Nonprofit Law Prof Blog

Foundation Leaders Admit to Seeking to Influence Public Policy Through Grant Making

According to a study of more than 200 grant makers released by the Center for Effective Philanthropy on Wednesday, nine in 10 foundation leaders say their foundations seek to influence public policy through their grant making and other activities. Not only that, but almost 75% of those foundations have increased their policy efforts during the past three years, most frequently at the state and local levels.

Foundation leaders apparently find nothing wrong with the practice. The study relates that "These efforts are not new, but have increased in recent years." Moreover, "most foundation leaders view efforts to influence public policy as an important way to achieve their goals."

The study published a sample of views held by some foundation leaders:

•     "Good public policy helps our grants go further, and bad public policy undermines our grant making."
•     "Public policy can have significantly more impact on the issues we care about than our grant dollars alone can."
•     "One cannot be serious about, for example, the health of the environment and ignore the importance of policy action on       climate change."

The report maintains that "The primary way foundations pursue their policy agenda is through grant making. Almost three-fourths of foundations that engage in policy work support grantees’ policy efforts."

Yet, the survey found that many foundation leaders run into internal resistance to their policy work. According to the report, "Foundation leaders face some common challenges, particularly when it comes to building board support."

Only 45 percent of leaders said their boards were "completely supportive" of policy efforts, 50 percent said their boards were "somewhat supportive," and 5 percent said their boards were "not supportive."

Of course, we know that private foundations face some limits on their advocacy. For example, they are prohibited from lobbying directly on legislation unless the bill addresses the way foundations operate. Also, they cannot support candidates for public office.

Vaughn E. James

Nonprofits Won't Survive Unless the Federal Government Helps More Medium-Sized Groups

Writing in today's Chronicle of Philanthropy, Susan N. Dreyfus and John MacIntosh opine that during the current COVID-19 crisis and its aftermath, many medium-sized nonprofit organizations will not survive unless the federal government provides them more much-needed support. Dreyfus is CEO of the Alliance for Strong Families and Communities; MacIntosh is managing partner of SeaChange Capital Partners, an organization that helps nonprofits facing complex financial challenges. In their thought-provoking article in today's Chronicle, they argue that while

[n]onprofits of all kinds provide critical help to communities across the United States, . . . it is the medium-sized ones that make a critical difference — those with at least 500 employees. Their workers operate food pantries, and homeless and domestic-violence shelters. They manage and staff residential facilities for young people with mental illnesses. They offer in-home and residential services for older Americans and people with disabilities. During the Covid-19 pandemic, their work is more urgent than ever.

Yet, the authors state, even as these organizations face various challenges -- challenges as daunting as those faced by their smaller counterparts -- they "are not receiving the government support they need to survive." For example, the "federal Paycheck Protection Program excludes nonprofits with more that 500 employees from obtaining the forgivable loans that would allow them to retain and compensate their employees and continue to deliver essential services during this public-health crisis."

What, then, can we do? As the article points out, at "a time when many nonprofits are at a breaking point, we [cannot] afford to leave those with more than 500 employees out of support programs that are keeping smaller organizations afloat."

According to the article,

A new analysis of New York City’s larger nonprofits found that under normal circumstances, most have just two weeks of cash on hand. Without immediate assistance, the report projects that some won’t survive through May and that few, if any, will be in a position to continue services during the Covid-19 crisis and its aftermath. Most of these organizations lack meaningful endowments and have limited access to credit. Their operating margins are razor thin (an average of 1 percent), even before taking into account the reduction in revenue and increase in expenses associated with the pandemic. Most importantly, their philanthropy, which covers less than 5 percent of expenses, cannot make up for a reduction in funding and contracts during the health crisis.

The article continues:

This situation is not unique to New York. A 2018 report on the financial stability of community-based human-services organizations found that 40 percent of the larger nonprofits had less than one month of cash reserves. Those providing housing and shelter-related services faced significantly greater financial stress.

Critics may be quick to argue that the challenges confronting these nonprofits are the result of their own inefficiency and poor management. Not so, argue Dreyfus and MacIntosh. They specifically state that:

The challenges confronting these nonprofits are not the result of inefficiency or poor management. Most government funding and philanthropy traditionally does not cover the full cost of providing services. Government contracts for essential services also create cash-flow problems since, unlike with grants, payments are not made until after the work is completed and can be subject to long and unpredictable delays. Cash, as a consequence, is an ongoing issue. But unlike large for-profits, these organizations do not have access to capital markets, cannot easily unlock illiquid assets, and are unable to use bankruptcy to restructure while continuing to deliver services. Any increase in costs, reduction in revenue, or delay in cash receipts could put some of them permanently over the edge.

So just what is the solution? The authors call for Congressional action: 

The Cares Act, which established the Paycheck Protection Program, does include larger nonprofits in the economic stabilization funding (now known as the Main Street Program), but fails to provide guidance or loan forgiveness for these organizations. 

Nonprofits with more than 500 employees must be able to access capital and receive the same loan forgiveness as smaller nonprofits. This will require changes from Congress in the next stimulus bill. It is unclear whether nonprofits will be competing for the same funds out of the Federal Reserve as corporations under the Main Street Program. For this reason, nonprofits will need a dedicated pool of funds so they are not placed in line behind for-profits to access vital dollars.

A new bill, scheduled to be introduced this week by Rep. Joyce Beatty, an Ohio Democrat, titled the Help Charities Protect Communities Act, would provide some relief by introducing a lending program that includes loan forgiveness for nonprofit organizations with 500 or more employees.

A coalition of more than 200 national nonprofits have outlined these and other priorities in an appeal to lawmakers to recognize the impact and vital importance of larger nonprofit organizations that are continuing to provide for their communities over the course of this pandemic. The Cares Act was an important first step, but we must do more during this unprecedented crisis to sustain the organizations that do so much for the health, well-being, and safety of America’s families.

For the sake of the nonprofits and the many people that they help, I hope that Congress finds a way to fund these medium-sized nonprofit organizations both now and in the aftermath of the current COVID-19 crisis.

Vaughn E. James

 

 

 

Coronavirus Nonprofit Law Initial Roundup: CARES Act; Extended Deadlines

This blog has been on hiatus as its contributors have dealt with moving their courses to online delivery, supporting students facing many stressful situations, and of course dealing with the personal impacts on us and our families of the pandemic. It therefore seems appropriate to start with an initial roundup of nonprofit law-related coronavirus topics before turning to other recent nonprofit law developments.

CARES Act: Many provisions of the CARES Act (Pub. Law No. 116-136) could be relevant to most nonprofits, but three provisions stand out in particular:

• Partial Charitable Contribution Deduction for Individual, Non-Itemizers (section 2204): Modifies Internal Revenue Code section 62 by adding paragraph (a)(22) and subsection (f) to allow individuals who do not itemize their deductions to deduct, above-the-line, cash charitable contributions (as defined in section 170(c)) of up to $300 total made in taxable years beginning after December 31, 2019. Supporting organizations and donor-advised funds are not eligible recipients, but private foundations are.

• Temporary Elimination or Increase of Limits on Certain Charitable Contribution Deductions (section 2205): Modifies IRC section 170 by eliminating the contribution base percentage limit on charitable contributions by individuals and increasing the taxable income percentage limit on charitable contributions by corporations from 10 percent to 25 percent for cash contributions made during the 2020 calendar year. Again, supporting organizations and donor-advised funds are not eligible recipients, but private foundations are.

• Small Business Administration Loans: Section 501(c)(3) organizations, including religious ones, are eligible to participate in the Paycheck Protection Program (sections 1101-1106) if they satisfy number of employee (usually 500 or less) and other requirements, and all private nonprofits are eligible to participate in the Emergency Economic Injury Grants program (section 1110) if they satisfy that program's number of employee (usually 500 or less) and other requirements. For more details about these programs, see the SBA website; there is also an informative webinar on the Pittsburgh Foundation's website (dated April 10th) on this topic, as well as additional webinars on other coronavirus, nonprofit-related topics.

Coverage: Independent Sector; National Council of Nonprofits. Interestingly, these summaries state that the above-the-line deduction provision applies to contributions made in 2020, but the statutory language appears to make this provision permanent in that it applies "to taxable years beginning after December 31, 2019" without any expiration date and so it should be available for cash contributions made after 2020 as well. An analysis by the University of Pennsylvania's Wharton School, which states the above-the-line deduction is only available for contributions made in 2020 (I believe incorrectly), predicts that deduction will cost $2 billion but will only increase charitable contributions in 2020 by $110 million.

Extended IRS and State Filing Deadlines: In Notice 2020-23, the IRS explicitly extended to July 15, 2020 the deadline for filing (and paying any related tax owed) Form 990-PF, Form 990-T, Form 990W, and Form 4920 if they otherwise would have been due on or after April 1, 2020 and before July 15, 2020. In addition, by cross-reference to Revenue Procedure 2018-58 (see Section 10) the IRS also also extended to July 15, 2020 the deadline for filing a wide range of forms relating to tax-exempt organizations, including Form 990, Form 990-EZ, Form 990-N, Form 1023, Form 8871, Form 8872, and Form 8976 if they otherwise would been due during the same time period. For an analysis of this cross-reference, see this post by Laura J. Kenney of Blum Shapiro. Hat Tip: EO Tax Journal.

The IRS has also announced in a memorandum that it is permitting examination agents and managers to use "an increased reasonable application of business judgment" when applying the otherwise applicable deadlines for responding to information document requests and follow-ups during enforcement actions. This "temporary deviation" from the otherwise applicable requirements for enforcing such deadlines is in effect through July 15, 2020.

Finally, states are extending deadlines for required filings by nonprofits. For example, the New York Attorney General's Charities Bureau has announced it will grant an automatic six-month extension for annual financial reports originally due after February 15, 2020.

More updates to follow. Stay safe.

Lloyd Mayer

 

College & University Investments: Slowing Returns, Fossil Fuels Divestment

The initial results of the 2019 NACUBO-TIAA Study of Endowments, released late last month, reported that the 774 U.S. colleges, universities, and affiliated foundations reporting had an average annual endowment return of 5.3% (net of fees) from July 1, 2018 through June 30, 2019. This was a decline from the previous fiscal year's 8.2% average. Here is more information from the press release announcing the results:

Data gathered from 774 U.S. colleges, universities, and affiliated foundations for the 2019 NACUBO-TIAA Study of Endowments® (NTSE) show that participating institutions’ endowments returned an average of 5.3 percent (net of fees) for the 2019 fiscal year (July 1, 2018 – June 30, 2019).

Despite posting a lower return than FY18’s one-year average of 8.2 percent, the average 10-year endowment return reached 8.4 percent, surpassing institutions’ long-term average return objective of 7 percent for the first time in a decade. This reflects the strong stock market recovery since the 2008 financial crisis as well as solid management practices.

Due in part to strong 10-year returns, three quarters of institutions increased spending from their endowments to support students and faculty, with an average increase of more than $2 million. Participating institutions put 49 percent of their endowment spending dollars to student financial aid, 17 percent to academic programs, 11 percent to faculty, and 7 percent to campus facilities.

“The jump in spending from endowments last year shows once again the value of college and university endowments in supporting students and their access to a high-quality education,” said NACUBO President and CEO Susan Whealler Johnston. “These endowments help make opportunity available to college and university students and ensure the strength of academic programs that prepare them for work and life.”

“Endowments continue to play a significant role in institutions’ operations and financial strength, making it essential to take advantage of a wide range of investment options and strategies,” said Kevin O’Leary, Chief Executive Officer of TIAA Endowment and Philanthropic Services. “Endowment asset allocations and returns varied across different size endowment cohorts.  Considering larger endowments generally have greater access to certain asset classes, such as private equity and venture capital, which were some of the highest performing asset classes in FY19, they again outperformed their smaller cohorts.”

One current hot topic with respect to higher education endowments is whether institutions should divest from fossil fuel holdings. C.J. Ryan (Roger Williams University School of Law) and Christopher Marsicano (Davidson College) have posted Examining the Impact of Divestment from Fossil Fuels on University Endowments. Here is the abstract:

Between 2011 and 2018, 35 American universities and colleges divested, either partially or completely, their endowments from fossil-fuel holdings, marking a shift toward sustainability in university endowment investment. However, the decision by these universities to divest was often marred by controversy, owing to conflicts between student- and faculty-led coalitions and the university board. Principally, endowment fiduciaries are averse to divestment decisions because they think that it will hurt the endowment's value, but this concern, motivated by a narrow interpretation of fiduciary law, can be empirically examined.

To date, the academic study of the effect of divestment on endowment values has focused on the top university endowments and has produced mixed results. Our study is different from the extant but limited literature in this area in that we examine holistically the impact of total or partial divestment on endowment values for all universities as well as a select group of institutions that are illustrative of their peers by endowment size. More importantly, we evaluate the assumption that divestment does injury endowment values through legal and empirical lenses.

Results from our difference-in-differences analyses of the effect of full and partial divestment suggest that either form of divestment does not yield discernible consequences--either positive or negative--for endowment values, at statistically significant levels. However, we do find evidence that divestment improved the value for three of four universities that we examined through synthetic control analysis, with the greatest increase in value at a university with a very large endowment (Stanford University) and modest increases at two universities with mid-sized and large endowments, respectively (University of Dayton and Syracuse University). Thus, the negative consequences of divestment may be overstated in the near-term. This challenges the assumption that divestment yields negative returns to endowments and cracks open the door for endowment fiduciaries to divest without violating duties of loyalty and prudence. We hope that this study both grounds and advances the debate about endowment divestment with empirical evidence and a reasoned discussion of its costs and benefits.

Lloyd Mayer

Giving Issues: Recent Trends, More Bad Publicity for DAFs, and Greater Transparency for the PayPal Charitable Gift Fund

The past couple of months have seen a number of reports about trends in giving, bad publicity for donor advised funds, and increased transparency for PayPal's charitable arm. 

Starting with giving trends, in a lengthy Nonprofit Quarterly article Patrick Rooney (IUPUI Lilly School of Philanthropy) documents in great detail "the continued decline of the small donor and the growth of megadonors," with the former trend possibly accelerating because of the 2017 federal tax changes. That said, the effects of these trends likely will not affect all charities equally - a CNBC report indicates that while the largest, well-known organizations are still seeing increasing giving, many smaller, local charities are facing giving declines even in the midst of a a growing economy. And according to a study by Wealth-X, younger "ultrawealthy" donors tend to focus on one or two causes, which may further skew changes in giving levels. That said, a report from Cygnus Applied Research (executive summary requires free registration; full report must be purchased) found that most donors planned to maintain their giving amount in 2019 as compared to 2018, with 29% planning to give more and only 10% planning to give less. 

The Rooney article includes a section on donor advised funds, finding that they are both continuing to grow significantly and "remain largely the realm of large donors." That growth is despite continuing bad publicity for DAFs, including news stories that both Google's Larry Page (through $400 million in grants from the Carl Victor Page Memorial Foundation) and Facebook's Sheryl Sandberg ($230 million in Facebook stock) had used giving to DAFs to, respectively, satisfy the private foundation payout rate and (presumably) generate substantial charitable contribution deductions without having to transfer funds to actual operating charities. To be fair, the funds may have eventually ended up at operating charities; there is just no way to know for sure. At the same time, the Chronicle of Philanthropy reports (subscription required) almost half of nonprofits surveyed said that DAFs hamper their ability to build relationships with donors. But there is not a complete lack of regulation of DAFs, as Tax Notes reports (subscription required) that the National Outreach Foundation has been forced to go to court to challenge the IRS' revocation of its tax-exempt status for allegedly using its role as a DAF sponsor to facilitate a tax avoidance scheme similar to one flagged by the IRS in Notice 2004-30.

Finally, the NonProfit Times reports that last month nearly two dozen states and the District of Columbia settled a dispute with the PayPal Charitable Gift Fund, Inc., the charitable arm of PayPal. According to a press release from the New York Attorney General (which also provides a link to the actual agreement), the Fund agreed to make sure donors know they are giving to the Fund, the timeframe for the selected ultimate charitable recipient to receive the donated funds, the difference between "enrolled" and "unenrolled" charities on the platform, and whether the donor's gift has been diverted to a different charity than the one the donor designated. The Fund also agreed to pay $200,000 to the National Association of Attorneys General, to be used to defray investigation and litigation costs relating to charities and to provide training and education for charity regulators.

Lloyd Mayer

The Debate Over Donor-Advised Funds: New Research & New Data

There have been several notable recent additions to the donor-advised fund (DAF) debate. In June, H. Daniel Heist (U. Penn Social Policy & Practice) and Danielle Vance-McMullen (DePaul School of Public Service) published Understanding Donor-Advised Funds: How Grants Flow During Recessions, Nonprofit and Voluntary Sector Quarterly (2019). Here is abstract:

Donor-advised funds (DAFs) are becoming increasingly popular in the United States. DAFs receive a growing share of all charitable donations and control a sizable proportion of grants made to other nonprofits. The growth of DAFs has generated controversy over their function as intermediary philanthropic vehicles. Using a panel data set of 996 DAF organizations from 2007 to 2016, this article provides an empirical analysis of DAF activity. We conduct longitudinal analyses of key DAF metrics, such as grants and payout rates. We find that a few large organizations heavily skew the aggregated data for a rather heterogeneous group of nonprofits. These panel data are then analyzed with macroeconomic indicators to analyze changes in DAF metrics during economic recessions. We find that, in general, DAF grantmaking is relatively resilient to recessions. We find payout rates increased during times of recession, as did a new variable we call the flow rate.

Earlier this month Candid (formerly the Foundation Center and GuideStar), released the results of a community foundation survey. Included in those results is the following information regarding donor-advised funds maintained by the surveyed foundations (citations omitted):

Product Mix: On average, donor advised funds make up more than a third of assets for community foundations larger than $250M. Although DAFs continue to grow, they don't appear to comprise significantly more of respondents' asset bases than in previous years.

Total Donor Advised Fund Assets, Gifts, and Grants: Aggregate community foundation donor advised fund (DAF) asset, gift, and grant totals all saw a higher rate of increase in FY18 than the field as a whole. DAF grantmaking grew at a higher rate (4%) than assets and gifts (2% each).

Donor Advised Fund Flow Rate: The "flow rate" of DAFs compares a given year's grantmaking total with its gift total, dividing grants by gifts. This metric may help capture the activity of donors who contribute to their DAF and grant from it that same year. As with distribution rate and other measures of DAF activity in this survey, data is collected in the aggregate by sponsoring community foundation. Data collection on the account level would be necessary to analyze the activity of individual DAF holders. 39% of FY18 Columbus Survey respondents had a DAF flow rate of over 100%, meaning that they granted out more from DAFs than they received that year. 

Distribution Rates: DAFs at community foundations tend to be highly active grantmaking vehicles; more than half (53%) of all survey respondents granted more than 10% of their DAF assets out in FY2018. Larger community foundations, which as noted above tend to carry more non-endowed assets, also have the highest distribution rates.

Hat tip: Nonprofit Quarterly.

Finally, a piece in the Nonprofit Quarterly written by Alfred E. Osborne, Jr. (UCLA Anderson School of Management and also Fidelity Charitable Board Chairman) titled Fidelity Charitable 2019 DAF Grants Spike: How Donor-Advised Funds Changed Giving for the Better triggered a response (in the comments) from Al Cantor raising issues about Fidelity Charitable's influence over news coverage of it that is worth reading along with the main article.

Lloyd Mayer

Congressional and Academic Scrutiny of Conservation Easements Continues

We have previously blogged about congressional, DOJ, and IRS scrutiny of conservation easement donations, as well as academic coverage of this topic led by our contributing editor, Nancy A. McLaughlin (Utah). This scrutiny shows no signs of abating, with the following developments just in the past couple of months:

• Senators Chuck Grassley and Ron Wyden, Chair and ranking member of the Senate Finance Committee, sent three letters in June asking for further answers to their questions relating to syndicated conservation easements. Hat tip: Tax Analysts (Fred Stokeld) (subscription required).

• The Joint Committee on Taxation issued a report last month concluding that enactment of the Charitable Conservation Easement Program Integrity Act of 2019 (S. 170), which is designed to end abusive conservation easement tax breaks would raise $6.6 billion over several years. The JCT letter is available from Tax Analysts (subscription required).

• That followed a June report (revised slightly in July) from the Congressional Research Service describing the concerns regarding abuse of conservation easement tax breaks.

• It also coincided with three recent publications relating to conservation articles, including from the ABA Real Property Trust and Estate Conservation Easement Task Force (Recommendations Regarding Conservation Easements and Federal Tax Law), attorney Jenny L. Johnson Ware of the Johnson Moore LLC firm (Valuing Conservation Easements: An Empirical Analysis of Decided Cases), and Professor McLaughlin, who posted an updated version of Trying Times: Conservation Easements and Federal Tax Law (last revised June 2019).

With organizations that support appropriate tax breaks for legitimate conservation easements, such as the Land Trust Alliance, trying to avoid having Congress throw the baby out with the bath water, while DOJ and the IRS battle promoters and contributors of allegedly abusive conservation easement donations in the courts, it will be interesting to see how this issue ultimately shakes out both legislatively and in litigation.

Lloyd Mayer

Philip Hackney Introductory Post

As this is my first post on Nonprofit Law Prof Blog, I thought I would do an introductory post. Excited to be blogging here. My name is Philip Hackney, and I am an Associate Professor of Law at the University of Pittsburgh School of Law. I primarily teach tax law related courses and my scholarship focuses on nonprofit organizations, tax-exemption, tax law, and the IRS. You can see my scholarship here and you can see some articles I have written for more popular press here. 

I worked for five years at the Office of the Chief Counsel of the IRS in Washington DC regulating the nonprofit sector. That work very much influences my research and scholarship and likely what I will blog about here. For instance, I will likely speak about stories like the Taxpayer Advocate Service ("TAS") criticizing the IRS on its new Form 1023-EZ. I note this story because in TAS's 2020 Objectives Report to Congress, TAS again criticizes the IRS's management of its tax-exempt application system. The Form 1023 EZ is a relatively new cursory form that allows small nonprofits to quickly qualify with the IRS as tax exempt organizations. The form was a response to chronic backups at the IRS for approval of routine applications for tax-exemption. TAS is not wrong about the problems raised by the adoption of Form 1023 EZ, a form that will be abused. Charities that should not get tax benefits will be approved by the IRS as a result of the cursory form. The IRS is not doing the kind of audit work that will ensure those organizations are caught. But the reality is that the IRS does not have the resources to do the oversight of the nonprofit sector to the extent many people seem to want. I don't want to get deeply into this issue here, other than to highlight a perspective that I try to bring to the table, which is that as we think about the nonprofit community it is important to be realistic about the resources we are willing to dedicate to their oversight -- not much -- and then work from there.

I will also blog about the role of nonprofits in our democracy. Values of democracy deeply inform my scholarship, and I will work to highlight the democratic role, or often lack thereof, of nonprofit entities in the US, states, and local governments. Because I believe the well-working of our nonprofit community in its democratic role is critical to the governance fabric of our nation, I think thoughtful laws and well operated oversight of the sector matters greatly. I hope to talk about that.

My wife, who is an artist, and I are deeply engaged in the arts community. I have taken an interest in art law as a result and will likely blog about art law matters as well, particularly as they intersect with nonprofits.

Look forward to interacting with this community. 

Philip Hackney

Giving USA 2019 Reports Decline in Giving by Individuals and (When Inflation-Adjusted) Overall

The annual Giving USA report provides what is generally recognized as the most comprehensive report on charitable giving in the United States. It is therefore not surprising that this year's edition is garnering headlines for its report that total giving in 2018 only increased by 0.7% over 2017, and declined by 1.7% when adjusted for inflation, despite the continuing strong economy. Giving by individuals also declined, both in current dollar (-1.1%) and inflation-adjusted (-3.4%) terms, but was partially offset by increased foundation and corporation giving. A variety of reasons may have caused the declines, including the recent tax law changes, as noted in the press release that accompanied the report:

A number of competing factors in the economic and public policy environments may have affected donors’ decisions in 2018, shifting some previous giving patterns. Many economic variables that shape giving, such as personal income, had relatively strong growth, while the stock market decline in late 2018 may have had a dampening effect. The policy environment also likely influenced some donors’ behavior. One important shift in the 2018 giving landscape is the drop in the number of individuals and households who itemize various types of deductions on their tax returns. This shift came in response to the federal tax policy change that doubled the standard deduction. More than 45 million households itemized deductions in 2016. Numerous studies suggest that number may have dropped to approximately 16 to 20 million households in 2018, reducing an incentive for charitable giving.

“The complexity of the charitable giving climate in 2018 contributed to uneven growth among different segments of the philanthropic sector. Growth in total giving was virtually flat. Contributions from individuals and their bequests were not as strong as in 2017, while giving by foundations and corporations experienced healthy growth,” said Amir Pasic, Ph.D., the Eugene Tempel Dean of the Lilly Family School of Philanthropy. “Charitable giving is multi- dimensional, however, and it is challenging to disentangle the degree to which each factor may have had an impact. With many donors experiencing new circumstances for their giving, it may be some time before the philanthropic sector can more fully understand how donor behavior changed in response to these forces and timing.”

It remains to be seen if these trends continue in future years, particularly as individuals and households continue to adjust to the 2017 federal tax law changes.

Media Coverage: Chronicle of Philanthropy; Wall Street Journal; Washington Post.

Lloyd Mayer

Grassley, Wyden, and DOJ Scrutinize Syndicated Conservation Easement Transactions

UPDATE: Rep. Mike Thompson, Chair of the House Ways and Means Subcommittee on Select Revenue Measures and Rep. Mike Kelly have introduced the Charitable Conservation Easement Program Integrity Act of 2019 in the House. Senator Steve Daines previously introduced a bill with the same name in the Senate.

Senators Chuck Grassley and Ron Wyden, Chairman and Ranking Member of the Senate Finance Committee, respectively, have announced an investigation into the potential abuse of syndicated conservation easement transactions. While stating general support for the availability of charitable contribution deductions for conservation easements, they cited a need to preserve the integrity of the conservation easement program by preventing "a few bad actors" from wrongly gaming the tax laws relating to conservation easements. They have requested information from fourteen named individuals relating to such transactions, drawing on a 2017 Brookings report on conservation easements.

This announcement follows a Department of Justice complaint filed in December 2018 against certain promoters of "an allegedly abusive conservation easement conservation easement syndication tax scheme" and a 2017 IRS Notice targeting such schemes by declaring them "listed transactions." 

At the heart of all these actions are allegedly false valuations based on inflated appraisals that sharply increase the tax benefits from the conservation easements. 

Media coverage: Accounting Today; Law360; Wall Street Journal.

Lloyd Mayer

Race and Gender Bias In Nonprofit Organizations

Report finds that racial and gender biases, not lack of experience or talent, blocks advancement for women of color

(New York, NY) – The Building Movement Project (BMP) today released a new report, Race to Lead: Women of Color in the Nonprofit Sector, which examines the impact of both race and gender on the career advancement and experiences of women of color working in the nonprofit sector. Based on data from more than 4,000 survey respondents, this latest report in the Race to Lead series shows that women of color encounter systemic obstacles to their advancement over and above the barriers faced by white women and men of color.

Some key findings include:

1. Racial and gender biases create barriers to advancement for women of color. Women of color report being passed over for new jobs or promotions in favor of others—including men of color, white women, and white men—with comparable or even lower credentials.
2. Education and training do not provide equity. Women of color with the advanced education were more likely than men of color, white men or white women to work in administrative roles and the least likely to hold senior leadership positions. Women of color also are paid less compared to men of color and white men and more frequently report frustrations with inadequate salaries.
3. The social landscape of organizations is fraught for women of color. Women of color who reported that their race and/or gender have been a barrier to their advancement indicated that they were sometimes left out or ignored and sometimes hyper-visible under intense scrutiny, with both conditions creating burdens.  

The report also includes a section detailing key themes from survey write-in responses by women of color and from focus groups and interviews conducted with Asian/Pacific Islander, Black, Latinx, Native American, and transgender women of color.

“In response to the Movement for Black Lives and the struggles for the rights of indigenous peoples and immigrants, nonprofit leaders have become more adept at talking about intersectionality, anti-Black racism, and de-colonization,” said Frances Kunreuther and Sean Thomas-Breitfeld, co-directors of the Building Movement Project, “but the Race to Lead data shows that nonprofit organizations need to dramatically change more than the words we use on our websites and in our grant reports. Real change means re-shaping the hierarchies and power structures in the nonprofit sector, the ways organizations behave, and how they treat their staff, particularly women of color.”

Some solutions BMP recommends include:

• Leverage the power of philanthropy. Funders should examine their own grant-making practices to support more organizations led by women of color. Funders should also encourage their grantees to embark on a race and gender equity journey by asking about the racial composition of staff and boards of organizations in grant proposals and demonstrating to organizations that the diversity information informs their strategy and funding decisions. 
• Advocate for enforcement of anti-discrimination laws. The nonprofit sector should advocate for the Equal Employment Opportunity Commission to receive more appropriations to investigate charges of discrimination—even if this means uncomfortably turning the lens on itself.
• Address internal biases. Organizations should address both conscious and so-called “unconscious” biases that affect the mentoring, feedback, evaluations and overall treatment of women of color. These steps toward equity cannot be limited to anti-bias training, which is necessary but insufficient. Nonprofit organizations also need robust and equitable HR policies and systems that will set an expectation that racism, sexism, anti-trans bias, etc. will not be tolerated, and also enforce real consequences for staff who violate those expectations.
• Pay women of color fairly and create transparency around pay scales to expose discrimination. Organizations should ensure transparency regarding pay scales to ensure that individuals with similar credentials and experiences are similarly compensated.
• Create peer support affinity groups for women of color. Peer support does not take place by happenstance: it must be intentionally structured and supported. Peer support should be understood as a supplement to—not a substitute for—in-organization mentoring opportunities provided by supervisors and other senior staff, and increased grant investments in women of color-led organizations.

Darryll K. Jones

 

NY AG Annual "Pennies for Charity" Report on Professional Fundraisers

New York Attorney General Barbara D. Underwood has issued her office's annual Pennies for Charity report, detailing the activities of professional fundraisers in that state. From the report:

This year’s Pennies for Charity report includes data from the 964 fundraising campaigns conducted all or in part in 2017 by professional fundraisers in New York. The campaigns raised over $1 billion. Key findings include:

• Over $372 million (31%) of funds raised were paid to fundraisers to cover the costs of conducting the charitable campaigns. Charities received $812+ million overall.

• In 313 campaigns (32%), charities retained less than 50% of funds raised.

• In 156 campaigns (16%), fundraising expenses exceeded charitable revenue. In 2017, this loss totaled over $10 million dollars.

The New York AG's office also provides a database with detailed information for campaigns, searchable by charity or fundraiser name.

Lloyd Mayer

In Defense of Southern Charity

From today's NY Times:

NASHVILLE — There’s a meme about charitable giving that makes the rounds in Southern social media circles from time to time. It’s a map of United States counties color-coded by charitable giving, and it purports to demonstrate that people living in red states give a greater percentage of their income to charity than people living in blue states. The caption beneath the map reads, “Those heartless conservatives — am I right?”

The map was created in 2013 from a report in The Chronicle of Philanthropy. “Donors in Southern states,” the report notes, “give roughly 5.2 percent of their discretionary income to charity — both to religious and to secular groups — compared with donors in the Northeast, who give 4.0 percent.”

These are figures that Southerners, accustomed to being thought selfish and cruel by the rest of the country, will happily create a meme to promote.

There are many problems with a map like this, but the biggest is that it’s based on the filings of taxpayers who itemize deductions. The vast majority of American taxpayers — some 70 percent — don’t itemize anyway, so there’s really no way to know how many people actually make charitable donations and how much they give when they do. Even so, it has become a cultural commonplace: People in red states are more generous than everyone else.

Read more here.  The Op/ed relies in part on this new study conducted with the the help of Tax Profs Mike Livingston and Fred Brown.  The study concludes, contrary to other studies, that citizens in Blue States are as generous in their giving as citizens in Red States.  

 

dkj

More Concerns regarding Top Heavy Charitable Contribution Deductions

The Institute for Policy Studies has issued a report subtitled, "Top-Heavy Philanthropy and Its Perils to the Independent Sector and Democracy."  Here is a the executive summary:

What are the risks to the autonomy of the independent nonprofit sector—not to mention our democracy—when a growing amount of philanthropic power is held in fewer hands?

A new Institute for Policy Studies report, Gilded Giving 2018: Top-Heavy Philanthropy and Its Risks to the Independent Sector, takes a close look at the impact of increasing economic inequality on the philanthropic sector. Co-authored by Chuck Collins, Josh Hoxie, and Helen Flannery of the Institute for Policy Studies, the report finds that our charitable sector is currently experiencing a transition from broad-based support across a wide range of donors to top-heavy philanthropy increasingly dominated by a small number of very wealthy individuals and foundations.

As we reported in 2016, growing inequity in charitable giving continues to hold risks not only for nonprofits themselves, but also for the nation. This is truer now than ever, as ever-greater proportions of charitable dollars technically qualifying as tax-deductible donations are diverted into wealth-warehousing vehicles such as private foundations and donor-advised funds, and away from direct nonprofits serving immediate needs.

This updated edition of Gilded Giving focuses on the impact of increasing financial inequality on the philanthropic sector, highlights trends that have either arisen or increased in intensity since the initial publication of our report, puts forward several possible implications of these changes, and suggests some solutions.

Key Findings

• Charitable contributions from donors at the top of the income and wealth ladder have increased significantly over the past decade. In the early 2000s, households earning $200,000 or more made up only 30 percent of all charitable deductions. But by 2017, this group accounted for 52 percent. And the percent of charitable deductions from households making over one million dollars grew from 12 percent in 1995 to 30 percent in 2015.
• There has been a marked increase in mega-gifting. In 2012, the threshold for mega-gifts was $50 million or more; gifts of that size amounted to $1.2 billion and accounted for just one-half of one percent of all individual giving in the United States that year. In 2017, just five years later, the threshold for mega-gifts jumped to $300 million or more; gifts of that size totaled $4.1 billion and accounted for about one and a half percent of all individual giving that year.
• In the past two decades, the number of households that give to charity has declined significantly. From 2000 to 2014, the proportion of households giving to charity dropped from 66 percent to 55 percent.
• The number of donors giving at typical donation levels has been steadily declining. Low-dollar and mid-level donors have declined by about two percent each year for more than fifteen years. These donors traditionally have made up the vast majority of donor files and solicitation lists for most national nonprofits since their inception.
• The number and size of private grant-making foundations and donor-advised funds have shown dramatic growth. The funds held in private foundations grew 62 percent between 2005 and 2015; the number of private foundations chartered in the United States grew 21 percent over that same period.
• Donor-Advised Funds (DAFs) are on the rise. Donations to donor-advised funds increased from just under $14 billion in 2012 to $23 billion in 2016—growth of 66 percent over five years. DAFs, a giving vehicle used primarily by the wealthy, are currently the largest and fastest-growing recipients of charitable giving in the United States.

Implications

Our charitable sector is currently experiencing a transition from broad-based support across a wide range of donors to top-heavy philanthropy increasingly dominated by a small number of very wealthy individuals and foundations. This has significant implications for the practice of fundraising, the role of the independent nonprofit sector, and the health of our larger democratic civil society.

• Risks to charitable independent sector organizations include increased volatility and unpredictability in funding, making it more difficult to budget and forecast income into the future; an increased need to shift toward major donor cultivation; and an increased bias toward funding heavily major-donor-directed boutique organizations and projects. The increasing power of a small number of donors also greatly increases the potential for mission distortion.
• Risks to the public include an increasingly unaccountable and undemocratic philanthropic sector; the rise of tax avoidance philanthropy; the warehousing of wealth in the face of urgent needs; self-dealing philanthropy; and the increasing use of philanthropy as an extension of power and privilege protection.

Recommendations

This report calls for an urgent reform of the philanthropic sector to encourage broader giving, protect the health of the independent sector, discourage the warehousing of wealth in private foundations and donor-advised funds, and increase accountability to protect the public interest and the integrity of our tax system.

Changes in the rules governing philanthropy should include:

• Increasing the minimum annual distribution payout for foundations.
• Excluding foundation overhead from the payout percentage.
• Linking the excise tax on foundations to payout distribution amounts.
• Reforming the rules governing donor-advised funds to require distribution of DAF donations within three years.
• Banning gifts from private foundations to DAFs and vice-versa.
• Setting a lifetime cap on tax-deductible charitable giving.
• Establishing a universal charitable deduction to encourage giving by low and middle-income givers.

To fully address the risks of top-heavy philanthropy, however, policymakers will need to not only reform the rules of charitable giving, but also establish policies to reduce, over time, concentrations of wealth and power in our society at large. This would include restoring steeply progressive income and wealth taxation, and closing loopholes.

dkj

"The Politics of Donations: Are Red Counties More Donative Than Blue Counties?"

Researches have published a study entitled "The Politics of Donations:  Are Red Counties More Donative Than Blue Counties?" one of the interesting conclusions of which indicate that as political competition increases within counties, charitable giving decreases most likely because donors worry that their donations will be used to support causes of which they disapprove along political lines.  Here is the summary:

This article integrates parallel literatures about the determinants of redistribution across place. Using regression-based path analysis, we explore how tax burden mediates the relationship between political conditions and charitable contributions. Our analysis indicates that counties with a higher proportion of people voting Republican report higher charitable contributions, and tax burden partially mediates this relationship. However, the effect of political ideology on charitable contributions is nonlinear. As the proportion voting Republican in non-Republican-dominated counties increases, the predicted levels of charitable giving actually decreases. In contrast, as the proportion voting Republican increases in Republican-dominated counties, charitable contributions increase. Higher levels of political competition decrease charitable giving, again with partial mediation by tax burden. We also find that the “crowding in” effect of lower tax burdens on charitable giving only partially compensates for the loss of public revenue. Ultimately, total levels of redistribution—both private and government—are higher in Democratic-leaning counties.

dkj

The Philanthropic Closet - How many LGBTQ people work in philanthropy?

This week, Funders for LGBTQ Issues released findings from a survey of nearly 1000 people who work at foundations.

Funders for LGBTQ Issues

Among its findings, 16% of respondents identified as lesbian, gay, or bisexual, and 2% identified as genderqueer, transgender, or gender non-conforming. However, a majority (53%) have not disclosed their LGBTQ identity at work. Those who serve on the board or as CEO are more likely to be "out" than those working as program staff or in other positions, where about 35% of staff have disclosed their identity to colleagues. (As the study notes, for comparison, about half of workers in the corporate sector have disclosed their identity at work.) Additional research may shed light on whether and why LGBTQ workers don't feel comfortable being out at their foundations, and what implications that may have for who serves in those roles and how grantee projects are evaluated. 

-@josephwmead

Hauser Institute, Global Philanthropy Report

The Hauser Institute for Civil Society (Harvard) has published The Global Philanthropy Report: Perspectives on the Global Foundation Sector. From the introduction:

Global philanthropy holds immense promise in the 21st century. Global giving is growing, gaining visibility, and creating much-needed change around the world.

Over time and across geographies the world has witnessed a near-universal charitable instinct to help others. Recent years, however, have seen a marked and promising change in charitable giving - wealthy individuals, families, and corporations are looking to give more, to give more strategically, and to increase the impact of their social investments. A growing number of philanthropists are establishing foundations and other giving structures to focus, practice, and amplify their social investments. There appears to be a growing belief that institutional philanthropy can encourage more strategic investment approaches; facilitate collaboration; serve as a role model for others; and, in sum, have greater impact on the economic and social challenges being addressed.

Despite the growing significance and scale of institutionally-based philanthropy, remarkably little is known about the related resources and their deployment at the national, regional, and global levels. In much of the world, publicly available philanthropic data and knowledge are scarce. In most countries, neither governments nor private organizations collect and/or make available important data on social investing. Cultural traditions understandably inhibit the sharing of information about giving, often a very personal act. What information does exist is often anecdotal, incomplete, and sometimes inconsistent. In addition, given the varied definitions and research frameworks employed in existing studies, data are generally not comparable within or across countries; information has not been aggregated or analyzed through a global lens. Until the launch of this effort there has been no ongoing and globally coordinated undertaking to quantify the volume of global giving, classify its purposes, or seek to understand its current and potential impact.

Researchers at the Harvard Kennedy School, in collaboration with colleagues around the world, are beginning to address this knowledge gap. The Global Philanthropy Report: Perspectives on the global foundation sector seeks to develop a knowledge base to address the size, scope, and practice of institutional philanthropy across the globe. This inaugural report represents a first step in an attempt to understand worldwide philanthropic practices and trends; provide comparative analysis across countries and regions; begin to develop a picture of the magnitude of global philanthropic investment; and help create an evidence-based discussion on global philanthropy. We hope to publish the report biennially, adding additional countries and reporting increasingly comprehensive data within countries in future editions. Importantly, national collaborators are publishing more in-depth reports on philanthropy in their individual countries.

Lloyd Mayer

CIVICUS: 2018 State of Civil Society Report 2018

CIVICUS has published its annual State of Civil Society Report for 2018. Here is a brief description:

Each year the CIVICUS State of Civil Society Report examines the major events that involve and affect civil society around the world. Our report is of, from and for civil society, drawing from a wide range of interviews with people close to the major stories of the day, CIVICUS’ ongoing programme of research and analysis, and findings from the CIVICUS Monitor online platform tracking the space for civil society around the world. We will follow the report with a series of dialogues and conversations on the theme of 'reimagining democracy’ in the coming months.

And here are 10 key trends discussed in the report:

“What is perhaps unusual about this year’s report is the focus on the resistance and the fact that the fightback is on, ” is one of the key findings of the State of Civil Society Report 2018. The report identifies 10 key trends that impacted on civil society in 2017 and are continuing in 2018, including:

• Globalised neoliberalism is failing people all around the world;
• Polarising politics are dividing our societies;
• Personal rule by political leaders is undermining democratic institutions;
• Attacks are increasing on journalists reporting on corruption and public protests;
• Growing surveillance and manipulation of opinion is betraying the promise of social media;
• Uncivil society is claiming civil society space;
• Multilateralism is in the firing line;
• The private sector's growing role in governance demands more scrutiny;
• Patriarchy is now firmly under the spotlight;
• Civil society is fighting back and building resolute resistance.

Lloyd Mayer

Giving USA & IU Lilly Family School of Philanthropy: The Data on Donor-Advised Funds

Giving USA and the Indiana University Lilly Family School of Philanthropy have published a The Data on Donor-Advised Funds: New Insights You Need to Know. Here is a description:

Donor-advised funds are frequently identified as one of the fastest-growing vehicles for charitable giving, but the question of where those donor-advised fund grant dollars go has remained largely unanswered until now. A new report is the first to uncover these answers. Among other findings, it identifies education, religion and public-society benefit organizations as the types of nonprofits that attracted the most donor-advised fund grant dollars, based on a sample of donor-advised fund sponsoring organizations from 2012 to 2015.

And here is a critique by Alex Cantor, published in The Chronicle of Philanthropy.

Lloyd Mayer

Lott et al.: Bifurcation of State Regulation of Charities

Cindy M. Lott (Columbia University School of Professional Studies), Mary L. Shelly, Nathan Dietz (Urban Institute), and Marcus Gaddy (Urban institute) have published Bifurcation of State Regulation of Charities: Divided Regulatory Authority Over Charities and Its Impact on Charitable Solicitation Laws (Urban Institute). Here is the abstract:

In 27 United States jurisdictions, the attorney general is the sole state-level regulator of charitable organizations and charitable solicitation. In the other 24 jurisdictions, state-level charity regulation is split between two entities: the state attorney general and another state agency, most commonly the secretary of state. This division of regulatory authority is called “bifurcation.” This paper provides background information and data on bifurcated structures for state charities regulation and illustrates the potential utility of considering bifurcation in research on other state-level areas of charitable regulation. We explore several areas of state-level regulation of charitable solicitation (fundraising) through the lens of bifurcation and identify how bifurcation may affect regulatory patterns using our Index of Charitable Solicitation Regulatory Breadth. These approaches to understanding the regulatory context at the state level may have broad applications for research on charities and for jurisdictions considering different models of oversight.

Lloyd Mayer