Monday, December 4, 2023
Out in Los Angeles, the Levitt Foundation has made the remarkable decision to spend its entire remaining endowment in one final push, albeit over 18 years, to build outdoor amphitheaters in cities and neighborhoods underserved by the arts. The Foundation also pays for outdoor concerts by well known and not so well known musicians. Over 30 last summer in MacArthur Park alone and 50 in Dayton, Ohio. When its done it plans to go out of business, having proven something to the next group of do-gooders and hoping that others will follow its example. City leaders tout the revitalizing impact of urban amphitheaters and their tendency to attract big, money-spending crowds. Here are a few paragraphs from a story in the L.A. Times:
Since 1966, the foundation has turned dilapidated, unused public spaces into outdoor amphitheaters to host free concerts across the country. In 2019, the Levitt Foundation had budgeted funds to develop 15 new venues through its AMP program, but identified 17 worthy cities that could benefit from the program. Instead of expanding the budget, the Levitt Foundation chose to stick with the original allotment, causing some tension among the organization’s leaders.
“We started asking ourselves, ‘Why are we holding back when we have resources and we know we can make change now?’” said CEO Sharon Yazowski. “‘Why are we waiting to the future to support change in communities?’ We made the conscious decision that we wanted to spend down our resources because we thought that change needs to happen now.”
Eager to make an immediate impact, the foundation came to a conclusion: after more than 50 years of service, it will shut down operations in 2041. Over the next 18 years, the Levitt Foundation will spend down its remaining $150 million in assets, increasing the number of sites it can launch each year while also creating proof of concept for future organizations to continue its work.
“We thought, ‘What’s the point in us existing in perpetuity and just trickling out funds while saying no to more communities when we knew we could have a greater impact by allocating our resources at an accelerated rate,’” Yazowski said.
What's the point, indeed? Coincidentally, Philanthropy Roundtable issued a "Policy Primer" last month seeking to explain the point. It looks like a good read that is probably helpful towards finding the right answer. It is probably no surprise that the study concludes that everything is fine in IRC 4942, given the Roundtable's general philosophy. But the the study has all sorts of charts and other data, even data on payout rates in other countries, like Germany. The conclusions are well fortified and defensible, even if not correct. Here is the executive summary from Private Foundations and the 5 Percent Payout Rule, by Jack Salmon.
Private foundations play an important role in the charitable sector by supporting civil society and serving community needs. Around 125,000 grantmaking foundations collectively donate over $100 billion to Charitable causes every year.
Since the passage of the 1969 Tax Reform Act, private foundations have been subject to stringent rules and regulations by the internal revenue service (IRS). One of the most important rules is the 5 percent minimum distribution rule, which requires private foundations to distribute 5 percent of the fair market value of their assets each year for charitable purposes.
The 5 percent figure was chosen as a benchmark to str4ike a balance between ensuring that private foundations provide significant resources for charitable activities in the near-term while allowing foundations to provide long-term support to charities.
In recent years, we have seen a revival in populist rhetoric as critics of private philanthropy argue for higher foundation payout requirements and other onerous new rules.
Research on private foundation payout trends suggests such proposals are unwarranted and more likely to reduce charitable giving in the long run, to the detriment of charities and the most vulnerable in our society.
darryll k. jones