July 6, 2011
Are Foundations a Threat to Democracy? Detroit vs. Kresge Foundation
Comtemporary conventional wisdom is that the incredibly detailed private foundation regulations came about because Congress bought into the then prevailing conventional wisdom that private foundations -- with their mountains of untaxed, closely held wealth -- represented a threat to government. The notion provokes deep thoughts about the role of the "independent sector" and the nature of democracy. An interesting article in the weekend Wall Street Journal provides nice context for discussion. The article described the tensions between the Detroit City government and the $3.1 billion Kresge Foundation. The Foundation has poured hundreds of millions into the revitalization of one of America's once great cities. As it has done so, according to the article, the Foundation has explicitly or implicitly demanded more influence over city policies. The Mayor's office has begun to push back, implicitly asserting that the private foundation has exceeded its proper boundaries. The article made me wonder what exactly are the boundaries of charities. Without quoting DT (de Tocqueville) all over again, what is the role of nonprofit collective action in American society and when, if ever, do charities become "too much"? Anyway, here is an excerpt from the article (available from the free portion of the WSJonline):
Under Mr. Rapson's watch, Kresge has invested more than $100 million in Detroit's transformation, funding a riverfront promenade, building greenways and backing incentives for entrepreneurs. And he's just getting started. "Philanthropy has emerged as the sector best able to provide the long-term vision and shorter-term investment of capital the city needs to right itself," Mr. Rapson said at a private gathering of urban experts in Detroit this spring. That foundation-knows-best attitude exasperates Mayor Dave Bing and City Hall officials, who have sought to reassure Detroiters that their voices, not outsiders, will guide efforts to rebuild the city. "Everyone talks about Kresge, Kresge, Kresge," the mayor said in an interview. "We're pleased with the support we're getting from them, but... Kresge is not doing this in a vacuum by themselves." Mr. Rapson dived head-first into city politics last year when Kresge agreed to fund Detroit Works, Mr. Bing's signature campaign to consolidate the city's shrinking population into healthy neighborhoods and re-purpose vast tracts of vacant land. Kresge also put up $35 million to spark development of "M1," a light-rail transit line down Woodward Avenue, the spine of the city. Both initiatives are now in limbo. Kresge stopped funding Detroit Works at the start of the year after disagreements with City Hall over the role of outside consultants. The foundation also is rethinking its support for the rail line amid a separate spat with city officials. The tug of war between Kresge and the Bing administration raises serious questions for Detroit about whether City Hall and foundations can work as partners in saving the shrinking city from collapse. Caught in the struggle are tens of thousands of Detroiters waiting to find out whether their neighborhoods will come alive with new investments, or be left to fade away.
The emerging consensus, at least more recently, is that private foundations are entirely overregulated and, in fact, that Congress overreacted to unfounded horror stories regarding private foundations when it enacted IRC 4940 - 4946. I still tend to agree. As for Detroit vs. Kresge, well, they just need to set aside egos and work it out. Ironically, the most beautiful thing in Detroit is the International Airport, which serves primarly as a temporary way-station for people simply passing through. It would be great if the city and the charity could celebrate the final revitalization of Motown. Too many good cars and too much good music has come from Detroit. As for the Lions and Tigers, well, that's going to take a lot more than government and charity.