Monday, July 28, 2014
The 2013 Common Fund/Council on Foundation study of private foundation investments is available here, and it's generally pretty good news.
According to a summary article at Chronicle of Philanthropy, private foundation investments grew on average 15.6% in 2013. The five year annual return, including 2013, is now at 12%; compare that to last year's five year annual return, which was only 1.7%. The article notes that the disasterous retuns of 2008 have now rolled out of the 5 year running average. In additional good news, foundation debt is down and spending is up.
The bad news - nonprofit grant recipientss are still in a rough state, which is part of the reason why foundation giving is up. In addition, the report warns of increasing volatility and, therefore, likely lower returns in the coming year.
Friday, July 25, 2014
The Chronicle of Philanthropy is commenting on billionaire businessman Ted Stanley's recent $650-million pledge to the Broad Institute to study the genetics of psychiatric disorders. The pledge is one of the largest individual donations ever to medical research.
The pledge comes at a very opportune moment. According to the Chronicle,
About one in four adults suffers from a mental disorder, and one in 17 people live with a serious mental illness like major depression, bipolar disorder, or schizophrenia, according to the National Institute on Mental Health. The World Health Organization estimates 450 million people worldwide suffer from such diseases.
One would think that such staggering statistics would lead state and national leaders to allocate more funds to addressing the needs of the mentally ill. Not so, says the Chronicle. Instead,
. . . from 2009 to 2011, states cut more than $1.8-billion from their budgets for services helping children and adults who have mental illnesses, states the National Alliance on Mental Illness. Support for scientific research has dwindled, and what remains is difficult to obtain because of increased competition for scarce dollars.
This is a sad situation. Like the Chronicle, I hope Mr. Stanley's gift will "spark a flurry of additional donations to mental-health causes."
Wednesday, July 23, 2014
Writing in yesterday's Chronicle of Philanthropy, Pablo Eisenberg, a senior fellow at the Center for Public and Nonprofit Leadership at the Georgetown Public Policy Institute, calls on nonprofits to start a campaign to ask Congress and the IRS to curtail excessive trustee fees paid by nonprofit foundations.
According to Eisenberg, "[t]he tens of millions of dollars that foundations pay to trustees every year is a total waste of money that could be used to finance needy nonprofit organizations. He contends that:
Fresh concerns about those fees were raised when the news become public that the Otto Bremer Foundation, which last year gave $38-million in grants, had paid its three board trustees more than $1.2-million in 2013. So egregious was the payment that Aaron Dorfman, executive director of the National Committee for Responsive Philanthropy, requested an immediate investigation by the Minnesota attorney general.
The Bremer trustees had fired the foundation’s executive director, leaving them totally in charge without any accountability mechanisms in place.
Data about the total amount trustees are paid are hard to come by, but a Chronicle of Philanthropy survey in 2011 found that 38 of the nation’s 50 largest foundations paid a fee to their trustees amounting to a total of $11-million.
He also reports that
[a] 2006 Urban Institute report about the compensation practices of 10,000 of the largest foundations based on 2001 tax returns found that 3,400 of the foundations had paid a total of almost $200-million in trustee fees.
Finally, he reveals that an earlier study of 238 foundations he conducted with two of his graduate students at Georgetown University in 2003 revealed that the foundations "had paid more than $44-million in trustee fees. About two-thirds of the 176 largest foundations compensated their board members, while 79 percent of the 62 smaller foundations surveyed paid their board members."
On the basis of this sample, Eisenberg and his students estimated that foundations throughout the country had paid more than $300-million in trustee fees.
That is a lot of money. Moreover, says Eisenberg, it is infuriating:
What has infuriated foundation critics and many nonprofits is that foundation trustees are among the wealthiest and highest-paid individuals in the country. As Aaron Dorfman has noted, most foundation trustees would take on their duties even if they weren’t paid. Most other nonprofits don’t pay their trustees, after all.
But habits die hard. Many foundations maintain that it is important to offer fees as an incentive to busy corporate and wealthy individuals who might otherwise not give their time. And, they add, it is difficult enough to recruit topnotch board members; fees just make the process easier. The corporate culture that believes "time is money" is a tradition that lingers on.
Eisenberg admits, though, that annoyance at the practice of trustee fees has not yet morphed into sufficient energy and public pressure that could produce some changes. Neither philanthropic trade associations, philanthropy roundtables, nor regulators and legislators appear ready to do something about the excessive fees. Hence, Eisenberg has a solution: nonprofits should stasrt a campaign to have Congress and the IRS curtail these excessive trustee fees. Eisenberg concludes:
Nonprofits should start a campaign to ask Congress and the IRS to curtail excessive fees. Almost all nonprofit groups hungry for new dollars should be willing to support the idea, and how could politicians be opposed to the idea that more money goes to communities than affluent trustees? Now we just need some leadership to get the movement going.
Will the nonprofits respond? Time will tell.
The Nonprofit Times is reporting that the search for someone to fill the shoes of retiring founding dean Eugene R. Tempel at the Indiana University Lilly Family School of Philanthropy has been narrowed down to two candidates.
The Times reports that while the university will only confirm that the search is ongoing and the intention is to have a new dean by January 1, 2015, the Times has information that only two candidates -- neither of whom is from Indiana University -- remain.
The Times continues:
Multiple sources have told The NonProfit Times that the process has not been as smooth as was expected. In fact, there has been some consideration as to under what terms Tempel might stay on for up to one more year if the new dean is not selected soon, according to multiple sources within the university and search process.
The search committee presented candidates to Charles R. Bantz, Ph.D., chancellor of the Indianapolis campus, known as IPUI since it is shared with Purdue University. There were three finalists but one of them, from a university in California, has withdrawn his application, according to sources.
Andrew R. Klein, J.D., chair of the IU Lilly Family School of Philanthropy selection committee and dean of the IU Robert H. McKinney School of Law, disputed the idea that the search has not gone as smoothly as hoped. He said the plan was to present a pool of candidates to the administration by mid-summer and that has happened. He said eight candidates were reduced to “those who came back to campus.”
He declined to confirm the number of candidates who made campus visits and the number of candidates still in the running for the coveted position in nonprofit academia. He cited a confidentiality pledge to the candidates who are still employed. “Chancellor Bantz is in consultation with President (Michael A.) McRobbie about the search,” he said. “The appointment of any dean is ultimately made by the Board of Trustees of Indiana University,” Klein said. “I am not involved in the conversations at this point, but I am certain that Chancellor Bantz is consulting with President McRobbie to make sure the administration presents a candidate to the board in which they both have confidence.”
The Lilly Family School evolved from the internationally known Center on Philanthropy of the IU-Purdue University campus in Indianapolis, Indiana. The school encompasses and expands all of the previous academic degree, research and training programs at Indiana University, including The Fund Raising School, the Lake Institute on Faith & Giving, the Women’s Philanthropy Institute and International Programs.
Monday, July 21, 2014
This morning I came across this touching story published in Friday's Chronicle of Philanthropy. The story begins by stating that the biggest danger for people living with severe mental illnesses is not navigating the health-care system or finding a good therapist, but living in isolation. Because people with mental illnesses no longer spend much time in hospitals, they end up living alone. According to Kenneth Dudek, president of Fountain House, a New York charity that helps mentally ill people live independently, living in isolation makes the illness worse and the patients do not get the help they need.
For its efforts to provide a sense of community to the mentally ill, Fountain House and its sister organization, Clubhouse International, have won the Conrad N. Hilton Humnanitarian Prize, a $1.5 million award that recognizes an organization that works to alleviate human suffering.
This is the first time the prize has been awarded to a mental-health organization. According to Hawley Hilton McAuliffe, a member of the prize's jury and granddaughter of Conrad Hilton, the organizations were chosen because mental health has not received much attention despite the prevalence of the problem. Said McAuliffe: "It's a humanitarian crisis at this point, especially here in the United States. It's one area that has not been addressed by many organizations."
McAuliffe revealed that as the prize jury deliberated about this year's award, it considered Fountain House's success at giving mentally ill people opportunities to find fellowship. It also considered the recent spate of mass shootings by mentally ill individuals, in particular the spree committed by 22-year-old Elliott Rodger, who killed six people and injured 13 others near the campus of the University of California at Santa Barbara in May. The Chornicle quotes McAuliffe as saying, "Here was this isolated individual who had no sense of community. Wouldn't Fountain House have been a good resource for him?"
The truth is, many mentally ill people are in need of similar resources. The Chronicle states it well:
In the United States alone, 13.6 million people live with a serious mental illness like major depression, bipolar disorder, or schizophrenia, according to the National Alliance on Mental Illness. And the World Health Organization estimates 450 million people worldwide suffer from such illnesses. Three-quarters of chronic mental illnesses begin by the age of 24, but people sometimes wait decades to seek treatment. Most alarming, nearly half of all homeless adults in America has a severe mental illness.
That is a sobering statistic. I applaud Fountain House and Clubhouse International for the assistance they give to some of the suffering people.
Saturday, July 19, 2014
Unsurprisingly, the U.S. House passed charitable giving legislation, the “America Gives More Act,” on July 17 by a vote of 277-130. (For a summary of the bill’s contents, see prior blog post.) Broadly, the bill would encourage food donations, transfers from IRAs, conservation easement donations, extend the time to claim charitable deductions to April 15, and reduce the tax on private foundation investment income. According to the Joint Committee on Taxation, the legislation would cost taxpayers $16.2 billion over ten years.
Supporters of the bill (mostly Republicans) emphasized familiar themes. Charitable giving legislation is good because giving helps those in need (see, e.g., Chairman Camp's floor statement, Majority Whip McCarthy's statement) and because giving itself should be encouraged. The bill was also praised as a simplification (Statement of Representative Griffin) (though only one of the five provisions simplifies the Code).
Opponents of the bill (all Democrats, but one), though praiseworthy of charitable giving in general, cited in particular the failure to pay for the tax benefits and the resulting increase in the deficit. (Floor statement of Representative Levin, the White House.) The White House also objected that the giving incentives would benefit high-income taxpayers. One Democrat, Representative Lloyd Doggett, objected on substantive grounds, saying that the incentives for donations of food inventory encouraged donations of items with "no nutritional value, like Twinkies, candy, stale potato chips, and expired foods.” “We do not need a permanent tax break for Twinkies” he said. (Video of Mr. Doggett's commentary on the food proposal here.)
How to assess the legislation? Helping “the needy” certainly is a familiar rationale cited in support of charitable giving legislation. But it bears repeating that “the needy” is but one segment of the 501(c)(3) sector. (Additional commentary on who benefits from the charitable deduction here). Broad-based charitable giving incentives such as extending the filing deadline and encouraging more IRA transfers are not directed toward helping the needy. Thus, if this really is a goal of lawmakers, much more targeted legislation to benefit social safety net organizations would be more appropriate.
Further, it is hard to ignore the absence of offsets. When tax benefits like these are not paid for, the question should be whether the America Gives More Act is the best use of $16.2 billion dollars. It is ironic that about 64 percent of the Act’s cost comes from extending two provisions (the special rule for food donations and the exclusion for IRA distributions) that were allowed to expire in the Tax Reform Act, which undermines the argument that this legislation is an optimal use of tax dollars.
Other provisions have some merit, depending on the goal. Extending the time to claim donations to April 15 may be a cost effective way to get more dollars to 501(c)(3) organizations, assuming the IRS can administer the provision to protect against double deductions.
Streamlining the excise tax on private foundations will likely result in diverting dollars from the U.S. Treasury to foundation grantees – sort of an inter-501(c)(3) sector transfer. This may be desirable, depending on one's judgment about whether foundations or the government spends money more in the public interest. But the provision does not result in new charitable dollars and so is not a giving incentive.
The permanent extension and expansion of the special rules for deductions of conservation easements without any associated reforms is harder to understand, given the many administrative difficulties and abuses associated with this provision of the tax Code. (For commentary, see Halperin, McLaughlin, Colinvaux).
So although there may be merit in the margins to some provisions, as a whole, the case for the legislation without offsets is rather underwhelming. If there were offsets, then at least the trade-offs could be more directly assessed.
In short, although it is obvious that the America Gives More Act is not intended as a tax reform measure but rather reflects legislative business as usual, nonetheless it is disappointing to see more give-aways without much if any consideration of who should pay, and whether the give-aways are really worth it. But without an offset, there is little electoral cost to voting in favor of legislation, especially charitable giving legislation, which is always easy to frame, without much analysis, as helping those in need.
Wednesday, July 16, 2014
The Center for Public Integrity has released an investigative report about the IRS Tea Party targeting scandal, in which the CPI reviewed thousands of pages of documents and interviewed dozens of insiders. The report provides a good high-level overview of the scandal, and makes a few useful findings about the Exempt Organization function within the IRS. To many, the findings may come as no surprise, but bear repeating: over time the IRS has fewer employees to regulate a rapidly growing sector, the already low rate at which the IRS investigates exempt organizations is shrinking, the social welfare category (i.e., the one at the heart of the targeting scandal) is growing, and the IRS is increasingly timid – backing down to political pressure. Unfortunately, none of this makes for an effective overseer of a vital part of civil society.
Although the report is useful, some peripheral statements should be more closely considered if only because a number of misconceptions about the IRS targeting scandal continue inadvertently to be spread. One statement in the report is that “It wasnʼt until the Supreme Courtʼs Citizens United v. Federal Election Commission decision in 2010, however, that politically active nonprofits — social welfare groups as well as 501(c)(5) labor unions and 501(c)(6) trade groups — became a major force in political elections, all while receiving a de facto tax subsidy.” The implication from the “de facto tax subsidy” language is that political activity, when conducted after Citizens United by a noncharitable tax-exempt like a 501(c)(4), (5), or (6), gets an unwarranted subsidy and is abusive. But this is not really right. Political activity by a noncharitable exempt generally is not tax-advantaged relative to the same activity by a political organization (aka a “527”). Rather, political activity by a noncharitable exempt actually triggers a tax that is intended to make the tax treatment of political activity consistent across sections of the tax code. There is no abusive subsidy for political activity here.
Later, the report notes that “Social welfare and other nonprofit groups galloped into the post-Citizens United era with an inherent advantage over overtly political groups: They could hide the source of their funding, regardless of whether those sources were corporations, individuals or other special interests. And they're only required tell the FEC the names of donors who give money to help produce specific ads — something that rarely happens.” This point bears more than passing emphasis. The anonymity offered to donors by noncharitable exempt status, and not a tax subsidy, is the underlying legal issue at the heart of the targeting scandal post-Citizens United. In other words, the targeting scandal is not really about taxes at all, it is about donor disclosure or the lack thereof.
The report says that: “The tea party affair has directed attention away from what many IRS workers say is the much larger problem — regulating the activities of politically charged nonprofits.” and also that the IRS is “supposed to ensure 501(c) nonprofit organizations don't become more political than the law allows.” The broad meaning here is right: the targeting scandal has diverted attention from some real problems with the legal architecture. Also, the IRS does have a legitimate role to play when it comes to political activity and tax exemption. But these statements unintentionally play into another misconception about the IRS’s role when it comes to the political activity of noncharitable exempts and political organizations. In this context, the IRS does not really “regulate” political activity in the sense of deciding whether or not the activity is permitted. Rather, the IRS’s function is to classify organizations based on their purpose as measured by the quantum of their activities. This is an important distinction. The IRS does not regulate speech or activity as such; rather, the IRS, as charged by Congress, assesses organization purposes and activities and applies a tax label ((c)(4), 527, etc.). So political activity is relevant to tax classification, but it is not a question of permitting or prohibiting political activity.
The report also states that “Political ‘527 groups’ are tax exempt like 501(c)(4) groups, but unlike them, they must disclose their donors.” It should be noted that the point about disclosure is correct, but not the point about tax-exemption. Broadly, 527 groups are taxed on their investment income whereas 501(c)(4)s and other noncharitable exempts are not. So the tax treatment is not equivalent. But as noted earlier, if a noncharitable exempt engages in political activity, then a tax is triggered, which is intended to make the organizational tax treatment of political activity broadly uniform across exemption categories.
But none of this undermines the key thrust of the report's message -- that the regulatory environment of the IRS exempt organization function is in crisis and in need of constructive solutions.
Tuesday, July 15, 2014
The House of Representatives this week is likely to take up charitable giving legislation. Last week, the Rules Committee reported out H.R. 4619, which modifies and expands on a charitable giving bill of the same number marked up by the Ways and Means Committee on May 29. Committee Report here.
Renamed the “America Gives More Act of 2014,” H.R. 4619 combines several separate charitable giving measures. The charitable giving incentives of H.R. 4619 now are:
- Food Donations. Make the special enhanced deduction for charitable contributions of food inventory permanent and modify this enhanced deduction to: increase the percentage limitation from ten to fifteen percent for business taxpayers, provide for a special deemed basis rule for certain taxpayers, and permit fair market value of donated food to be determined disregarding the fact that there may not be a market for the food, among other special valuation rules. (This provision applies retroactively to restore this expired deduction.)
- IRA Distributions to Charity. Make permanent the exclusion for distributions from individual retirement arrangements to certain public charities. (This provision applies retroactively to restore this expired exclusion.)
- Conservation Easements. Make permanent the special percentage limitations and carryforwards for charitable donations of conservation easements, and extend such favorable treatment to contributions by certain Native Corporations, as defined under the Alaska Native Claims Settlement Act. (This provision applies retroactively to restore this expired deduction.)
- Extend Time to Claim. Generally allow taxpayers until the tax-filing deadline (April 15) to claim charitable deductions for the tax year.
- Reduce Foundation Excise Tax on Investment Income. Replace the two rates of tax on the investment income of private foundations with a single flat rate of one percent.
These provisions are broadly consistent with provisions in the “Tax Reform Act of 2014,” a discussion draft released by Ways and Means Committee Chairman Dave Camp in February, with some notable exceptions. For instance, the Tax Reform Act:
- Eliminates the special enhanced deduction for food inventory rather than retaining and expanding it.
- Does not include the IRA distribution exclusion, i.e., allows it to expire.
- Does not expand the special rules for donations of conservation easements to new donor categories, and provides for a modest reform that no deduction is allowed for easements relating to golf courses, a proposal also advocated by the Treasury Department (page 95).
Whether the differences between H.R. 4619 and the Tax Reform Act reflect a change in position (and a move away from reform) or reflect the fact that H.R. 4619 is not primarily a tax reform measure remain to be seen.
Thursday, June 26, 2014
The Los Angeles Times reports that Spain's Princess Cristina was indicted Wednesday on charges of tax fraud and money laundering. She and her husband, Iñaki Urdangarin, are said to “have been under investigation for years on allegations of the embezzlement of about $8 million in public money through charitable sports foundations they ran.” The story continues:
On Wednesday, the judge found sufficient evidence to proceed with charges of money laundering and tax fraud against the princess and nine other counts against her husband, and recommended that they go on trial. Fourteen other people, including Urdangarin's former business partner, were also charged.
“There are many indications that Cristina profited from illegal funds on her own behalf, and also helped her husband to do so, through silent cooperation and a 50% stake in his business," Judge Jose Castro wrote in his 167-page indictment.
Wednesday, June 25, 2014
For those tired of following the partisan coverage of the controversy surrounding the IRS’s processing of exemption applications filed in the last election cycle, especially the special scrutiny given applicants with conservative-sounding (like “Tea Party”) names, the following brief, matter-of-fact story appearing in the Los Angeles Times, which addresses lost emails from Lois Lerner, may be helpful. Here are the opening two paragraphs of the story:
A year after the Internal Revenue Service was found to be targeting conservative groups and others seeking tax-exempt status, the scandal has erupted again with disclosures that the agency lost thousands of emails from a former official at the center of the controversy.
IRS Commissioner John Koskinen disclosed June 13 that emails sent by Lois Lerner, the former director of the IRS division that oversaw tax-exempt groups, were lost when her computer hard drive crashed in mid-2011. This week, Koskinen told Congress that eight other hard drives from potential recipients had crashed as well.
The story then poses and answers the following questions:
What’s so important about Lois Lerner’s emails?
What happened to the emails?
So wasn’t there a backup?
Is there anything else the agency can do to recover the emails?
Why are Republicans claiming foul play?
When did the IRS learn about the lost emails?
What has Lerner said about all this?
What’s the White House involvement?
Tuesday, June 24, 2014
As reported in the Boston Globe, Superior Court Judge Jeffrey Locke has sentenced Bostonian brothers Domunique Grice and Branden Mattier to a prison term of three years, “followed by 3 years of probation and 468 hours of community service to people suffering from loss of limbs or brain injury.” According to the story, after the Boston Marathon bombings, the brothers submitted a fraudulent claim to One Fund Boston on behalf of their long-deceased aunt. The two were convicted last week of conspiracy to commit larceny over $250 and attempt to commit larceny over $250; one defendant was also found guilty of identify fraud. What is especially interesting about sentencing is that Judge Locke reportedly gave the defendants a choice between a term of 4 1/2 to 5 years in prison, and the sentence that included lesser jail time and extensive probation and community service. Speaking of the sentence that the defendants accepted, Judge Locke said that it would serve as “a constant reminder for three years of the population you tried to defraud.”
The San Diego Union Tribune reports that the Metro United Methodist Urban Ministry has sued the City of San Diego. The suit alleges that the church is due $43,000 by the San Diego police department, which in 2007 hired the church to mentor children at risk of joining gangs. Additional details follow:
The department used a state grant to pay Metro United $5,000 a month for consulting services until December 2012, when police requested payroll and other records they had not previously sought, the complaint says.
“All of a sudden, the city says we need documentation,” attorney Peter Polischuk said. “We’ve been absolutely pulling our hair out trying to figure out what’s going on.”
Metro United filed suit in July. The city filed a cross-complaint in February, seeking more than $17,000 it claims police wrongly paid to the church, which refuses to return the money.
According to the story, the “police department has had other problems with grant administration,” though city attorneys deny that the case is about the police department’s “accounting practices.”
Friday, June 20, 2014
In the ongoing controversy involving the IRS EO division and its past director Lois Lerner, new revelations about lost emails (in the thousands) has reignited the wrath of Congress and the public. As reported in The New York Times, IRS informed Congress in a filing to the Senate Finance Committee last Friday that approximately two years of Lerner's emails (both sent and received) were lost in a 2011 computer crash. The IRS Commissioner is scheduled to be grilled by House committees next week on the lost emails. According to the Daily Tax Report, House Republicans notified the IRS Commissioner via a letter that they intend to question IT employees at the IRS about the lost emails.
As reported by The Minority Report (Blog), U.S. Representative Stockman (TX) has written to National Security Angency Director, Admiral Michael S. Rogers, requesting that the Agency "produce all metadata it has collected on all of Ms. Lerner's email accounts for the period between January 2009 and April 2011." Politico.com opined that since Lerner's crashed hard drive has been recycled, it is unlikely the lost emails will ever be found.
A Dallas Morning News editorial published yesterday calls for the Obama Administration to appoint a special counsel to independently investigate the entire IRS controversy, including the lost emails. Clearly, the IRS and its credibility will be continue to be embattled for the foreseeable future.
Thursday, June 5, 2014
As a follow up to yesterday’s post on the Walton Family Foundation, the New York Post reports (h/t Chronicle of Philanthropy) that more than half of the New York City Council has demanded that Walmart stop making charitable gifts to NYC nonprofits. According to the Post article, Walmart made $3.0 million in charitable gifts to nonprofits in the City, including hunger and job training programs and of course, charter schools. The Council sees this as trying to buy influence in the community in order to gain access to New York City markets. I’m sure there are a few people who have food now that didn’t before that really could care less about that.
Yesterday, Walmart was giving too little. Today, it’s giving too much. Huh.
EWW (Still wearing the flame retardant PJs)
Wednesday, June 4, 2014
This article in Forbes has been getting a good deal of play in the media. The article describes a report issued by the Walmart 1 Percent, a project of Making Change at Walmart backed by The United Food & Commercial Workers International Union. The report states that second generation of the Walton family has not been at all generous in supporting the Walton Family Foundation. According to the article, the first generation of the Walton family, Sam and Helen, were the initial creators of The Walton Family Foundation and accounted for the vast majority of the funding of the Foundation. In addition, a number of charitable lead trusts (a.k.a. “tax- avoiding trusts”) set up by parents, as well as their deceased son John, pay their lead interests to the Foundation.
Trust me, I’m no fan of the Waltons or Wal-Mart. I threw up in my mouth a little writing this. That being said, there are a number of things that trouble me about this report that have larger implications for charitable giving, generally.
1. The limits of disclosure. The premise of the report is that “if giving to the Walton Family Foundation is their [i.e., the second generation of Waltons] primary way of practicing charity, then the Waltons are hardly philanthropists.” The report does note that it believes that “it is reasonable to assume that the Walton Family Foundation is the primary vehicle through which the Waltons contribute to charity. However, to the extent that the Waltons make charitable contributions to entities other than the Walton Family Foundation the ﬁndings in this report will under-estimate their total charitable giving.”
I’m not sure why the authors believe that it is reasonable to assume that the WFF is the primary vehicle through which the Waltons contribute to charity. In my personal experience (subject to the caveat that the plural of anecdote is not data), the second generation in a family often does NOT support the parents’ private foundation. Quite to the contrary – those second generation family members often wish to strike out and establish themselves as philanthropists in their own right (or not at all). They will either choose not to make contributions (with the view that they already gave up part of their inheritance to charity) or make contributions in their own names to their own foundations and in furtherance of their own unbridled giving priorities and control.
The fact of the matter is that we simply don’t know the extent of the personal charitable giving of each family member. They may be giving to their own foundations or donor advised funds or supporting organizations or program direct giving, that may or may not have “Walton” in the name. The authors of the report can search the public records all they want – and the report discloses its methodology at the end – but much of this information is simply private, and we won’t know unless the Waltons tell us.
If the 2G Waltons want to claim to be philanthropists and hang their hat solely on the parents’ foundation, well … that’s an entirely different question (a.k.a., what does it mean to be a philanthropist?) On that note, they can put up or shut up, and I agree with this report only to that extent.
2. Tax “avoidance” trusts don’t count as giving. Look, I’m not naïve. (Mostly.) I’ve set up my fair share of charitable lead trusts and I know how they work. I know that the actuarial value of the lead interest going to charity for gift tax purposes bears no relation to the amount *actually* passing to the Foundation. And I know that there is always a transfer tax motive for setting up such a vehicle.
But does that mean we write off such things (and their cousins, the CRT and the gift annuity) as not being charitable?
I think lots of institutions that benefit from such planned giving vehicles would beg to differ. The fact of the matter is that any individual setting up such a trust knows that at least part of the assets in that trust will be going to charity. We can argue about whether the tax benefits to the donors derived from such trusts are not proportional to the amounts passing to charity. We can also argue whether the tax code should incentivize charitable giving by allowing income, estate and gift tax charitable deductions for such gifts in trust.
But let’s be clear. The current Code does allow such trusts. Congress does incentivize charitable giving through these techniques. And I’d bet dollars to doughnuts that the nonprofit community would be very upset if Congress wanted to do away with them – because they do result in real money going to charity. Maybe not as much as we’d like, but they do.
And while I’m at it … these aren’t loopholes in my understanding of the term. A loophole is an unintended tax break found when various parts of the Code don’t work together correctly (read: intentionally defective grantor trusts). CRTs and CLTs are very much in the Code intentionally – they are tax expenditures, not tax loopholes. Don’t like them? Change the Code, but don’t condemn people for taking advantage of legitimate tax strategies that are in the Code very much on purpose.
3. What is philanthropy, anyway? The 2G Waltons clearly have a world view, if one looks at the charitable giving they have done of which we have knowledge. I share pretty much nothing of that world view, personally. Does that mean that what they’ve done or funded isn’t charitable? Of course not - the question of whether or not I personally agree with the 2G Waltons’ giving priorities is irrelevant to whether or not it is charitable giving.
The notion of “charity” isn’t static – one need only to look to questions of race, religious, gender, and like restrictions in charitable gifts to know that standards change over time. I’m not going to say that the definition of charity is entirely open-ended. But we shouldn’t argue that the things that the Waltons support aren’t charitable just because they support things we might not like. You may not like the fact that Alice Walton gave millions to the Crystal Bridges Museum of American Art, but it doesn’t mean that the support of the arts isn’t “charitable.” You may not like the fact that the Waltons support the charter school movement, but that doesn’t meant that furthering educational innovation isn’t “charitable.”
If the shoe were on the other ideological foot, would you want to go down this definitional road?
Fundamentally, the report comes down to this quote:
“if they wanted to, the Waltons could be the most generous philanthropists in America, and probably the world.”
(Italics emphasis in the original). If you’re reading this blog, then you probably think that philanthropy is a pretty good thing and that we’d like people to be more generous. But nothing in our system of donor-driven philanthropy requires it - not of you, not of me, not of the Waltons. Full stop.
EWW (warily donning her flame-retardant pajamas....)
Thursday, May 29, 2014
As reported in Sunday's The New York Times, a trend among hospitals around the country is to reduce financial assistance to uninsured patients with the intent of forcing such patients to obtain coverage under the Affordable Care Act. The criticism is obvious - uninsured lower- and middle-income citizens without coverage will not take advantage of the ACA due to perceived, and perhaps actual, unaffordability and therefore forgoe health care all together. The push-and-pull for hospitals centers on the ACA's reduction of federal payments to hospitals that treat large number of uninsured patients (again, hoping to force such patients to seek coverage in online marketplaces) and the actual need to provide free or reduced-cost health care to those most in need of it.
The Times article illustrates hospitals' various policies to address this real problem:
In St. Louis, Barnes-Jewish Hospital has started charging co-payments to uninsured patients, no matter how poor they are. The Southern New Hampshire Medical Center in Nashua no longer provides free care for most uninsured patients who are above the federal poverty line — $11,670 for an individual. And in Burlington, Vt., Fletcher Allen Health Care has reduced financial aid for uninsured patients who earn between twice and four times the poverty level.
Continuing charity care for the uninsured, argues some health care providers, defeats the very purpose of the ACA. However, uninsured advocates argue that many uninsureds forgoe coverage under the ACA inaugural enrollment because the plans are expensive, even with government subsidies. Some argue that it is still a matter of message - encouraging people who now have access to coverage under the ACA to take advantage of the opportunity.
The article further states:
Many hospitals appear focused on reducing aid only for patients who earn between 200 percent and 400 percent of the poverty level, or between $23,340 and $46,680 for an individual. Many of those people presumably have jobs and would qualify for subsidized coverage under the new law.
The Times further reported that financial challenges for uninsureds are "particularly daunting" in the states that have not yet expanded their Medicaid programs, which currently totals over 24 states.
An issue not addressed by the Times Article is how these emerging charity care policies, to best comply with and take advantage of the new ACA reimbursement rules, will affect these tax-exempt hospitals' Form 990 Schedule H reporting? Has Congress and the IRS contemplated the changes to charity care numbers in light of the above-referenced ACA rules?
Saturday, May 24, 2014
A regional Blue Cross and Blue Shield parent company is the defendant in a lawsuit alleging inappropriate retention of profits and excessive executive compensation, reports the Chicago Tribune. Here are some of the reported details:
Health Care Service Corp., a nonprofit mutual insurance company that operates Blue Cross and Blue Shield plans in Illinois, Texas, Oklahoma, New Mexico and Montana, is accused of breaching its contracts with members by accumulating excess profits of about $4.9 billion. Instead of disbursing that money to its health insurance members either through a paid dividend, reduced prescription drug costs or lower premiums, the company paid out nearly $100 million in bonuses to its top 10 executives from 2011 to 2013, according to the suit.
The complaint was filed Monday by Babbitt Municipalities Inc., a Chicago-based benefits administration company that conducts business as Group Benefits Associates and works primarily with labor unions. It seeks certification as a class action that would include all policyholders in HCSC’s fully insured business, which totaled about 8.5 million members as of Dec. 31.
Friday, May 23, 2014
The Detroit Free Press reports that the Michigan House of Representatives, in a bipartisan 103-7 vote, has approved legislation to help lift the City of Detroit from bankruptcy. The main bill is reported to specify conditions to the $194.8 million the State of Michigan could give Detroit to ameliorate reductions in pension benefits and to preserve holdings at the Detroit Institute of Arts. The role of nonprofits in the bailout is explained as follows:
The state’s contribution is part of a so-called grand bargain that will be combined with $366 million pledged from charitable foundations and $100 million from the Detroit Institute of Arts. The money is designed to ease the cuts for pensioners and retirees and protect the artwork at the Detroit Institute of Art[s] from sale.
Thursday, May 22, 2014
The Washington Post is running a story involving Arlington-based International Relief and Development (“IRD”), “the largest recipient of grants of any nonprofit organization funded by the U.S. Agency for International Development” (“USAID”). Eighty-two percent of IRD’s $2.4 billion in funds received since 2007 reportedly were devoted to USAID projects in Iraq and Afghanistan.
The Post reports that a federal inspector general is seeking the identities of employees who signed confidentiality agreements with IRD that prohibited them “from making disparaging remarks about the company to ‘funding agencies’ or ‘officials of any government.’” The existence of the agreements became an issue when the Post, in examining IRD’s operations, heard from former IRD employees that they had witnessed waste and potential fraud, but feared the prospect of coming forward because of the agreements. Additional details follow:
IRD Special Inspector General for Afghanistan Reconstruction John F. Sopko said in a letter delivered to IRD President Arthur B. Keys on Wednesday that the agreements could violate the False Claims Act and other statutes designed to protect taxpayers and whistleblowers.
In addition to the names, he asked IRD to disclose the federal contracts and grants that the employees worked on while they were with the Virginia nonprofit group, as well as any correspondence with the company. Forty-nine IRD employees signed the agreements at issue, seven on programs in Afghanistan, the nonprofit group said.
“We are actively seeking information concerning IRD’s compliance with whistleblower protection laws and regulations,” the inspector general wrote.
IRD has issued a statement pledging its cooperation with the inspector general. In addition, according to the Post, IRD General Counsel Jason Matechak has told the inspector general that employees have been notified that the agreements do not preclude them from participating in a governmental investigation, and that IRD “would not seek to enforce the separation agreement in a manner that would run afoul of the False Claims Act.”
The Los Angeles Times reports that California Attorney General Kamala Harris is examining the San Diego Opera, a tax-exempt section 501(c)(3) organization that has recently announced its intention to continue operating notwithstanding a prior decision to shut down. Thus far, the AG has directed the opera company to produce certain records and retain all existing documents. A spokesman for the opera is reported as saying that he could not elaborate on the nature of the AG’s request.
The story continues with an explanation of how the AG’s inquiry may have sprung to life:
Lorena Gonzalez, a state assemblywoman for District 80 in San Diego, said she'd reached out to the attorney general in mid-April with concerns about the way opera leaders handled the announcement that the opera would close.
She said there were questions about Ian Campbell, the opera's longtime general and artistic director, and whether he and other leaders had given an accurate portrait of the company's financial health when communicating with potential donors and government funding sources.
"There are questions about whether the company received taxpayer dollars based on false information," said Gonzalez.
However, a lawyer for Campbell disputed Gonzalez's concerns. "Ian was fairly consistent in representing accurate information to donors and especially internally within the company," said Gil Cabrera, a San Diego attorney.
According to the Times, Keith Fisher, the opera's COO, issued a statement that the opera welcomed "the opportunity to open our records to Kamala Harris' office, as doing so will assure the public of our promise of transparency and good governance."