The False Allure of Charitable Endowments

[Note: This article was co-posted March 2, 2015 at Inside Philanthropy.)

In her recent Inside Philanthropy guest blog post defending donor-advised funds, Council on Foundations CEO Vikki Spruill asserts that those of us who are critics of donor-advised funds and perpetual foundations undervalue the role played by charitable endowments. Spruill writes, “The compulsion to ‘pay it out now’ in order to address immediate needs is woefully shortsighted.” In a comment to Spruill’s piece, Inside Philanthropy blogger Frank Monti agrees, writing, “…the value of the endowment is that resources are available in perpetuity. Jesus said ‘the poor you will always have with you.’”

I’m neither a theologian nor an economist, but I challenge the sacred place held by endowments in American philanthropy. And while I will reluctantly agree that there are always likely to be some poor people, I suggest that our addiction to endowments makes poverty worse, now and in the future.

I admit that speaking disparagingly about endowments is philanthropic heresy, but bear with me as I explain. I agree that there is value in building endowments for certain purposes, such as to support the maintenance of a museum or historic home. In those cases, the time frame of the endowment—perpetual—is the same as the mission, which is to preserve the building and its treasures forever. There are other examples for which a permanent endowment makes sense, such as endowments that pay for the perpetual stewardship of conserved wilderness. But in most cases, endowments are far from ideal for solving pressing societal problems.

Let’s forget for a moment our ingrained preconceptions about how philanthropy is supposed to work. Instead, let’s analyze how philanthropic dollars actually flow and have impact.

Instead of throwing in the towel and declaring that the poor will always be with us, we need to recognize that there are policies that, if enacted, would ameliorate poverty. For example, we could lessen intergenerational poverty by providing comprehensive prenatal and neonatal medical care for all, ensuring proper nutrition for infants, toddlers, preschoolers, and school-age children, and investing in developmentally appropriate and universally accessible childcare and early education. If we as a society were to ensure that these services were provided to all American families, funded at generous levels, we would help improve the physical, intellectual, and emotional outcomes of children born to families with low incomes. That generation would grow to be better educated, more employable, more likely to be law-abiding and tax-paying, and more capable of being good parents. They, and their children and grandchildren, would be far less likely to be poor.

Wouldn’t investing in these services now reduce the need to have money to combat poverty later?

And we could also invest in advocacy work that would make these kinds of investments more likely. Wouldn’t lobbying today for proper government funding for these services—universal preschool, medical care, and nutrition programs—be a good use of charitable funds? The Children’s Defense Fund recently issued a report showing how reallocating and devoting 2 percent of the national budget to these and related issues would reduce childhood poverty by 60 percent. Wouldn’t it be a good philanthropic investment to support efforts of the Children’s Defense Fund and similar organizations to push for these policies?

Or take the widening wealth gap, which, in the opinion of many, is shredding the fabric of our society and limiting opportunity. Wouldn’t it be a good use of charitable resources if, instead of wringing our hands, we underwrote advocacy efforts to support higher minimum wages, better funding for education at all levels, and an end to a tax system that overburdens the poor and working class while providing elaborate tax breaks for corporations and the wealthy? Wouldn’t those efforts now reduce poverty later?

We can, as a society, put charitable money to work to make the critical investments that would lessen poverty now and in the future. Or we can keep the funds bottled up in charitable warehouses for a future moment when, if we don’t make these investments now, we will indeed surely need the money.

Money sitting in foundations and donor-advised funds is just that: money. But those same funds invested in people today would result in improved lives and futures for those individuals and for the nation.

Vikki Spruill describes those of us who are critics of endowments as “woefully shortsighted.” I’ve heard that criticism before. But it’s clear to me that endowments are grossly overvalued in the philanthropic world. Yes, the poor will always be with us, but there would be vastly fewer of them if we were not so intent on keeping charitable dollars locked up in perpetuity.

And, since Mr. Monti cited the Bible to justify his point of view, may I offer the extended quote from Mark 14:7? “The poor you will always have with you, and you can help them any time you want.” To do so, now, is not only right, but smart.

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8 thoughts on “The False Allure of Charitable Endowments”

  1. Al:

    Once again a very succinct and on point message. I applaud your bravery to challenge the establishment and their policies which I also feel, simply exist to maintain their clout. There are so many studies now showing that positive interventions at an early age has a lasting impact on a person’s life well into adulthood. I liken the argument to if we stopped war and violence now (especially in the Middle East), there would no longer be additional recruits ready to take up arms to right the injustices imposed on them.

  2. Not the first time I’ve heard you discuss this topic Alan, but it is one with which I concur wholeheartedly, as you know. Building on the Children’s Defense Fund theory of reallocating 2% of dollars to advocacy on behalf of children and families, how about 2% of the ridiculously gross amount of money spent on political campaigns going to solving problems, rather than rhetoric ideology and negativity about individual candidates. Advocacy is idealistic — about serving the needs of people and solving the problems that confront them –today– with poverty being the biggie. It is , not about partisan politics. So instead of dealing with candidates who use their campaign dollars to talk about the changes they will make (and never do) let’s put the money toward real potential for change in advocacy that seeks to reform and improve the lives of children, their families and society.

  3. I know this is a sidebar and not the main point, but the common mis-use of that particular Bible quote to restrain generosity is such a bugaboo of mine. Alan, I think you’ve already got a great response, but here’s a little more fuel for that fire: I suspect Jesus was quoting or referring to Deuteronomy 15, where it says that in a land so rich in resources, there need be no poor people among you if you follow the command to be generous. But since “There will always be poor people in the land. Therefore I command you to be openhanded toward your fellow Israelites who are poor and needy in your land.”

    1. Thank you, Deirdre. That’s a great point, and in line with what I read as I researched this topic.

      Jesus made references consistently to Jewish scripture, and scholars seem to agree that the passage you cite from Deuteronomy was the inspiration for his comments about the poor. And clearly, the openhandedness is the key point in the underlying text: you shouldn’t simply accept poverty, but do something to erase it.

      Thanks for raising this. Yes, it’s a sidebar, but it’s interesting stuff, and important.

  4. Good blog. I agree with you that trying to eliminate poverty is a goal and using that Biblical quote to justify poverty’s existence is a distortion .

    Is the spend down legislation coming up this year? Since reading your blog, I’ve become more committed to donating 15-20% of my DAF value per year. If all DAF account holders released 15% of their holdings per year, would that increase the charitable donations? If DAF holdings continue to increase, and no legislation comes out, then it seems to me that the logical thing is for people like you, and the charities themselves to try and make your points to the DAF holders directly, the populist approach.

  5. It good to hear that this conversation is in part causing you to accelerate your payout.

    Given that we don’t know week to week if Congress will fund the basic federal budget, it’s hard to say if they will take any action on DAFs. I’m certainly not one to prognosticate. It would be lovely if people got the message and started to give out from their funds at a more aggressive rate, and I think we can try to create a culture where the expectation is that, yes, the money will go out from DAFs. But I don’t see a significant shift in behavior without legislation. Keep in mind that the best thing from the self-interest of the financial services firms and financial advisors is for the donors to keep their funds invested in the DAFs, and messages encouraging that will continue to be persistent and effective. And it’s awkward for charities to encourage faster distribution. Charities are not used to telling donors what to do. And donors may find calls like that self-serving. (Yes, ironic to say that, since the efforts by the financial services field are vastly more self-serving in the other direction — and yet they seem to get away with it!)

  6. I think the best strategy is dual; try for legislation but also try to communicate directly to DAF owners. Maybe some owners would be put off by asking for larger donations, but emphasizing the urgency of the need. (improving educational opportunities now or improving health care now) I think would be fine. DAF account owners aren’t stupid; we see the self interest of the brokerage firms. We just need to hear the urgency from the non- profits and perhaps some financial help in determining our payouts over a certain time frame.

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