “which only counts DAF grants to community organizations, exclusive of the transfers to other DAF-holding institutions, compared to the balance in all of SVCF’s funds.” SCVF also did provide public information about its transfers to other DAFs in an audited financial statement, linked here. We regret the error.
We’ve written about how journalists and philanthropy commentators need to become much more skeptical when reporting on (or simply regurgitating) press releases by major industry players. Inside Philanthropy’s Philip Rojc has flagged this “rose-colored glasses” phenomenon as well.
On that front we were impressed when, in the course of a generally very sympathetic and favorable recent interview with Silicon Valley Community Foundation CEO Nicole Taylor, Bay Area News Group’s Martha Ross asked Taylor to respond specifically to donor-advised fund (DAF) critics’ concerns about hoarding charitable dollars and the lack of transparency.
“Critics say that the organization’s structure and those donor-advised funds (DAFs) contribute to inequities,” Ross said. “What do you say to that?”
When Taylor replied with the usual DAF industry defense that, hey, the 15-20 percent of their asset base the foundation gives out annually is better than the 5 percent required of private foundations, Ross responded with this:
“I’m going to ask a very naive question here. Why not give out 100 percent — or 80 percent, given the costs of managing the funds? Why is a 20 percent payout considered a lot?”
The question might seem naïve to those jaded by the prevailing norms in big philanthropy, but it’s an extraordinarily common-sense response for anyone else. Most folks assume that if you get a big tax deduction for giving money to charity, holding 80 percent in reserve is, well, hard to fathom.
An IPSOS poll commissioned by our team at the Institute for Policy Studies confirmed this: It found that 72 percent of those surveyed wanted to see DAFs pay out funds to charities within 2 to 5 years of receiving donations.
But it’s easy to see why DAF sponsors benefit from jaded attitudes about these norms. Here’s how SVCF’s assets have continued to balloon as the Foundation gives away such a small percentage of the funds they’ve taken in over the years:
A jaw-droppingly high percentage of the dollars the Foundation gives out each year aren’t actually grants at all, but simply money transferred to another DAF sponsor, like Fidelity Charitable or Schwab Charitable.
How big a percentage? It averages out to 22 percent over the years 2017-2021, just for the money the Silicon Valley Community Foundation transfers to commercial sponsors Fidelity and Schwab alone. At times it has reached as high as 32 percent:
Other large sponsors play a shell game, transferring money among themselves and counting these transfers as grants.
Even the philanthropy researchers at Giving USA note that these transfers should not be included when discussing where grant dollars go. “To best capture the final destination for DAF grant dollars,” they write, “DAF-to-DAF transfers are not included in the grant totals or the grant distribution analysis.”
To their credit, SVCF’s 2021 “Year in Review” reports that the community foundation “granted a record-breaking $2.27 billion to nearly 6,000 nonprofit organizations.” Theie financials that year show a total of $2.66 billion in grants, so that means they did subtract the $395 million in grants to other donor-advised fund providers to get to the $2.27 billion figure.
So, kudos to Ross for asking the questions. We hope others will ask such questions and continue to probe figures that are cast as generous but which may be far less so given more context.
Most importantly, we are well beyond the point where we can wait for the DAF industry to change its ways. Congress and the IRS must do their part to ensure that charitable funds actually reach real charities.