Tuesday, November 22, 2022
Donor advised funds are both continuing to grow and continuing to be subject to government and academic scrutiny, as illustrated by a new report, an Attorney General review, and a new academic article.
First, the National Philanthropic trust issued its 2022 DAF Report. Highlights include:
- DAF donors granted at historic levels. Grants from DAFs to qualified charities totaled an estimated $45.74 billion, representing a 28.2 percent increase compared to 2020, which itself was 28.3 percent higher than in 2019. The ten-year average rate of change for DAF grantmaking is 17.5 percent from 2011 to 2020.
- The DAF grant payout rate was 27.3 percent, the highest grant payout rate on record. Payout has remained above 20 percent for every year on record, reflecting the consistent charitable support that DAF donors provide. The ten-year average payout rate from DAFs is 22.2 percent.
- Other key metrics, like contributions and charitable assets, also increased at rates much higher than the ten-year average. For example, charitable assets in DAFs increased significantly as the stock market surged and donors made more contributions than ever before. Historically, periods with very strong growth in charitable assets (20 percent increases or more) are immediately followed by large increases in grantmaking.
Second, the California Attorney General issued a report on its audit of donor advised fund sponsors registered in California. (Hat tip: Bloomberg (subscription required).) Here are the "notable takeaways" from the Executive Summary:
- The results show a growth in DAFs, with average annual growth in assets above 20 percent (Tables 3 and 4).
- Commercial DAFs saw the most growth in dollar terms, topping $20 billion in contributions and $75 billion in year-end assets (Figures 2 and 7). The growth in commercial DAF sponsors was fueled by donations of equity securities, with equities representing between 50 to 65 percent of donations received each year, compared with the rate of equity security donations among all sponsors ranging between 34 to 38 percent (Tables 7 and 11).
- Grant payouts by DAFs increased across sponsor types and sponsor locations, with the exception of community foundations where the payouts remained somewhat flat (Figures 13 and 14).
- The data suggests that 20 percent of DAFs pay out less than 5 percent in a given year (Figure 30).
- On average, 32 percent of DAFs in commercial sponsors and 42 percent of DAFs in community foundations paid out less than 5 percent (Figures 37-38).
- DAF-to-DAF transfers accounted for 10.8 percent of all grants (Figure 23).
- The boost in payout and fund flow rates due to DAF-to-DAF transfers was most pronounced in community foundations, with DAF-to-DAF transfers representing 17.8 percent of all grants made by community foundation DAFs (Figure 26).
- Private foundation distributions account for 5.3 percent of all contributions received by DAFs (Figure 10). For commercial sponsors, private foundation contributions represented 3.1 percent of all contributions; for mission-based sponsors and community foundations it was higher, making up 9.8 and 12.2 percent of all contributions received, respectively (Figure 12).
Third, David I. Walker (Boston University) has posted "Donor-Advised Funds in the Wake of the Tax Cuts and Jobs Act." Here is the abstract:
Donor-advised funds (DAFs) are conduits for charitable giving that support immediate tax deductions while creating a reservoir of assets for subsequent disposition to end-use charities. The number of new DAF accounts has skyrocketed in the wake of the 2017 Tax Cuts and Jobs Act (TCJA). This Article presents evidence suggesting that bunching charitable contributions to game the TCJA-enhanced standard deduction likely motivates much of the onslaught of new DAF accounts established since 2016 and argues that the typical buncher is likely to differ from other DAF account holders in ways that matter from a policy perspective. Thus, while DAF critics have generally focused on the unproductive accumulation of assets in DAF accounts and have advanced reforms aimed at speeding up DAF payouts, this Article argues that in the context of bunchers, unproductive accumulation of assets in DAF accounts is unlikely to be a major problem. The more significant problem with DAF-facilitated bunching is that the cost to the public fisc is unlikely to be justified by incremental charitable giving. Thus, while this Article concludes that regulation targeting DAF payouts is unobjectionable, it argues that a wholly different set of reforms targeting the deductibility of charitable giving generally would be needed to address the cost of DAF-facilitated bunching under current law and under thoughtfully reformed laws involving universal charitable deductions above a floor.
Another month, another set of criticisms of tax-exempt, nonprofit hospitals. The latest group includes a report on low levels of charity care at many hospitals, an analysis revealing that some hospitals make it difficult for financially needy patients to access charity care, and a call for removing tax exemption entirely on commerciality grounds.
First, the Kaiser Family Foundation issued a report finding that "[h]alf of hospitals reported that the cost of providing charity care to patients represented 1.4% or less of their operating expenses in 2020, though the rates vary widely from hospital to hospital." While its analysis was not limited to tax-exempt, nonprofit hospitals, it noted that almost 60 percent of community hospitals are nonprofits. Here is an excerpt from the description of the analysis:
This issue brief addresses key questions about hospital charity care programs. According to our analysis of hospital cost reports, charity care costs represented 1.4 percent or less of operating expenses at half of all hospitals in 2020, though the level of charity care varied substantially across facilities (Figure 1) (see Methods for details about our calculations). For example, while charity care costs represented 0.1 percent of operating expenses or less on the lower end of the spectrum (for 8% of hospitals), they represented 7.0 percent of operating expenses or more among a similar share of hospitals (9%). The variation in charity care costs as a percent of operating expenses likely reflects differences in hospitals’ missions and business practices; the need for charity care among patients; and federal, state, and local policy and regulation.
Second, the Wall Street Journal reports in "Hospitals Often Don’t Help Needy Patients, Even Those Who Qualify" (subscription required) that some nonprofit hospitals make it difficult for needy patients to receive financial assistance as they "put up obstacles, delay checking eligibility and sometimes press for payments that aren’t refunded even if a patient eventually gets qualified for assistance." Its findings included:
•Though hospitals have the power to prequalify low-income patients for charity care and never send a bill, about 450 nonprofit facilities—roughly 15% of the 3,100 nonprofit facilities in the Journal’s analysis of tax documents—didn’t report using the option.
•Even among the hospitals that told the IRS they do prequalify people, many spent months chasing patients for payment before checking eligibility. The parent organizations for roughly 1,000 of those facilities reported pursuing at least $2 billion in billings to patients who likely qualified for aid.
•In scripts and other training material for staff who talk to patients about bills, obtained through public-record requests to more than 100 government hospitals, the possibility of financial assistance is sometimes raised only as a last resort, or not at all.
Third and finally, Edward A. Zelinsky (Cardoza) has posted "The Commerciality of Non-Profit Hospitals Requires Them to Be Taxed: Bringing the Debate to a Conclusion," 42 Virginia Tax Review (forthcoming 2022). Here is the abstract:
It is now time to conclude our prolonged debate about the tax-exempt status of nonprofit hospitals. The contemporary nonprofit hospital is a commercial enterprise, materially indistinguishable for tax purposes from its profit-making, taxed competitor. The federal income tax and the states’ income, sales and property taxes should treat all hospitals alike, regardless of whether such hospitals are nonprofit or for-profit enterprises. In the interests of equity and efficiency, these similar institutions should be taxed similarly.
As a political matter, nonprofit hospitals will continue to defend their tax-exempt status. Like any other lucrative, vested interest, nonprofit hospitals will continue to fight hard to protect their valuable tax benefits. But, on the substantive merits, the case for taxing the contemporary nonprofit hospital is compelling, given the commerciality of today’s nonprofit hospitals. Such nonprofit hospitals are not materially distinguishable for tax purposes from their profit-making, taxed competitors.
Thursday, October 27, 2022
According to an impact investing article from earlier this year, millennials are driving an increasing trend toward impact investment and away from traditional charitable giving. The article addressees a 2021 study by Fidelity Charitable that revealed millennials are much more likely to engage in impact investing than older investors. The study examined impact investing and charitable giving among 1,216 US investors, who have at least 25,000 in investable assets from sources other than an employer retirement plan. Approximately 61% of millennials reported that they had participated in impact investing. Tellingly, 62% of millennials reported that they believed impact investing has a greater potential than traditional philanthropy to “create long-term positive change.” In sharp contrast, 72% of baby boomers reported that charitable giving rather than impact investing was the better course to create meaningful change.
Scott Nance, Vice President of Impact Investing at Fidelity Charitable, has remarked, “The trend toward values-based investing will only grow as millennials come to control a larger share of wealth.” Millennials are focused on having their broader values and social good align with their investments. The study also revealed that only one third of all investors engage in impact investing. However, 40% of those surveyed responded that they would consider making their first impact investment in 2022. Of those investors who already participate in impact investing, 41% plan to dedicate an even greater amount to impact investments.
Among the participants, the most cited barrier to participation in impact investing is a lack of knowledge. Interestingly, of those already participating in impact investing, 42% learned about it from a financial advisor and 30% from an investment firm. The most common vehicles for investment among those surveyed are mutual funds or individual publicly traded companies that meet criteria along environmental, social, or governance themes. Of these three themes, environmental was at the top with half of impact investors polled citing it as their top concern. Social themes garnered the second spot with 27% whereas governance themes came in last with 16%.
As discussed in yesterday’s post, it is interesting to note the ways that impact investing may work in tandem with traditional philanthropy. Fidelity commented upon its Giving Accounts, which allows donors to combine philanthropy with impact investing. Its Giving Accounts saw a 67% increase in assets allocated to impact investments, raising the total to $3 billion in 2021.
Hoffman Fuller Associate Professor of Tax Law
Tulane Law School
Monday, October 10, 2022
There is continuing fallout for hospitals in the wake of N.Y. Times articles about a hospital chain's aggressive billing practices and another hospital's reliance on its poor patients to access a lucrative federal program. The hospital chain covered in the first article - Providence - has in response announced it will refund payments made by more than 700 low-income patients, according to a follow-up article by the N.Y. Times. The Post Bulletin published an article titled "Medical bills can be crippling. Mayo Clinic's charity care? Arguably lacking." And Axios reported on a study that found pandemic-drive revamping of charity care policies often have vague criteria and sometimes increased restrictions on access.
Tuesday, October 4, 2022
The IRS Statistics of Income division has issued a 26-page report on individual noncash contributions for tax year 2019. Here is the introduction:
For Tax Year 2019, individual taxpayers who itemized deductions reported a total of $74.8 billion in noncash charitable contributions on 8.8 million returns. About 45 percent (3.9 million) of these returns carried $72.8 billion in charitable contributions to Schedule A, Itemized Deductions, using Form 8283, Noncash Charitable Contributions. Form 8283 is used by individual taxpayers when the deduction amount claimed for all noncash donations reported on Schedule A exceeds $500. The number of returns filed with Form 8283 declined from 2018 levels by 7.5 percent, and the amount claimed by these taxpayers increased 2.8 percent. The average amount per return increased 11.2 percent from approximately $16,760 to approximately $18,635.
Donations of corporate stock, mutual funds, and other investments accounted for 59.8 percent ($43.6 billion) of all donations. Of the $72.8 billion in total donations, foundations received the largest amount ($20.1 billion or 27.6 percent), followed by donor-advised funds ($14.3 billion or 19.6 percent). Individuals with an adjusted gross income (AGI) over $10,000,000 donated 42.7 percent ($31.1 billion) of all donations, a slight (1.7 percent) decrease from the previous year. Donors in the age 55- under-65 category had the largest increase in donations of all age groups, increasing the amounts they carried to Schedule A by 44.8 percent, from $15.4 billion in 2018 to $22.3 billion in 2019.
Saturday, September 24, 2022
The New York Times today published the result of a long study of nonprofit hospitals, focusing on Providence Health Care's aggressive collection practices against indigent patients entitled to charity care. Unsurprisingly, to those who follow nonprofit health care, the report is not positive:
In 2018, senior executives at one of the country’s largest nonprofit hospital chains, Providence, were frustrated. They were spending hundreds of millions of dollars providing free health care to patients. It was eating into their bottom line. The executives, led by Providence’s chief financial officer at the time, devised a solution: a program called Rev-Up. Rev-Up provided Providence’s employees with a detailed playbook for wringing money out of patients — even those who were supposed to receive free care because of their low incomes, a New York Times investigation found. In training materials obtained by The Times, members of the hospital staff were instructed how to approach patients and pressure them to pay. “Ask every patient, every time,” the materials said. Instead of using “weak” phrases — like “Would you mind paying?” — employees were told to ask how patients wanted to pay. Soliciting money “is part of your role. It’s not an option.” If patients did not pay, Providence sent debt collectors to pursue them.
More than half the nation’s roughly 5,000 hospitals are nonprofits like Providence. They enjoy lucrative tax exemptions; Providence avoids more than $1 billion a year in taxes. In exchange, the Internal Revenue Service requires them to provide services, such as free care for the poor, that benefit the communities in which they operate. But in recent decades, many of the hospitals have become virtually indistinguishable from for-profit companies, adopting an unrelenting focus on the bottom line and straying from their traditional charitable missions.
. . .
Friday, August 19, 2022
The Institute for Policy Studies has published Gilded Giving 2022: How Wealth Inequality Distorts Philanthropy and Imperils Democracy. Here is the introduction:
As inequality has grown in the United States, our nation’s charitable system is in danger of becoming a taxpayer-subsidized platform of private power for the ultra-wealthy. This poses risks to the independent nonprofit sector and our society as a whole.
Since our first edition of Gilded Giving 2016: Top Heavy Philanthropy in Age of Extreme Inequality, we have shown that charities are receiving shrinking amounts of revenue from donors at lower- and middle-income levels, and that they are more reliant on larger donations from smaller numbers of wealthy donors. And we have shown that wealthy donors tend to pour their dollars into foundations and donor-advised funds — charitable intermediary vehicles they control — rather than into public operating charities (i.e. active nonprofits on the ground).
This updated edition of Gilded Giving describes the extent of the capture of our charitable sector by the wealthy, the risks this poses, and how it has been exacerbated by the pandemic and other external factors. We also propose strong reforms that would reverse these trends and realign our charitable system to serve the public interest.
Hat Tip: EO Tax Journal.
Bloomberg reports that Wilshire Trust Universe Comparison Service data shows U.S. college endowments declined by a median of 10.2% before fees in the twelve months through June 2022. But the largest funds, with more than $500 million in assets, reported a gain just under 1.0%. And this is after a very strong positive median return of 27% for U.S. college endowments for the 12 months ending in June 2021.
Hat tip: TaxProf Blog.
The Institute for Nonprofit News reports that nonprofits are driving an increase in local news coverage based on its fifth annual survey. Here is the Executive Summary:
The 2022 INN Index Report shows that the nonprofit news sector largely weathered the threats and disruption of the COVID-19 pandemic and continues a growth cycle of more than a decade.
Growth can be measured across a variety of indicators, including the numbers of INN members, total revenue, philanthropic revenue, staffing size and audience reach. Collectively, these measures describe a robust field, increasing in capacity and influence. Beyond individual organizations’ growth, growing coordination in reporting and networked content distribution expand the impact of this journalism beyond the size and number of newsrooms.
Going deeper, the Index shows that growth is differentiated. For example, gains in philanthropic support to nonprofit news is most densely concentrated among larger national and global organizations.
Smaller, local news organizations are driving growth in the number of nonprofit news outlets. Roughly 4 in 10 nonprofit news organizations are local, up from about 2 in 10 in 2017. Based on these trends, INN projects local outlets will make up the majority of nonprofit news organizations in 2024.
The Index also demonstrates challenges that could slow growth and merit attention in coming years. These include: the capacity to attract and retain diverse staffs, especially beyond a cluster of newsrooms primarily focused on serving communities of color; access to philanthropic support for smaller and emerging newsrooms; and the cultivation of market-based revenue where it is possible and aligns with the public service mission.
This data is particularly timely given layoffs at numerous local news outlets owned by Gannett, the nation's largest newspaper chain, after a quarterly loss and drop in revenue.
Hat tip: NiemanLab.
Monday, August 1, 2022
An interesting new Tax Policy Center study by Nathan Born and Adam Looney estimates how much nonprofits gain from income tax exemption. While they found most nonprofits do not benefit, a small group earns significant benefits
They state: "a minority of tax-exempt organizations do earn large, persistent profits, and benefit a great deal from the tax subsidy: We found they saved around $21 billion in 2018. The largest beneficiaries are hospitals that charge more in patient fees than they spend providing medical care. They saved about $10.7 billion in taxes on their profits, 62 percent of the total subsidy. Universities that charge more in tuition than they spend on education saved about $1.7 billion. Public charities (a catch-all category of organizations financed by gifts from the general public), make up 44 percent of charities. But they saved $1.4 billion or only 8 percent of the total tax benefits."
They do not focus on 501(c)(3)s alone: "Within the tax-exempt sector, charitable (501(c)3s) were the largest beneficiaries ($17.7 billion). Civic Leagues and Social Welfare Orgs (501(c)4s) saved about $1.2 billion, as did Chambers of Commerce and Real Estate Board (501(c)6) organizations. Labor, Agricultural and Horticultural Organizations (501(c)5s) saved about $600 million."
Unsurprisingly most colleges and universities lose money and gain nothing from the benefit.
"Colleges and universities are a case in point. While in aggregate they earned about $31 billion in investment income (mostly from endowments) and received $230 billion in revenues (mostly from tuition), they spent about $323 billion on educational and research services. On a tax basis, they lost money. Hence, the sector’s $1.7 billion tax subsidy is less than one might infer from examining endowment income or tuition revenue alone.
Within colleges, the subsidy is concentrated among a few profitable organizations. Some are well-known institutions with large endowments, such as Yale and Princeton. But some just charge a lot in tuition for low-cost and online education, like Liberty University, Savannah College of Art and Design, Southern New Hampshire University, or Grand Canyon University."
Find the full report here.
Thursday, July 7, 2022
Charitable Solicitation Update: New California Rules for Charitable Crowdfunding; Article on Cause-Related Marketing
California is working on the implementation of its new charitable crowdfunding law, which has an effective date of January 1, 2023. The Attorney General's office has now released proposed regulations, with comments due by July 12th. For a summary of the proposed regulations, see this Adler & Colvin blog post. For more general coverage of the law's adoption, see this For Purpose Law Group blog post.
In other solicitation developments, researchers at the University of Michigan recently published a study titled How does regulatory monitoring of cause marketing affect firm behavior and donations to charity?, International Journal of Research in Marketing (online 2022; hard copy publication pending). Here is the abstract:
Cause marketing (CM) typically involves for-profit firms donating part of their sales revenue to a charity, with the hope that this will increase their revenue. We argue that it is important for a regulator to monitor firms’ CM activities, and to assess how differences in the enforcement of CM laws impact the CM practice by firms. Our analytical model uses a Stackelberg leader–follower game that endogenizes the regulator’s decision to enforce CM. The firm then decides whether to truthfully declare or overstate the amount it contributes to charity (and if overstate: by how much). We find the following results in equilibrium under different conditions: (i) CM campaigns are a win–win–win situation – they increase profit for the firm while being truthful, generate larger donations for the charity, and generate a cause marketing surplus for the regulator, resulting in doing well while doing good, (ii) the best response of the firm is to be strategic, even when the regulator is strict with monitoring, (iii) the regulator itself decides not to monitor CM, even though it knows that this results in untruthful behavior by firms. When we endogenize the extent of overstatement, we find that the firm tends to be strategic by overstating donation percentage, whether the regulator is strict or not. As the proportion of unsophisticated consumers (who believe a firm’s claims, whether truthful or not) increases, the donation proportion decreases in general, and the overstatement level increases when the regulator is lenient and decreases when the regulator is strict. In equilibrium, the regulator is strict if the market size is large, and lenient otherwise. A survey with consumers supports key modeling assumptions regarding consumers' lack of knowledge of CM laws.
The GivinG USA Foundation published its annual Giving USA report on charitable giving in 2021. According to the Indiana University Lilly Family School of Philanthropy, which researches and writes the report, here are some of the highlights:
- Total charitable giving grew by 4.0% to $484.85 billion, with $326.87 billion or slightly less than 70% coming from individuals. The remaining giving came from foundations ($90.88 billion), bequests ($46.01 billion), and corporations ($21.08 billion).
- The largest recipient area remained religion at $135.78 billion, followed by education at $70.79 billion, human services at $65.33 billion, and foundations at $64.26 billion, with lesser amounts to public-sector benefit organizations (e.g., United Ways and national donor-advised fund sponsors), health, arts, international affairs, and environmental.
Separately, the IRS Statistics of Income Office released spreadsheets with data on Noncash Charitable Contributions by individuals for tax year 2019. Highlights include:
- Over 3.9 million returns reported over 12.5 million noncash charitable contributions on Form 8283, with a total fair market value of over $96.5 billion.
- Donated investments accounted for almost half of the value donated ($45.0 billion), with real estate (including land and easements) accounting for an additional $33.9 billion and other categories such as clothing, household items, and art/collectibles making up the rest.
Thursday, June 2, 2022
Last week, Candid and the Center for Disaster Philanthropy released Philanthropy and Covid-19: Examining Two Years of Giving. There's a lot of interesting information there, but the topline conclusion is this: Covid-related giving declined significantly between 2020 and 2021, on several metrics.
Survey respondents reported $2.119 billion of Covid support in 2020. The number declined 31% to $1.462 billion in 2021. In that same period, overall grantmaking went up 11%. (Candid does say that, since there is no precise definition of Covid support, respondents used their own judgment to determine whether their giving represented Covid support.)
Anyway, it's an interesting survey and an interesting report, and probably worth taking some time with.
Samuel D. Brunson
Friday, April 15, 2022
First, the Urban Institute's Center on Nonprofits and Philanthropy has launched a Giving Dashboard. Its categories cover a range of giving forms, including individual giving, noncash contributions, volunteering, impact investing, political giving, donor-advised funds, digital currency, and crowdfunding. Here is the description:
Below, we have collected and organized data into a giving dashboard that provides a snapshot of the many ways Americans give. We define giving expansively to include not only donations to tax-exempt nonprofits, but also crowdfunding, impact investing, and more. Many of our categories contain several measures from a range of data sources. On the right side of the dashboard, we provide a quick overview of each category by highlighting how the first measure in the category changed during the latest year for which data are available. By clicking on the category, you can explore all the measures within it. Although many types of giving resist quantification, the figures in this dashboard represent indicators that illuminate the dominant trends shaping the contemporary giving landscape in the United States.
Second, the Aspen Institute's Program on Philanthropy and Social Innovation has published a new report, Stories From the Frontier: Breakthroughs, Challenges, and Recommendations from the First Five Years of Open 990 Data. Here is the description:
Read our new report to learn how open Form 990 data is empowering change throughout the nonprofit sector! PSI commissioned the Dorothy A. Johnson Center for Philanthropy at Grand Valley State University to author the report.
Making 990 data searchable and available for free to the public has revolutionized nonprofit information and scholarship by massively reducing costs and increasing efficiency. Researchers, nonprofits, government regulators, and journalists are using previously inaccessible data to further transparency, educate donors, advance knowledge, and fuel innovation. The report also provides a list of tools and resources for accessing 990 data.
Wednesday, April 13, 2022
Cherry picking an issue flagged by the IRS in 2017 (Notice 2017-73) and addressed by one provision of the pending ACE Act (section 5), the Biden Administration's FY2023 Budget includes a provision (see page 132) that would bar private foundations from counting distributions to donor advised funds toward their minimum payout requirement under IRC 4942, except in limited circumstances (for more details, see pages 58-59 of the General Explanations of the Administration's revenue proposals). While passage of this provision is of course uncertain, it is important because it indicates that the Administration is at least tipping its toe into the DAF reform area. At the same time, 12 bipartisan members of the 43-member Ways and Means Committee issued a letter supporting DAFs and opposing recent DAF reform proposals. (Hat tip: Chronicle of Philanthropy (but incorrectly identifying the signers as all Republicans, when 7 of the 12 are Democrats)).
At the same time studies of DAFs continue to accumulate. The Institute of Policy Studies recently issued the results from two studies:
- Private Foundation Giving to Commercial Donor-Advised Funds based on the IRS returns of private foundations that filed electronically from 2016 to 2018 and a list of the 45 largest commercial DAF sponsors, with the following findings:
- Private foundation giving to these commercial DAFs averaged $737 million per year from 2016 to 2018.
- From 2016 to 2018, gifts from DAF-giving private foundations to these commercial DAFs averaged about $605,000 each, while their gifts to other recipients averaged just under $119,000 each.
- 229 foundations gave $1 million or more to these commercial DAFs from 2016 to 2018.
- Grants to these commercial DAFs made up one hundred percent of all charitable distributions for 157 foundations from 2016 to 2018.
- Larger Community Foundations Have Become Heavily Reliant on Donor-Advised Funds based on the electronically filed IRS returns of 206 community foundations that participated in Candid's 2019 Columbus Survey, with the following findings:
- DAFs accounted for a median 24 percent of assets.
- A median 41 percent of all incoming contributions consisted of contributions to DAFs.
- A median 42 percent of all outgoing grants were grants from DAFs.
- Larger community foundations tend to be much more heavily reliant on DAFs for their incoming revenue streams; DAFs account for a much larger proportion of their outgoing grants; and DAFs make up a much larger proportion of their total assets.
The Donor Advised Fund Research Collaborative also recently made available the result of this study:
- Donor-Advised Fund Account Patterns and Trends (2017-2020) based on 13,000 DAF accounts from 2017 to 2020 at 21 community foundations and religiously-affiliated DAF sponsors in the United States (but not including national, commercial DAFs), with findings including:
- While 11% of DAFs had over $1 million in assets, the typical DAF is equally likely to be a small-sized DAF with assets under $50,000 or a medium-sized DAF with assets between $50,000 and $1 million.
- The median four-year average payout rate among all accounts was 11%; among spendable DAFs, the median payout rate was 13%.
- Large accounts over $1 million were 11% of all accounts and represented at least 85% of the assets in the DAFRC sample.
- The majority of DAF contributions were received in the fourth quarter, including approximately 55% of dollars contributed and 42% of contribution transactions.
The Chronicle of Philanthropy also reported that giving from two of the largest sponsors of donor-advised funds grew slower in 2021 than in 2020.
Friday, February 25, 2022
UPDATE: Fellow blogger Roger Colinvaux (Catholic) also responded to Katherine Enright's OpEd discussed below, in a Letter to the Editor titled The Status Quo Is Not Acceptable When It Comes to Donor-Advised Funds. And as previously noted in this space, he has written an article on the ACE Act, Speeding Up Benefits to Charity: Donor Advised Fund and Foundation Reform, Boston College Law Review (forthcoming).
Even as we await congressional action on the Accelerating Charitable Efforts (ACE) Act, studies, recommendations, and dueling opeds continue to emerge.
In terms of studies, Howard Husock at the American Enterprise Institute has posted a recent study on anonymous giving through DAFs that makes these points:
- A review of grant data from the five largest sponsors of donor-advised funds—including the independent public charities, serviced by financial firms Fidelity, Vanguard, and Schwab—shows that anonymous grants comprise only 4.3 percent of all grants. It also shows that grants in the anonymous category that may include support for public policy matters include a small minority (12 percent) of that small group.
- Most anonymous giving supports well-known and noncontroversial organizations, including American Red Cross, Doctors Without Borders, and Salvation Army.
- Any regulation designed to limit anonymous giving risks discouraging charity by donors that may choose anonymity for various reasons, including fear of public criticism, unwanted solicitation, or religiously motivated reasons.
Coverage: Chronicle of Philanthropy (including criticism of the study; subscription required). At the same time, Hayden Ludwig at the Capital Research Center posted a short report critical of the Silicon Valley Foundation, titled The Gilded Left’s Favorite Bay Area Bankroller.
The Council on Foundations's Strengthening Community Philanthropy Ad Hoc Working Group also recently issued a set of recommendations for community foundations that hold donor-advised funds. The recommendations address the following issues:
- Standardizing Community Foundation Inactive Funds Policy
- Aggregate DAF Annual Distribution Requirement
- Private Foundation Distributions to Donor-Advised Funds
- Donation of Complex Gifts
- Expanding Charitable Giving
Finally, Katherine Enright of the Council of Foundations wrote an OpEd titled Donor-Advised Funds Are Essential to Democratizing Philanthropy, which led to a response from a former director development titled Donor-Advised Funds Don’t Pass the Democracy Smell Test. And at the Wall Street Journal, Jeremy D. Tedesco of the Alliance Defending Freedom wrote a commentary pushing back the Unmasking Fidelity movement titled Cancel Culture Targets Charity: Left-wing political activists want to destroy America’s long tradition of private philanthropy.
It seems the DAF debate is quickly becoming a vehicle for a number of political arguments and divides.
Wednesday, December 22, 2021
Today's Religion News Service (RNS) is reporting that according to a survey conducted by the Hartford Institute for Religion Research, more than half of Christian congregations say they have started a new ministry or expanded an existing one during the COVID-19 pandemic. On average, in fact, these Christian houses of worship began or broadened more than three of their outreach activities in response to the pandemic.
The Hartford Institute's report is the second installment in a five-year project that began earlier this year called “Exploring the Pandemic Impact on Congregations,” based on a collaboration among 13 denominations from the Faith Communities Today cooperative partnership and institute staffers. If their findings are representative of the roughly 320,000 Christian congregations in the country, the institute said, the researchers estimate that nearly 175,000 churches launched or expanded ministries, funds and supplies in response to the pandemic over the past two years. Overall, almost three-quarters (74%) of churches have offered social support during the pandemic and close to two-thirds of congregations say they have been involved in new ministries.
According to the RNS report,
The new findings, a November survey drawn from 820 responses from representatives of 38 Christian denominational groups, showed significant changes in congregations’ attitudes toward change, particularly increasing diversity. Less than three-quarters (73%) agreed in 2020 that their congregations were willing to change to meet new challenges. That increased to 86% in November.
There also seemed to be greater interest in striving to be diverse, with 38% describing themselves as doing so in November compared with 28% in summer of 2021 and 26% before the pandemic and before the majority of the 2020 protests spurred by the murder of George Floyd, a Black man who died under the knee of a white Minneapolis police officer.
But even as congregations considered new ways of operating, an increasing number are concerned about their future, with 23% saying they are worried about their ability to continue, compared to 16% in the summer.
This worry may well be the result of a grim reality: the institute’s researchers estimated that some 200,000 church members have lost their lives due to COVID-19. The percentage of churches reporting deaths within their membership increased from 17% in the summer to 28% in November, when the second survey was conducted. The average number of deaths among those reporting losses in their congregation was 2.3, up slightly from 2 in the summer.
In response, Allison Norton, co-investigator of the study, told RNS in an email, “This is a sobering picture; however, we would have expected an even greater loss, given the aging population of regular churchgoers.”
The project’s first report, based on responses from summer 2021, showed that about a third of congregations had increased requests for food. About a quarter received more requests for financial assistance during the pandemic. The November survey found that 22% said they had added or increased food distribution and 21% had enhanced or begun financial assistance for their community.
It is good to see churches functioning in society as they should.
Prof. Vaughn E. James, Texas Tech University School of Law
Monday, November 15, 2021
Jennifer Mayo (Ph.D. Candidate in Economics, University of Michigan) has posted Navigating the Notches: Charity Responses to Ratings. She summarizes her research in a Twitter thread here. Here is her introduction:
This paper studies both donor and nonprofit responses to the star rating system designed by Charity Navigator. Using IRS Form 990 data from 2002 to 2019, I find that an increase in a charity’s rating from 3- to the highest 4-star rating is associated with a 6% rise in contributions, with larger effects among smaller charities. Some charities respond to the incentives by changing their behavior to try to get themselves above the star thresholds, leading to “bunching” at the thresholds. This response is equal to the effect of charities halving spending on administration. I find that some of the response is due to misreporting of expenses in order to achieve a higher star rating. The analysis suggests that a notched rating system induces greater behavioral change than a continuous measure, but affects a smaller number of charities. Which rating system is preferred depends on the relative value placed on these effects.
Samuel D. Brunson
Friday, November 12, 2021
While the Accelerating Charitable Efforts (ACE) Act appears to be stuck in the Senate Finance Committee, at least for now, that has not slowed the publication of studies focusing on donor advised funds, private foundations, and payout rates. This includes reports from Giving USA, the National Philanthropic Trust, and the American Enterprise Institute, along with the latest case study of a wealth individual's private foundation.
Giving USA released this week a special report titled Donor-Advised Funds: New Insights. Here is the description:
This new special report analyzes $74 billion in grant funds going to over 240,000 organizations, answering important questions like:
- What types of organizations receive grants from DAFs?
- How have DAF trends changed over time?
- How do trends differ among various types of DAF sponsoring organizations – for example, how might granting patterns at community foundations differ from grants at other types of DAF-sponsoring organizations such as national funds or single-issue charities?
Unfortunately it is only available on a paid basis, either as part of the paid annual subscription to Giving USA or separately.
The National Philanthropic Trust also just released The 2021 DAF Report. Key findings include:
- DAF donors granted at historic levels. Grants from DAFs to qualified charities totaled an estimated $34.67 billion, representing a 27.0 percent increase compared to 2019 and a new high-water mark. This is the highest DAF grant increase in a decade.
- The DAF payout rate was 23.8 percent, one of the highest payouts on record. Payout has remained above 20 percent for every year on record, reflecting the consistent charitable support that DAF donors provide.
- Other key metrics, like contributions and charitable assets, also increased. These increases demonstrate that DAF donors are committed to supporting charities now and in the future.
And Howard Husock at the American Enterprise Institute has published America’s largest foundations: Examining payout rates and perpetuity. Here are its key points:
- An examination of payout rates of the largest American philanthropic foundations reveals that the growth of their financial assets is significantly greater than the percentage of increased wealth distributed as grants. Foundation payout rates are also significantly lower than those of the individual charitable accounts known as donor-advised funds (DAFs), a growing philanthropic financial vehicle.
- DAFs, their relatively high payout rates notwithstanding, have been targeted by proposed legislation aimed at increasing those rates. Large foundations, despite controlling far more wealth and distributing a lower percentage of assets, have not been singled out. The substantial increase in the assets and extent of US private charitable foundations over the past 10 years suggest that foundation payout rates might be increased in light of substantial asset growth. Ideally, America’s largest private foundations would do this voluntarily.
- Foundations should, as best practice, seek to align grant payouts with asset growth, rather than settling for adhering to the 5 percent minimum. In doing so, they could both better fulfill their mission and preempt what could be potential regulatory demands. At the same time, asset growth should be the occasion for foundations to reflect on the perpetuity issue—and regulation should call for explicit indication as to whether foundations choose perpetuity and, if so, why.
Finally, in case anyone needs another real life example of how the wealthy use private foundations in their giving, the Institute for Policy Studies has posted an article (Phil Knight’s Billion-Dollar Philanthropy: Generosity or Self-Service?) based on a Bloomberg piece that is behind a paywall. The article focuses on "Nike founder and billionaire Phil Knight’s strategies to avoid estate tax and maximize transfers to his heirs and charitable foundations."
The Fundraising Effectiveness Project released this week its 2021 Second Quarter Fundraising Report. According to the report's announcement, the key findings include:
- While giving in 2021 has not seen the explosive growth of 2020, the pace of giving and number of donors has remained roughly the same or even a little higher. The estimated number of donors increased by 0.7% in the first half of 2021 compared to the same period in 2020, while the total amount of money given has risen by a projected 1.7%.
- Fundraising has remained strong in the first half of the year due to the number of newly retained donors—that is, the number of new donors in 2020 who have continued to give in 2021. The number of newly retained donors increased 22.4% over the first half of 2021.
- Total giving and the number of donors grew by record rates in the first quarter of 2021 (10% and 6%, respectively), but the growth was much more nominal in the second quarter. The drop in growth in the second quarter might be a developing trend that leads to flat or decreasing in the third quarter, or the result of abnormally strong first quarter growth.
The IUPUI Lilly Family School of Philanthropy also released this month Understanding Philanthropy in Times of Crisis: The Role of Giving Back During COVID-19. Its key findings were:
- Individual Giving: 1. Americans have maintained their commitment to charitable giving throughout the pandemic, with some notable exceptions. 2. Donors who gave to COVID-related causes often indicated that other people can be trusted and were more motivated to strive for the wellbeing of others and society. 3. End-of-year giving made up a larger portion of giving in 2020 than in the previous two years. 4. Nonprofit subsectors directly related to responding to the pandemic, such as human services, health, and public-society benefit, saw significant increases in donations. 5. The characteristics of donors to COVID-related causes appear similar to general patterns in giving to charitable causes more broadly. 6. Innovation and digital adaptation were vital to meeting new demands during COVID-19.
- Corporate Giving: 1. Corporations responded to the increased health demands imposed by COVID-19 with increased giving and multi-year pledges. 2. The commitment of corporate philanthropy to health causes is distinct from other types of donors. 3. Finance and insurance companies dominated U.S. corporate giving to COVID-19 relief in 2020. 4. Corporations (that participated in interviews with the school) adapted their workplace giving programs in response to COVID-19, with a heavy reliance on technology.
Earlier this fall, Bank of American and the IUPUI Lilly Family School of Philanthropy released The 2021 Bank of America Study of Philanthropy: Charitable Giving by Affluent Households. According to the overview, it found "[t]he vast majority (88.1 percent) of affluent households gave to charity in 2020, and nearly a third (30.4 percent) of affluent individuals volunteered their time (down significantly from 47.8 percent in 2017), despite the COVID-19 global pandemic. On average, affluent donor households gave $43,195 to charity in 2020. By comparison, donor households in the general population gave $2,581." It also found that issues drove giving roughly as much as organizations, in a shift from previous studies indicating that organizations were a strong influence, and that support for social and racial justice grew in significance.