How Much Do Foundations REALLY Give to Nonprofits?
Last week, philanthropist Melanie Lundquist addressed Town Hall and exhorted the audience to consider a different philanthropic model – a model more responsive to the needs of the community, especially now. One of her targets for reform is the 5% spending requirement placed on private endowments. Melanie views this as an absolute minimum, but most foundations/endowments treat it as a maximum. She and her husband Richard are extraordinarily generous donors and have adopted a personal philosophy of giving rather than accumulating.
They have a very clear objective of living their legacy versus leaving one. Of course, this is a personal choice — should my philanthropy be given to meet urgent needs now, or should it be endowed and last forever?
Melanie thinks that the growing needs in our communities should push foundations to give more. They should. However, I don’t think increasing the 5% spending requirement is the only way to do that. I contend that the net percentage of charitable giving is a much better measure.
In other words, how much of the spend-out is actually going to nonprofit organizations serving L.A.? Under current law, the 5% can include all administrative and investment expenses. As you might imagine, the percent of actual grantmaking to charitable organizations varies greatly. (I really wish there was an efficiency ranking of foundations on the net percentage of charitable giving)
For example, at CCF our total costs and expenses average well under 15% of our grantmaking. Said another way, more than 85% of our spend-out each year goes to charitable organizations.
What if foundations held themselves to the same standards as they hold their grantees? What if there was a requirement that overhead (total expenses) could not exceed 25%, for example? And those foundations choosing to spend more on overhead would have to increase their grantmaking? If foundations adhered to this guideline, there would be a sizable net increase in charitable grantmaking.
The choice of living or leaving a legacy is a personal one. We agree with Melanie. More charitable giving and grantmaking is needed today. One way to achieve this goal is for foundations to increase their net charitable giving.
Thanks for reading,
John
John E. Kobara is the COO/EVP of the California Community Foundation
Giving in L.A. is a blog by the California Community Foundation, the public foundation serving all of L.A. County since 1915.
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Such a fascinating topic. I have seen foundation spend a surprisingly large amount of their 5% in board retreats. Hawaii is always a red flag! Still I believe that the percentage of challenge. Foundation Boards tend to prefer conservative spending policy on endowment notably in times of economic duress.
Best, Gregory
I think you’re right. Personally, the heart of the issue is need. This is not only determining the needs of the community, but also the need of what one can live on. This question of need cuts at the heart of giving, calling each individual to question what is necessary so that one can give more (this is the same for an organization, I believe). But this also equals the playing field, no? I can recall many tales of how ordinary, everyday people would gather in order to financially support a fellow struggling sister. There are many stories of how even the most poor give and share with their brother in order to survive through tough times.
In short, philanthropy is a posture of giving, redistributing, democratizing. And I appreciate the tone, cadence, and sentiment behind this post. I admire CCF particularly because of the place it holds in the civic arena. It is a gateway of sorts, but also a civic “tastemaker”, of engaging, cultivating, and funding great programs/institutions in the public arena. So to hear a leader of a great group speak about such standards is an encouraging thing.
I wonder, perhaps in the future, how this vision of philanthropy, of determining need and giving more, can be further opened to include/encourage/cultivate the everyday person. More specifically, there are things like kickstarter, which rises alongside of the social media epidemic with twitter and facebook, that opens up the notion of philanthropy (or perhaps even patronage) to the everyday person. That great, social projects can be supported by an even wider partnership base. Given these kinds of changes, I wonder what sort of initiatives/ideas/thoughts CCF may have that would speak to such changes?
Not too long ago, you all posted an article about the shifting hands of money, how there are billions of dollars transitioning, which opens up a wider opportunity for philanthropy to evolve. How would this change, alongside of the internet 2.0 epidemic, change the way philanthropy is done, thought of, and formulated? After all, even such things as traditional PR and news media is rapidly changing in order to address the faster and cost-efficient avenues of digital media. Is there a way to think about these changes? Would CCF have an idea of how to help transition along such changes, with the shifting of money? In short, how would CCF usher one understanding of philanthropy into the next?
As a leader in giving, I would absolutely love to hear your thoughts.
Charles
Thank you for your thoughtful comments and questions. The future of philanthropy is upon us. More than 65 sites assist donors in giving. Most of them are for smaller amounts that are very accessible. Fidelity allows for $50 grants and a $5000 minimum. Citizen Effect, Kimbia, Razoo and others engage local donors to connect with local non-profits. The way peopl give and raise money is evolving quickly. YouthGive teaches kids to give and video games are incoporating philanthropy. CCF is trying to keep up by remaining relevant, impactful, and local. At the end of the day, local expertise and local impact matter most. As Gibson said, The future is already here, it is just not evenly distributed. Cheers John