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 5, 2014
There has been an enormous amount of academic, other commentator, and media coverage of the Supreme Court's recent decision in Burwell v. Hobby Lobby Stores. Included in the discussion has been much speculation about how the decision, involving a closely-held, family-owned, for-profit corporation, impacts ongoing litigation involving religious nonprofit corporations challenging whether the limited accommodation provided for them under the same rule (requiring coverage of contraceptive services) is sufficient under the federal Religious Freedom Restoration Act. Language in the majority opinion (slip op. p. 44) and in Justice Kennedy's concurring opinion (slip op. p. 3) seems to suggest although not hold that it is, but on Thursday the Court issued an injunction barring the federal government from requiring Wheaton College to use the form prescribed by the government to implement the accommodation, pending resolution of the College's appeal. The order generated a strong dissent from Justice Sotomayor (joined by Justice Ginsburg and Justice Kagan), who concluded the College had not stated a viable claim under RFRA. The dissent is unusual, especially given that the order on its face makes it clear that it "should not be construed as an expression of the Court's views on the merits."
My understanding of what is going on here is as follows. First, many religious nonprofits (my employer, the University of Notre Dame, included) are not flatly exempted from the requirement to cover contraceptive services. The existing flat exemption is limited to churches and, using terms familiar to nonprofit scholars and practiti0ners and indeed defined by reference to Internal Revenue Code § 6033, conventions or associations of churches, integrated auxiliaries of churches, and the exclusively religious activities of any religious order. Other religious nonprofits instead are accommodated by being given the opportunity to complete the above-mentioned form stating their objection to providing some or all of the required coverage. The effect of this form differs depending on whether the nonprofit otherwise would provide such coverage through a third-party insurer or through a third-party administrator because the nonprofit is self-insured.
The University of Notre Dame provides a good example of both of these situations and how they differ, particularly from the perspective of the nonprofit (and indeed Notre Dame is challenging the sufficiency of the accommodation in court). These facts are drawn from the Seventh Circuit's recent opinion adverse to Notre Dame, although it should be noted that many similarly situated religious nonprofits have won similar cases in the lower federal courts (pre-Hobby Lobby). For those students at Notre Dame who need health insurance, Notre Dame has a contract permitting students to purchase such insurance from an insurance company, Aetna. The effect of Notre Dame completing the above form (EBSA Form 700) is to tell Aetna Notre Dame (and its students) will not pay for such coverage, which effectively requires Aetna to do so because under the Affordable Care Act health insurance companies have to provide such coverage. So by completing the form, Notre Dame effectively shifts the cost of such coverage from itself (and its students) to Aetna.
For faculty and staff at Notre Dame who need health insurance, the situation is subtlely different. Notre Dame is self-insured, which means it pays for all covered health insurance (subject to a modest employee up-front contribution and co-pays) although it hires a third-party to administer this coverage (Meritain). The difference here is that Meritian is not a health insurer, so it is not obligated to provide coverage for contraceptive services even if Notre Dame refuses to do so absent an additional legal step. The additional legal step providing by the current accommodation is that Notre Dame's completion of the EBSA Form 700 triggers a new requirement that Meritain provide this coverage, accompanied by a right for Meritain to obtain reimbursement of at least 110 percent of its costs of doing so from the federal government. My understanding is that under Notre Dame's understanding of the theological concept of cooperating with evil, since the effect of Notre Dame completing the form is to trigger a new requirement that Meritain provide contraceptive coverage (albeit ultimatley paid for by the federal government), being required to complete the form is viewed by Notre Dame as a greater burden on its exercise of religion that exists when the coverage is provided by a third-party health insurer (although I assume Notre Dame is continuing to argue that the accommodation in that situation is also not sufficient under RFRA). As the Supreme Court majority noted in the Hobby Lobby decision (slip op. pp. 36-38), whether a particular act is sufficiently connected to the ultimate evil objected to make that act itself morally objectionable is itself a religious belief and so subject only to test of sincerity in the courts (which test I assume Notre Dame would have no trouble passing).
Bottom line, the Hobby Lobby decision does not clearly resolve the cases involving religious nopnrofits that are not flatly exempt from the contraceptives services coverage requirement but instead accommodated as described above. Furthermore, those religious noprofits that provide health coverage through self-insurance as opposed to a through a third-party insurer have a subtely stronger claim that the existing accommodation is not sufficient under RFRA. Whether the lower courts, and ultimatley the Supreme Court, believe this difference is determinative remains to be seen.
Thursday, July 3, 2014
Third Sector reports that the Charities Aid Foundation has issued a report criticizing several countries for introducing legislation or taking other steps aimed at preventing nonprofits from criticizing their governments. Titled Future World Giving: Enabling an Independent Not-for-profit Sector, the report highlights six countries that have introduced such legislation and several others where government critics, including the leaders and members of NGOs, face prosecution and other government persecution. The report also highlights how governments often use their funding of NGOs to impose conditions on those groups that effectively silence them, an issue that recently reached the Supreme Court here in the United States.
The NY Times Dealbook reports that Geoffrey P. Raynor, founder of the hedge fund Q Investments, has funded classes on philanthropy at several prominent universities, including Harard, Northwestern, Princeton, Stanford, and Yale. The classes give students real world experience in giving money away (tens of thousands of dollars for each group of enrolled students). They also give students an opportunity to question Mr. Raynor, who requires that he be given two hours to speak to the students personally. According to the article, some of those question and answer sessions have become a bit testy, with students challenging Mr. Raynor's approach to philanthropy and questioning how he made his money. The one lesson that all of the students seem to take away, however, is that giving away money well is harder than it first appears.
Wednesday, July 2, 2014
In an interesting example of government transparency, Third Sector reports that the Charity Commission for England and Wales has issued its Annual Complaints Review showing that complaints made against the Commission increased in 2013/14 over a third from the previous year and that the proportion of complaints fully or partially upheld almost doubled (from 19 percent to 34 percent). More specifically, the Commission received 152 "Stage 1" complaints, with about a third of the complaints moving to Stage 2 consideration (because the customer was dissatisfied after the Stage 1 review). To put the number of complaints in context, the Commission during the same period received 6,681 applications for registration as a charity (or about a tenth of the § 501(c)(3) applications the IRS receives annually). The most common issue raised (and some complaints raised multiple issues) was insufficient regulatory intervention by the Commission.
While I realize that the National Taxpayer Advocate may to some extent gather similar information with respect to the IRS, it is telling that when the Advocate's office reviewed the exempt organization application process last summer it began by stating that "[i]In addressing the exempt organization (EO) issues, the Advocate’s office does not have investigative authority and did not seek to duplicate other ongoing investigations." The existence of this type of detailed information in the UK may be another argument for a national exempt organizations regulator that is not part of the IRS, as Marc Owens has proposed.
Bloomberg Businessweek had a fascinating article in May detailing how three billionaires used a complex web of private foundations and limited liability companies to hide not their political activity (they are not the Koch brothers) but instead their charitable giving. Committed to keeping a low profile while supporting their desired causes, the reporter who wrote the story only stumbled across their activities when he noticed two multi-billion dollar charitable funds listed in an IRS database. It then apparently took a year to pull from public documents - IRS annual returns, secretary of state filings, and so on - the overall structure and the individuals ultimately behind it: the three founders of a little known but apparently highly successful hedge fund, TGS Management. Since 2000 the two funds have distributed more than $1.8 billion to various charities (including $700 million to combat Huntington's disease), plus an additional $1 billion that went to the Vanguard Charitable Endowment Program and so the ultimate charitable recipients for that amount are not known.
Bottom line, it is still possible to be a anonymous charitable giver, even on a very large scale, at least for a while.
We previously blogged (here and here) about the lawsuit Princeton, New Jersey residents filed in 2013 against Princeton University, arguing that the University no longer qualified for exemption from property taxes because of its hundreds of millions of dollars in revenues from royalties and commercial ventures. We missed, however, the latest major development in this dispute, which was reported by Bloomberg. In late April of this year, the University announced that it had entered into an agreement with the town to pay more than $24 million, mostly in unrestricted payments, to the town on a voluntary, one-time basis over the next seven years. The amount is a significant increase over the amounts Princeton had been paying the town voluntarily.
The agreements appears designed to undermine the pending lawsuit, and it apparently surprised the residents who brought the claim and their attorney based on comments in the Bloomberg article. I am not familiar enough with the lawsuit, the agreement, or New Jersey law to know if the agreement effecctively moots the lawsuit or otherwise provides grounds for a motion to dismiss by the Unviersity, but I assume that the University's lawyers will eventually argue something along these lines.
Tuesday, July 1, 2014
The Washington Post reports that the Corcoran Galley of Art has filed papers in D.C. Superior Court outlining its plan to keep its collection in the DC area through an arrangement with George Washington University ( GWToday announcement) and the National Gallery of Art (National Gallery announcement). As the article details, the plan is apparently driven by the fact the Corcoran has run deficits for 11 of the past 13 years, leading it to conclude that it is not financially possible for the gallery and related college to continue to operate in its current form. The Corcoran is therefore invoking the cy près doctrine to permit changes to how its collection and educational activities are handled in the future.
Under the plan the National Gallery will have first claim on the Corcoran's collection, with any art that the National Gallery chooses not to keep offered first to institutions within the city and then in a growing geographic area outside of the city. The Attorney General for the District of Columbia must approve any transfer of art outside the city, however. The entire process of allocating the artwork may start as early as mid-August. For its part, George Washington University will take over the Corcoran College of Art and Design and also maintain the Corcoran's existing gallery space, as a fail-safe location for the collection taken by the National Gallery. The Corcoran itself will continue to exist, but as a much smaller nonprofit organization devote to the arts.
For more information, see the motion filed by the The Trustee of the Corcoran Gallery of Art (courtesy of the Washington Post).
Hat Tip: Miriam Galston (GWU)
CNN reports that Quadriga Art, a for-profit charity fundraising company, has resolved an investigation by the New York Attorney General's office by agreeing to pay almost $10 million in damages and to forgive another almost $14 million in debt owed to the company. Nick Mirkay previously posted in this space on the still ongoing congressional investigation into this situation.
The CNN report states the focus of the investigation and settlement was the relationship between Quadriga and the Disabled Veterans National Foundation, a charity that Quadriga Art apparently helped set up in 2007 by fronting the charity's initial printing, mailing, and other fundraising costs. The relationship eventually led to the charity raising $116 million, but paying $104 million of that amount to Quadriga and owing Quadriga the debt forgiven in the settlement. As part of the settlement the Foundation also agreed to take a number of steps, including having its founding board members resign, creating a committee to reexamine its business model, and refraining from using Quadriga or a particular direct marketing company for three years.
Wednesday, June 25, 2014
The most recent edition of the National Council of Nonprofits’ Nonprofit Advocacy Matters features several entries that may interest readers, including those addressing the following:
- The status of proposed legislation to permanently extend expired charitable giving incentives
- Passage by the Illinois General Assembly of a bill to align state grant procedures with the federal government’s recently modified guidance promulgated by the Office of Management and Budget
- PILOT initiatives in Massachusetts
- An update on government-nonprofit contracting reforms
- A resolution by the Bethany Beach, Delaware City Council requiring organizations conducting charity fundraising events in public facilities to transfer at least 60% of gross revenue to charity.
This last one is quite intriguing. The story elaborates:
The 60 percent threshold reportedly is based on Charity Watch’s recommended percent of donations nonprofits should spend on mission-advancing programs. Interestingly, Daniel Borochoff, president of Charity Watch, encouraged the town to establish better disclosure requirements rather than regulate the percentage directed to charities, which he correctly observed is constitutionally suspect.
Friday, June 20, 2014
As reported by The Chronicle of Philanthropy, Public.Resource.Org ("PRO") filed a lawsuit seeks to compel the IRS to release Forms 990 in a format that can be read and, thus, searchable by computers. The IRS practice to date is to convert all filed 990s into images, which renders the content therein incapable of being searched. Organizations that provide access to exempt organizations' 990s, like GuideStar and Charity Navigator, must manually enter the data in order to make it accessible to the public. PRO seeks to end the IRS practice that makes such forms effectively useless to organizations wishing to search the filed returns for specific data or information. The IRS argues that current open-records laws do not require it to utilize any particular format in making the information public.
According to The Chronicle, on Wednesday, June 18, 2014, Judge William Orrick (U.S. District Court for Northern District of CA) "tentatively" denied the IRS's motion to dismiss the lawsuit, thus allowing the lawsuit to proceed.
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.
Wednesday, June 18, 2014
Donor Disclosure Law. On May 14, 2014, California Governor Jerry Brown signed into law S.B. 27, which requires large donations from nonprofits and other "multi-purpose" (MPOs) organizations to be disclosed beginning July 1. In addition, the California Fair Political Practices Commission is required to post the names of the top 10 contributors on its website. The bill's intended effect is to shed light on “dark money” in political campaigns and referendums by eliminating a now common practice of nonprofit and other organizations contributing significant dollars into such campaigns without disclosure of the original donors. According to the Los Angeles Times, the legislation was advanced after "conservative groups from Arizona poured $15 million into California in 2012 to fight Proposition 30, Gov. Jerry Brown's tax hike, and support an ultimately unsuccessful move to curb unions' political power."
Hospital Executive Pay Ballot Initiative. A ballot initiative to cap the executive compensation of nonprofit hospital executives failed to qualify for the November 2014 ballot. The Charitable Hospital Executive Compensation Act of 2014 would have instituted an annual compensation limit (including bonuses and other benefits) for such execs to the salary and expense account of the President of the United States (currently, $450,000). In addition, the 10 highest-paid executives and 5 largest severance packages would have been required to be publicly disclosed annually. According to the Los Angeles Times, the proposed ballot initiative was dropped by the SEIU-United Healthcare Workers West Union in a deal struck with the California Hospital Association and a majority of California's 430 hospitals.
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
In American Atheists v. Shulman, the U.S. District Court for the Eastern Division of Kentucky rejected three atheist organizations' contentions that the IRS unconstitutionally discriminates against non-religious tax-exempt organizations. Specifically, the Atheists alleged that the IRS’s differing treatment of churches as opposed to other tax-exempt organiations was unconstitutionally. Specifically, the Atheists requested that the Court issue a judgment “[d]eclaring that all Tax Code provisions treating religious organizations and churches differently than other 501(c)(3) entities are unconstitutional violations" of the Equal Protection laws of the Fifth Amendment, the First Amendment and the Religious Test Clause of Article VI, §3 of the Constitution. The Atheists claimed "upon information and belief a number of atheist organizations have tried to obtain IRS classification as religious organizations or churches under §501(c)(3) or to otherwise obtain equal treatment,” and “most of those applications and attempts were rejected by the IRS." However, the Court found that the Atheists admitted in pleadings that they themselves had never sought recognition as a religious organization or church under §501(c)(3). The Atheists responded that they have not applied for exemption as a religious organization or a church because seeking such a classification would "violate their sincerely held belief."
Nevertheless, the Court found that the Atheists lacked the necessary standing to bring the suit, in part because they could have applied for religious designation. The Court concluded that the Atheists failed to establish any injury-in-fact and their assertion that they would fail to qualify as a church or religious organization was "mere speculation." To the contrary, stated the Court, "[a] review of case law establishes that the words ‘church,’ ‘religious organization,’ and ‘minister,’ do not necessarily require a theistic or deity-centered meaning."