Tuesday, July 13, 2021
The past month has seen a number of significant developments relating to donor advised funds, including the introduction of the Accelerating Charitable Efforts Act ("ACE Act") in Congress, a study of Michigan community foundation DAFs, and media criticism of various uses of DAFs.
Senators Angus King (I-Maine) and Chuck Grassley (R-Iowa) announced the introduction of the ACE Act in early June. The legislation aligned with the priorities and some of the proposals by the Initiative to Accelerate Charitable Giving. Some organizations quickly expressed strong opposition, including the Council on Foundations and the Philanthropy Roundtable. Others reserved judgment, awaiting further study and input from their members, including Independent Sector and the United Philanthropy Forum, although they joined a letter from some critics expressing concerns about the Act. Coverage: Devex; MarketWatch.
Also last month, the Council of Michigan Foundations released a study titled "Analysis of Donor Advised Funds from a Community Foundation Perspective." Here are its Key Findings:
- DAFs compose a considerably smaller percentage of endowments of Michigan community foundations compared to community foundations nationwide. The median community foundation in the United States holds roughly one in four dollars of its endowment on behalf of a DAF — compared to one in ten for Michigan’s community foundations.
- The median Michigan DAF experienced investment returns consistent with the median Michigan community foundation. DAF gains were slightly higher, and losses slightly greater, than the median community foundation’s results — suggesting that the median DAF accepts more risk with the opportunity for higher return.
- The median payout rate of all Michigan DAFs during 2017–2020 is 2% lower than the median Michigan private or community foundation. However, when only including DAFs that made a payout during a given year, the median DAF payout rate moves to 2% or more higher than the median private or community foundation payout rate.
- In any given year included in this study (2017–2020):
- One in ten Michigan DAFs received inbound contributions but made no outbound distributions (grants).
- More Michigan DAFs made a distribution (more than 60%) than received an inbound contribution (roughly 40%).
- Although an average of one in four Michigan DAFs was quiet (inactive) in any single year, across the four study years less than 10% of all Michigan DAFs were quiet in every year. These quiet DAFs hold less than 5% of total DAF assets in the state.
- DAFs that were active in every year 2017 through 2020 — with a contribution, distribution, or both — comprised the majority of Michigan’s DAFs (59%), received nearly all of the contributions (96%), made nearly all of the distributions (88%), and held nearly all of the assets (82%).
- In 2020 (the most recent year available), just under half (43%) of Michigan’s DAFs paid out 5% or more of their balance, and almost a third (32%) paid out 9% or more.
- Looking at the type of DAF:
- Michigan’s DAFs are nearly evenly divided in both number and total assets between endowed and spendable DAFs, with endowed DAFs holding just over 50% of all assets. However, spendable DAFs comprise nearly three-quarters of all contributions and distributions.
- One-quarter of Michigan’s spendable DAFs distribute nearly half of their balance in any given year, and one in every ten spendable DAFs distributes almost all of the available balance (80% or more) in any given year.
- Out of the approximately 2,600 DAFs housed at Michigan’s community foundations, only 2% were established by a private foundation. Balances, contributions, and distributions were also all in single digit percentages. Therefore, private foundation-established DAFs are rare within Michigan’s DAF universe.
- There is evidence that DAFs responded to the crises in 2020.
- Two-thirds of all DAFs made distributions in both 2019 and 2020, with just over one-third (35%) increasing both the dollars distributed and the payout rate in 2020 compared to 2019.
- Nearly one in five distributed dollars in 2020 came from DAFs that made no distributions during 2019.
- The median distribution from a Michigan DAF rose from $8,500 in 2019 to $9,750 in 2020.
Finally, there have been several news stories and opinion pieces including criticism of DAFs. These included a N.Y. Times story "How Long Should It Take to Give Away Millions?", an L.A. Times editorial "Charitable donations are a form of influence-peddling. And they should be stopped" (use of DAFs to avoid California's legally required public disclosure of the sources for donations requested by politicians), and a Daily Beast story "Christian Billionaires Are Funding a Push to Kill the Equality Act" (focusing on donations from the DAF sponsor National Christian Charitable Foundation).