Saturday, November 29, 2008

The Peter G. Peterson Foundation Takes on the U.S. Economy

Business Week uses Peter Peterson as an example of several philanthropists who are giving this year despite the economic downtown.  See "Feeling Pinched, Some U.S. Philanthropists Give More."  Peterson is number 8 on Business Week's list of top donors.

As the Business Week story explains, in 2007, Blackstone Group went public and its co-founder Peter Peterson made a pile of money.  Early this year Peterson pledged $1 billion to his new foundation, the Peter G. Peterson Foundation he created with the goal of reducing the budget deficit and teaching Americans to save.  In August, shortly before the credit markets collapsed, the foundation released a documentary called "I.O.U.S.A."  The film was shown at Sundance (prior to its August release) and was also shown at both presidential conventions.  The film is being distributed around the country and has been described as being to the economy what "An Inconvenient Truth" was for the environment.  The foundation is also making grants to help develop new tools to teach young people about personal and public finance.  A news release on the Peterson Foundation website describes the documentary and a number of other projects already underway at the foundation.  A trailer for the documentary is available on the website.

sng

November 29, 2008 in In the News | Permalink | Comments (0) | TrackBack (0)

More on Social Entrepreneurship

As economic conditions worsen, the for-profit model continues to provide a way to tackle the world's social problems.  With backing by people like Bill Gates (Microsoft) and Pierre Omidyar (Ebay), social entrepreneurs are trying new strategies.  An article in Business Week describes the decision by Mercy Corps to buy a bank in Indonesia.  Through the bank, Mercy Corps can provide credit to 2,000 local microcredit organizations and develop an ATM network.  The article then describes social enterprise as being "like an industry just starting to take shape."  A growing business school literature considers which business model is best.  One microfinance company operating in India, SKS Microfinance, now has 9,500 employees and serves 3.3 million customers.  That company uses McDonald's as a model of business-process excellence.  Despite success stories like SKS Microfinance, the article also reports that strains between social goals and business imperatives (the bottom line) are growing.  It is hard to justify most social enterprise on strictly financial grounds.  Nonetheless, the use of business models seems to be leading to more effective ways to provide some types of services and assistance.

sng

November 29, 2008 in In the News | Permalink | Comments (0) | TrackBack (0)

Philanthropy Top Ten for 2008

One of Yahoo's top stories today was a link to information provided by Business Week:  the top ten philanthropists for 2008. Warren Buffett led the group, followed by Bill and Melinda Gates, George Kaiser, George Soros, William Barron Hilton, the Walton Family, Herbert and Marion Sandler, Peter Peterson, Donald Bren, and Michael Bloomberg.  All of these donors give through family foundations, and the Yahoo story lists the names the foundations.  In the past year, seven of these philanthropists gave more than $200 million and nine more gave more than $100 million.  To see Business Week's list of the top 50 philanthropists for 2008, go here.

sng

November 29, 2008 in In the News | Permalink | Comments (1) | TrackBack (0)

Thursday, November 27, 2008

Leaders of Holy Land Foundation Convicted of Terrorism Related Charges; American Muslim Community Shocked and Divided

From the Voice of America:

U.S. prosecutors have convicted five leaders of a now-defunct Muslim charity of channeling some $12 million to the Palestinian militant group Hamas.  A federal court in the southwestern city of Dallas, Texas Monday found the men guilty of 108 separate charges. They were former leaders of the Holy Land Foundation, which organizers said collected money for poverty-stricken Palestinians affected by the conflict with Israel. The group was the largest Muslim-run charity in the United States before it was shut down by the U.S. government in the wake of the September 11, 2001 terrorist attacks. This was the second attempt at a trial. The first ended in October 2007 after the judge declared a mistrial.  The defendants in the case denied sending money to Hamas and said the charges were politically motivated. The United States declared Hamas a terrorist organization in 1995, making contributions to it illegal.

For our previous coverage of the case see here.  According to report in Tuesday's New York Times,

The jury’s conviction of five Holy Land leaders on all 108 criminal counts took many Muslim leaders by surprise because a previous trial last year ended in a hung jury. “So far, the reaction has been one of shock more than anything else,” said Imad-ad-Dean Ahmad, president of the Minaret of Freedom Institute, an advocacy group based in Bethesda, Md. “Even the people who are usually very quick to comment on events, positively or negatively, are so stunned by this that they seem to be at a loss for words.”  Mr. Ahmad said the verdict would further confuse donors to Islamic charities, many of whom have been wary of giving to Islamic groups since Sept. 11.  “It seems to give a green light for further intimidation of Muslim charities,” he said. “It makes people even more unsure of what they are supposed to do to avoid having a problem.”

dkj

November 27, 2008 in Federal – Judicial | Permalink | Comments (0) | TrackBack (0)

Nonprofit Fundraisers Challenge Utah Law Requiring Out of State Fundraiser Registration

The American Charities for Reasonable Fundraising Regulations has filed a complaint (full document) in a Utah federal district court alleging that Section 13-22-5(4) of the Utah Charitable Solicitations Act is unconstitutional.  According to the Chronicle of Philanthropy:

The complaint said the Utah requirement is burdensome, unconstitutionally stifles free speech, and is unnecessary because it duplicates federal rules. The lawsuit said many consultants that support the court filing are required by Utah to register and pay annual filing fees because charities for which they perform services send mail solicitations and educational materials to residents of the state. But, the lawsuit said, the consultants “do not have offices in Utah, do not perform services for any charity located in Utah, and do not solicit business in Utah.”

dkj

November 27, 2008 in State – Judicial | Permalink | Comments (0) | TrackBack (0)

Wednesday, November 26, 2008

2009 IRS Exempt Organizations Annual Report and Workplan Now Available

The 2009 IRS Exempt Organizations Annual Report and Workplan, complete with a slick new format, is now available.  I haven't had time to read it thoroughly enough to provide a summary; check it out for yourself, I'll provide my own summary tomorrow!

dkj

November 26, 2008 in Federal – Executive | Permalink | Comments (0) | TrackBack (0)

San Francisco City Council Kills Cap On Nonprofit CEO Compensation but Institutes Reporting Requirement

The San Francisco Chronicle reports that the city's legislative body recently killed a proposal that would have mandated that city funded nonprofits limit executive compensation to six times the amount paid to the nonprofit's lowest paid employee:

The proposal by Supervisor Jake McGoldrick originally sought to limit salaries and benefits for executives to six times the total compensation of their lowest-paid full-time employee. McGoldrick said the intent was to urge nonprofit leaders to think about raising wages for workers on the front lines and to ensure city funds are not spent excessively on executives' pay.

Heck, it  costs six times the average worker's salary anywhere just to live in San Francisco.  For that reason alone, the proposal seems unfair to those poor millionaire CEO's!

dkj

November 26, 2008 in State – Legislative | Permalink | Comments (0) | TrackBack (0)

Bureau of Labor Statistics Report on Nonprofit Wages

Late last month the Bureau of Labor Statistics published an interesting report (full report) comparing wages in the nonprofit sector to wages for comparable positions in the for-profit sector.  Here is a summary of the report from the Washington Post:

Despite their reputation for low wages, some nonprofit jobs actually pay about the same as comparable for-profit-sector positions, a new Bureau of Labor Statistics report shows. Those in full-time administrative support jobs collected about $15.50 an hour last year, whether they worked for a business or a charitable group, according to BLS economist Amy Butler.  And nonprofit employees a range of occupations in health care and education earn similar wages to their for-profit counterparts, Butler said. Registered nurses, licensed practical nurses and home health aides also took home comparable paychecks whether they worked for a business or a nonprofit.  But full-time managers at charities and nonprofits earn far less than those in business: $34.24 an hour on average at nonprofits vs. $41.38.  While nonprofit financial, business and computer jobs also pay less, full-time nonprofit jobs overall came out ahead of all private-sector jobs. Butler said that's because the nonprofit sector has a higher concentration of higher-paying health, education and other professional jobs.

An interesting point of speculation made in the report concerns the extent to which nonprofit employees make the economic equivalent of a cash [charitable] deduction by way of lower wages:

There are several hypotheses as to why the wages of nonprofit workers could differ from their for-profit counterparts. According to the labor donation hypothesis, workers in the nonprofit sector are willing to donate a portion of their paid labor and receive lower wages because they obtain satisfaction from the fact that their efforts achieve altruistic goals. Also, nonprofits may pay lower wages and compensate their workers with employer-provided benefits or other favorable job characteristics such as a flexible work schedule. On the other hand, nonprofits might actually pay higher wages because nonprofits do not benefit from the cost reductions of paying lower wages in the same way that for-profit employers do. In addition, nonprofits may choose to hire better quality workers in order to produce a better quality product or service and pay these employees higher wages.

Now, I know this is no time to talk about tax cuts or preferences but perhaps when wealth and prosperity return we might once again talk about ways to attract superb talent to the nonprofit sector.  Just as the tax code grants a lucrative tax benefit for donations of property to charitable organizations (cash too, but property garners a full fair market value deduction, even on the portion of the value that has not previously been taxed!), it might also grant a tax benefit -- perhaps via a lower tax rate -- for compensation paid to employees of nonprofit organizations.  This would be appropriate, of course, if the statistics show that nonprofits actually pay lower wages.  President Elect Obama has spoken about the need to stimulate a more vibrant civil society and this might be a way of doing so (of course, only once we get out of the deep  hole we are in at the present time).  On the other hand, such a tax benefit might have the perverse effect of drawing labor from the capital market which, until recent times, has been thought of as the best way to deliver goods and services to society.  By no means have I given this idea any more thought than that necessary to write this post, but it might  be a good subject to explore in greater detail via a long and heavily footnoted article (preferably written by some young hungry tenure track type).

dkj

November 26, 2008 in Studies and Reports | Permalink | Comments (0) | TrackBack (0)

Chronicle of Philanthropy Cites Nonprofit Law Prof Blog

In a November 24, 2008 article, the Chronicle of Philanthropy picked up on the simmering controversy concerning the Mozilla Foundation and whether search related royalties from Google should be treated as nontaxable royalties rather than unrelated business income.  Pointing to an earlier post by Associate Editor John Colombo, the Philanthropy stated:

John D. Colombo, writing on the Nonprofit Law Prof Blog, says the case is not the first where questions about whether payments are “royalties” or unrelated business income have arisen, citing previous tussles with the Sierra Club and AARP. “My guess is that the IRS is going to classify this income as UBI (unrelated business income), not royalties, but there’s certainly enough doubt about the definition of royalties that I wouldn’t bet much on it,” he writes.

Nice going John.

dkj

November 26, 2008 in In the News | Permalink | Comments (0) | TrackBack (0)

Breaking News: Illinois Supreme Court to Hear Provena Exemption Case

I just got word from the Illinois Attorney General's office that the Illinois Supreme Court has granted Provena Covenant Hospital's request for leave to appeal the decision of the Illinois 4th District court of appeals upholding the revocation of its property tax exemption. So it appears that there will be one final chapter in the Provena saga after all. For background on the Provena case, see the prior blog posts here and here.

Oral argument will probably be sometime next spring or early summer, though that will depend on the briefing schedule and the rest of the court's docket. Stay tuned.

JDC

November 26, 2008 in State – Judicial | Permalink | Comments (0) | TrackBack (0)

Tuesday, November 25, 2008

More on Congressman Rangel's Troubles With Interested Donors

Congressman Rangel continues to fight off charges that he used his influential position as Chairman of the powerful House Ways and Means Committee to garner large donations for his namesake charity in exchange for preventing legislation to benefit his largest donors (a notorious corporate inverter).  I wonder if this New York Times article raises a question as to whether the described contributions were made for a quid pro quo and therefore should not be tax deductible.  Here is an brief excerpt from a rather long expose:

Congressional records and interviews show that Mr. Rangel was instrumental in preserving a lucrative tax loophole that benefited an oil-drilling company last year, while at the same time its chief executive was pledging $1 million to the project, the Charles B. Rangel School of Public Service at C.C.N.Y. The company, Nabors Industries, was one of four corporations based in the United States that were widely criticized in 2002 and 2003 for opening offices in the Caribbean to reduce their federal tax payments. Mr. Rangel was among dozens of representatives from both parties who bitterly opposed those offshore moves and, in 2004, pushed unsuccessfully for legislation to make the companies pay more tax. But in 2007, when the United States Senate tried to crack down on the companies, Mr. Rangel, who had recently been sworn in as House Ways and Means chairman, fought to protect them. The tax shelter for the four companies was preserved, saving Nabors an estimated tens of millions of dollars annually and depriving the federal treasury of $1.1 billion in revenues over a decade, according to a Congressional analysis by the nonpartisan Joint Committee on Taxation. Mr. Rangel said he stood with Nabors because, as much as he was offended by the company’s attempts to get around some of its United States taxes, he thought it wrong to impose a retroactive tax increase. The congressman said he has long believed that retroactive punishments are bad public policy.

Things that make you go hmmmmmmmm!

dkj

November 25, 2008 in In the News | Permalink | Comments (0) | TrackBack (0)

Bank of America Study of High Net-Worth Philanthropy: Initial Report (Press Release)

Bank of America Announces Initial Findings of 2008 Study of High Net-Worth Philanthropy
Wealthy Donors Cite Loss of Emotional Connection as Leading Reason for Discontinuation of Giving to a Charitable Organization  [Editor's note:  The actual report has not yet been posted online; as soon as it is, it will be posted here.]

BOSTON – Nearly 60% of wealthy households who stopped giving to a charitable organization attributed their change in philanthropic behavior to “no longer feeling connected to the organization,” according to initial findings released today from a new survey initiated by Bank of America.

The 2008 Bank of America Study of High Net-Worth Philanthropy reflects the opinions of nearly 700 respondents throughout the United States with household income greater than $200,000 and/or net-worth of at least $1,000,000. Conducted by The Center on Philanthropy at Indiana University for Bank of America, the 2008 research follows an initial landmark study published through this partnership in 2006.

Key insights gleaned from the new study – the full version of which will be released in the first quarter of 2009 – indicate that wealthy donors are giving more strategically and are increasingly turning to legal and financial professionals as primary sources for advice about charitable giving decisions. Additional noteworthy themes to emerge include:

  • Desire to “give back to the community” the leading motivation for giving, while “public recognition” essentially a non-factor
  • Donors believe charitable contributions have a greater impact on their personal fulfillment than on the organizations they support.
  • Families use involvement to pass philanthropic values on to the next generation, who in turn give through their own private foundations or donor-advised funds as adults.
  • Religious organizations second only to parents as a leading source of philanthropy education.
  • Transparency, accountability and protection of privacy among donors’ primary expectations of the non-profit organizations they support.

“Our wealthy clients are taking a more proactive approach to integrating philanthropy into their wealth management strategies,” said Cary Grace, Bank of America National Institutional Advisory Solutions Executive. “We are noticing that the turbulent economic environment has, not surprisingly, also motivated these individuals to play a more active role in charitable decisions in terms of what they give, to whom and when. Our 2008 research breaks new ground and uniquely positions our philanthropic management experts across the country to help facilitate greater understanding and communication between these important donors and the non-profit institutions they support.”

“Our wealthy clients are taking a more proactive approach to integrating philanthropy into their wealth management strategies,” said Cary Grace, Bank of America National Institutional Advisory Solutions Executive. “We are noticing that the turbulent economic environment has, not surprisingly, also motivated these individuals to play a more active role in charitable decisions in terms of what they give, to whom and when. Our 2008 research breaks new ground and uniquely positions our philanthropic management experts across the country to help facilitate greater understanding and communication between these important donors and the non-profit institutions they support.”

Highlights of Initial Findings:
The 2008 Bank of America Study of High Net-Worth Philanthropy will track significant shifts as well as certain consistencies among the giving behaviors of the wealthiest donors, and is expected to offer valuable insight to non-profit organizations hoping to attract, sustain and deepen relationships with these donors. Among the initial findings released today:

  • Locally and personally motivated, with little need for public recognition. Wealthy philanthropists’ motivations for giving demonstrate a strong desire to “give back to the community” (81.2%) and to make an immediate difference (66.9%) in the world around them, according to the survey. Other leading motivations include these individuals’ social (70.4%) and political (58.5%) beliefs, as well as their loyalty to certain causes and organizations (70.7%) – many of whose missions seek to remedy an issue that may have affected the donor personally or someone close to them (57.5%). In a continuing trend from the 2006 study, only 5% of wealthy donors said they are motivated to give based on public recognition; in fact, public recognition of a gift ranked among the least important factors when donors consider which charitable organizations to support, with just 10.2% of donors citing this as important.
  • Trying to make an impact. Wealthy donors believe that their charitable contributions have a greater impact on their own personal fulfillment (46.0%) than on those who receive their gifts. Just less than 20% of donors believe that their donations make a major impact on the organizations they support, and only 6.1% believe they’re making significant contributions to the improvement of society in general. However, wealthy individuals said the leading objective for their largest gifts to charitable organizations last year was “general operating support” (56.7%). Start-up funding (10.1%) and venture philanthropy funding (2.5%) were among the least common recipients of the largest donations last year.
  • Raising philanthropic children. According to the survey, “setting an example for children or other young people” is also an important motivator for donors (45.6%), with more and more parents actually involving their young and adult-age children in decisions about grant-making (40.8%) and the charitable organizations they choose to support (53.2%). In fact, the vast majority (95.9%) of the next generation of philanthropists learn about philanthropy and the value of giving from their parents, with more than 60% of wealthy donors actively educating their children about philanthropy. Taking these matters into their own hands, adult-age children of nearly 40% of wealthy families surveyed now give through their own private foundation or donor-advised fund.
  • Religion’s role in philanthropy. Approximately half (51.0%) of those surveyed cited “religious beliefs” among their top motivations for giving. Nearly 70% of wealthy households receive information about charitable organizations from religious institutions, and approximately 80% indicated that their children learned about giving in part through programs offered by these institutions.
  • Great expectations. In a continuing trend from the 2006 study, the 2008 research finds that wealthy donors have high expectations of charitable organizations, ranking the following factors among those most important when determining which to support:
    • Sound business practices (93.0%)
    • Spend appropriate amount on overhead (88.3%)
    • Acknowledgement of contributions (including receipts) (83.7%)
    • Protection of personal information (82.7%)
    • Full financial disclosure (77.7%)
  • Why did my wealthy donors go away? In 2007, 38.0% of donors stopped supporting a charitable organization, with more than one-quarter of those surveyed (26%) discontinuing support for at least two organizations. The top three reasons why donors stopped giving to a particular charity include “no longer feeling connected to the organization” (57.7%), “deciding to support other causes” (51.3%) and “feeling they were being solicited too often” (42.3%). Very few donors, however, said that they stopped giving to an organization because of “mismanagement of donations” (12.7%), “mismanagement of assets” (6.7%) or “inaccurate record keeping of donations” (5.3%) – indicating that the majority of organizations that these wealthy donors support demonstrate sound business practices, perhaps one reason why more than 70% of donors give to the same organization year-after-year.
  • Strategic use of charitable vehicles. Among the many reasons for establishing one or more charitable vehicles are a desire for control over how dollars are used and personal financial benefits such as maximizing income tax deductions and avoiding capital gains and estate taxes. As a result, donor-advised funds, while still a relatively new vehicle when considering all that are available, have become one of the preferred giving vehicles utilized by donors, with more than 20% of survey respondents currently using them and another 20% who would consider using them in the next three years. In addition, approximately 56% of wealthy donors today have a charitable provision in their will – a total that could climb to a staggering 93% in 2010, with an additional 37% of donors saying they would consider establishing a charitable provision in their wills the next three years.
  • Major shift in the source of charitable advice. One of the most striking differences between findings from the 2006 and 2008 studies is the dramatic increase in donors’ use of legal and financial professionals to help them make charitable giving decisions. Our 2006 study found that donors relied on non-profit personnel (41.2%) and their own peers (35.9%) more than any other source for advice in this area. Our 2008 data finds accountants (43.2%), attorneys (41.7%) and financial/wealth advisors (32.6%) to be among the leading sources of charitable advice.

“This study includes some good news for charities in these difficult economic times,” said Patrick M. Rooney, interim executive director of the Center on Philanthropy at Indiana University. “The findings indicate that these donors are committed to the ongoing success of the non-profits to which they contribute. In fact, the top two objectives for the largest gifts they made in 2007 were to provide general support for the non-profit and to make a long-term investment in the organization. This should offer charities hope of continued vital support from these loyal donors at a time when it is much needed.”

Bank of America, one of the nation’s largest corporate donors and provider of a full array of charitable services to wealthy individuals and non-profit institutions, sponsored the study.

dkj

November 25, 2008 in Studies and Reports | Permalink | Comments (0) | TrackBack (0)

Prominent Philanthropists to Develop New Charity Rating System

According to the Washington Post, a group of "prominent Philanthropists and entrepreneurs" will soon unveil a "radically" new way for donors to rate charities:

An alliance of prominent philanthropists and entrepreneurs is developing a rating system that they hope will radically alter the way donors evaluate whether a charity is worth their money. The Social Investing Rating Tool would assess not only how nonprofit groups spend their money but also whether their work is making a difference. The goal is to encourage donors to think more like investors -- to consider their charitable donations social investments, complete with risks and responsibilities. "There are commonly accepted metrics to be able to say this is a good corporation or a good restaurant or a good movie, but there are none of those metrics for the nonprofit sector, and there have to be," said Robert Egger, president of D.C. Central Kitchen, who participated last week in the first meeting of the Working Group on Effective Social Investing.

The most foreboding point of the article is that it reports that 40% of the biggest U.S. donors stopped giving to charities because of a belief that charities are poorly managed and ineffective.    Not good news, considering the other financial problems facing charitable organizations.

dkj

November 25, 2008 | Permalink | Comments (0) | TrackBack (0)

Gates Foundation Announces Cutbacks on Grant Making

Following up on the previous post:  Yesterday's Wall Street Journal provided more details regarding the Gates Foundation plans to spend less on grants next year:

The Bill & Melinda Gates Foundation will spend less than it previously planned on grants next year, a sign that even the biggest players in philanthropy aren't immune to the turmoil hitting financial markets.  Officials at the Seattle-based foundation said they will expand the charity's payout of grants in 2009 by 10%, which is less than they originally planned. The officials didn't provide the original growth plan nor give a total amount of grants the foundation expects to make next year. The Gates Foundation's decision was described in a letter on its Web site by Jeff Raikes, its chief executive officer. "The financial crisis is affecting everyone, from our foundation to our partners," he wrote.

dkj

November 25, 2008 in In the News | Permalink | Comments (0) | TrackBack (0)

More Bad News Re: Corporate Donations

The Wall Street Journal today reports more bad news with respect to the rate of corporate giving:

The pipeline from corporate America to the nation's charities is starting to dry up, as losses in the stock market mount and the U.S. recession deepens. With many large organizations depending on corporate largesse, their futures are suddenly uncertain.  Billionaires and large banks are pulling back on commitments or scaling back pledges. Some generous givers, such as Bear Stearns Cos., Lehman Brothers Holdings Inc. and Merrill Lynch & Co., have folded or been bought. The pain is spreading to other big institutional donors and trickling down to New York's famously lavish charity-gala scene, which is suffering lower turnouts and fund-raising hauls.

Even the Bill & Melinda Gates Foundation reports that it will slow down its grant-making:

On Monday, the Bill & Melinda Gates Foundation said it would slow the pace of grants next year -- a sign that even the titans of philanthropy are rattled by current economic conditions. Large donors signaling tighter times include David Koch, an executive vice president of Koch Industries Inc., an energy and manufacturing company and the largest private corporation in the U.S.; Sheldon Adelson, the Las Vegas casino mogul; and Maurice "Hank" Greenberg, the former chief executive of AIG Inc., the large insurer.  The chilled giving atmosphere arrives just ahead of the holiday season, when charities tend to reap the most donations. Lower donation totals threaten a range of organizations, from antipoverty groups to community-based meal providers and major cultural institutions.

I tend to think there is an inverse relationship between corporate giving and unrelated business.  As giving decreases, unrelated business increases.  Should we therefore expect a rash of deficiency notices relating to charities underreporting unrelated business income?

dkj

November 25, 2008 in In the News | Permalink | Comments (0) | TrackBack (0)