Stannard-Stockton: Foundation giving to plummet in 2010

Sean Stannard-Stockton’s post entitled  The 2010 Crisis in Philanthropy details what  has to be the most underreported 800-pound fundraising gorilla patiently awaiting your attention in 2010.

In the words of SSS:

Private foundations are required to give away 5% of their investment assets each year (the average amount given is about 6%). The 5% is based on the average value of their investment assets from the previous year. That means that foundation giving in 2009 is based on 2008 asset levels and 2010 giving will be based on 2009 asset values.

In other words: Uh oh.

But SSS saves his biggest bad news bomb for last:

This year, many foundations decided to keep giving levels constant with last year or at least gave more than the required 5%. It was clear that the need for charitable giving was higher than normal and many foundations stepped up with additional giving. To the extent their giving exceeded 5%, they can count it towards next year’s required giving.
An example: A 2009 payout of 7% means that the 2% that exceeded the 5% minimum can count towards 2010 and so the foundation can legally distribute only 3% next year.
In other words, from the standpoint of foundation giving, more than half of the impact of the stock market crash has yet to be felt.

This year, many foundations decided to keep giving levels constant with last year or at least gave more than the required 5%. It was clear that the need for charitable giving was higher than normal and many foundations stepped up with additional giving. To the extent their giving exceeded 5%, they can count it towards next year’s required giving.

An example: A 2009 payout of 7% means that the 2% that exceeded the 5% minimum can count towards 2010 and so the foundation can legally distribute only 3% next year.

In other words, from the standpoint of foundation giving, more than half of the impact of the stock market crash has yet to be felt.

That’s a projected 40% drop in foundation giving in 2010 for those who are keeping score.

SSS sees a silver lining in the cloud: “With their grantmaking budget decimated in 2010, forward thinking foundations are going to look for ways to leverage other sources of charitable assets. Encouraging other foundations to support their grantees is the easy path.”

Hm.

Continues SSS:

The big opportunity, the real lifeboat that can significantly offset the effects of collapsing asset values, is for foundations to extend their due diligence to major donors. Individual donors give $6.30 for every dollar foundations give. Helping these charitable dollars flow towards high performing, well vetted nonprofits is the most dramatic way that foundations can leverage their own giving.

My own take:

Given that the percentage of income the average American (and the average Christian) gives to charity has remained unchanged for the last fifty years, were foundations to implement his recommendation (and he readily admits that most will not), it would certainly have the effect of moving money around…

…but it would not create new dollars.

Perhaps in SSS’ view this is still A Great Good–eliminate the charities that foundations consider the dead wood and all that.

But what if…

But what if, instead of foundation officers trying to convince major donors to give more (to the charities foundations believe should receive more), what if foundations themselves went beyond the five percent they are required to give…not just for one emergency year but as a regular practice?

SSS notes that the average US foundation gives away 6% of its assets. What would happen if a foundation upped that to 10% annually?

Possible response: “Why, then the foundation would go out of business and that would be…irresponsible!”

Or might it be that foundations can lead the way not only because of their extensive due diligence but because of the example of their increased generosity.

I would argue that major donors need the latter even more than the former.

And who’s to say that a foundation giving away 10% of its income wouldn’t draw a Warren Buffet-type gift from a major donor seeking to make twice the immediate impact of a gift to any other foundation?

About Pastor Foley

The Reverend Dr. Eric Foley is CEO and Co-Founder, with his wife Dr. Hyun Sook Foley, of Voice of the Martyrs Korea, supporting the work of persecuted Christians in North Korea and around the world and spreading their discipleship practices worldwide. He is also the International Ambassador for the International Christian Association, the global fellowship of Voice of the Martyrs sister ministries. Pastor Foley is a much sought after speaker, analyst, and project consultant on the North Korean underground church, North Korean defectors, and underground church discipleship. He and Dr. Foley oversee a far-flung staff across Asia that is working to help North Koreans and Christians everywhere grow to fullness in Christ. He earned the Doctor of Management at Case Western Reserve University's Weatherhead School of Management in Cleveland, Ohio.
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