Partial Score

The late comedian George Carlin had a shtick back in the 1970s where he played a television sports anchor. With mock seriousness, he’d stare at the camera and say, “Here’s a partial score: Notre Dame 6.”

I thought of this as I read David Callahan’s perceptive interpretation in Inside Philanthropy of Silicon Valley Community Foundation (SVCF)’s recently-released sortable listing of its 2015 grants. Through this listing SVCF, the largest community foundation in the country, shares how much money it has distributed from donor-advised funds and its discretionary grantmaking programs, and it lists which organizations received the bounty. SVCF is clearly trying to show how vast and diverse its giving is, and the foundation implies that sharing its grant table is a great act of transparency. But SVCF only tells us part of the story – and the parts that are left unexplained underscore the inherent problems with donor-advised funds.

Here’s a quick primer for those of you unfamiliar with donor-advised funds, or DAFs:

Donor-advised funds are components of public charities, which are called DAF sponsors. In this case, the DAF sponsor is the Silicon Valley Community Foundation. Donors making gifts to donor-advised funds receive the same tax benefits as if they were giving to an operating charity such as a food pantry or a college. The catch is that donations to DAFs, though legally considered outright gifts, really don’t function that way. That’s because the donors retain the right to advise on grant distributions from their funds. Legal control rests with the DAF sponsor (in this case, SVCF), but the de facto grantmaking power remains in the hands of the donors.

That makes donor-advised funds very similar in function to private foundations, but without the pesky government oversight. Private foundations, for example, are required to distribute an amount equivalent to five percent of their market value for charitable purposes every year. Moreover, a private foundation needs to share information about all its grants (as well as investments, trustee honoraria, and other financial transactions) in its annual 990-PF report to the IRS, a document that’s part of the public record.

Individual donor-advised funds, by contrast, don’t have to distribute any grants in a particular year, or any amount ever. And a donor-advised fund sponsor doesn’t have to report the activities of any particular donor-advised fund. Giving from various donor-advised funds is lumped together on the DAF sponsor’s IRS Form 990, where the organization reports that it made the grants, but not from which funds.

Which brings us back to the partial score: “Notre Dame 6.” The Silicon Valley Community Foundation reports on grants for 2015 of $479 million. That’s impressive, certainly, though it’s not surprising that a $6.5 billion foundation can distribute hundreds of millions in grant dollars. But here are the questions that the report doesn’t answer:

  • How many of the donor-advised funds are completely or largely inactive? There’s no fund-by-fund accounting in DAF World, so we don’t know how many of the donors to SVCF (or any donor-advised fund sponsor), having received a full charitable tax deduction, are simply sitting on their money, not benefitting charity in the slightest.
  • Who gave what to whom? This is the $479 million question. As Callahan points out in his critique, “Because philanthropic dollars can and do buy influence in American life, it’s nice to know who’s doing the buying.” For example, many of the largest recipients of SVCF’s grant dollars were organizations promoting education reform and charter schools. This is a different dynamic from tracing the money pouring into education reform efforts from private foundations. We know that the Gates, Walton, and Broad Foundations have pumped enormous sums into education reform, to the point where people sometimes refer to Bill Gates as the unelected and perpetual Secretary of Education. We can follow the money because private foundations have to disclose their grants. But when similar grant dollars derive from donor-advised funds, we have no idea who is behind this effort – and the SVCF report doesn’t help us understand that in the slightest.

You may think this is not of great consequence, but as Callahan points out, the growth of donor-advised funds parallels the rise in untraceable and hugely influential “dark money” in American politics. In fact, the two are related. In Dark Money, Jane Mayer’s recent book about the Koch brothers and the way in which they and other enormously wealthy conservative families buy influence in politics, donor-advised funds surface as a major weapon in the arsenal. Mayer cites research showing that in 2010 organizations working to debunk evidence of climate change received fully 24% of their income from a single conservative donor-advised fund sponsor called DonorsTrust. We know the money came from DonorsTrust – but we can’t definitively say from which funds or donors. The donors’ identities have been laundered.

I have to give DonorsTrust credit for being direct. As quoted by Mayer, its website tells its prospective donors: “You wish to keep your charitable giving private, especially gifts funding sensitive or controversial issues. Set up a DonorsTrust account and ask that your gifts remain anonymous. Know that any contributions to your DonorsTrust account that have to be reported to the IRS will not become public information. Unlike with private foundations, gifts from your account will remain as anonymous as you request.” So, as I explained in an earlier piece, the Charles Koch Foundation sent large amounts of money to DonorsTrust, which in turn sent a similarly large amount of money anonymously to the Heartland Institute, a group that works to debunk evidence of human activity causing climate change. Did Koch fund the grant? Almost certainly. Can we prove it? No, we can’t, because of the smokescreen provided by donor-advised funds.

Of course, unlike the Koch brothers, the vast majority of donors creating DAFs are not trying to launder their identity in order to support politically controversial causes. And many people have understandable reasons for requesting anonymity in their DAF grantmaking. I get that. But donor-advised funds’ lack of transparency is a challenge to charity and democracy, and this new report from Silicon Valley Community Foundation – which, quite honestly, is not much more than a digitized version of the grant listing on its IRS Form 990 – does little to pull back the veil on how its donor-advised funds function. Moreover, it does not go anywhere near revealing which donors are supporting what causes.

Like George Carlin giving his partial football score, the SVCF report provides no context or, really, much information. At least George Carlin was funny. What’s going on in the world of donor-advised funds certainly isn’t.

Copyright Alan Cantor 2016. All rights reserved.

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5 thoughts on “Partial Score”

  1. Hi Al,
    I agree that Donor Advised Funds are an issue, and a very troublesome one. But like many things, Donor Advised Funds, when used in an ethical way by the very people who create and fund them (the donors) can be a very effective way to grant money to worthy organizations and causes. In the case of my wife and myself, we have found that there is a very beneficial side to having this kind of fund. Surely, the immediate tax benefit are helpful, but that is not why we like to give money through a Donor Advised Fund. Like many people, our own funds are invested and subject to the daily vagaries of the financial markets. One’s fortunes (literally and figuratively) can rise and fall on a daily basis and it can be more than a little unnerving. Were we to donate money one moment at a time and one organization at a time, it is easy to make the case that we could become paralyzed, despite our best intentions, as the markets rise and fall and feed our insecurities. Each individual decision would very affected by these issues and likely cause us to hesitate. In the course of a week, we can variously feel that we are in the chips or well on the road to ruin. Despite that, we feel a moral obligation to give money to people and organizations who need it. With a Donor Advised Fund we have to make that tricky decision but once a year. Once we donate that money, it is no longer ours. But now we have a nice bit of money to “spend” and we spend it. There is the trick, we spend it. When it is time to give to the organizations we give to yearly, we do. If something worthy comes up we give them money without hesitation. All we do is push a button. And we pretty much spend that money down every year. That rattling, careening roller coaster of living-on-investment-income does not come into play and, to our mind, a lot of people are the better for it.

    1. Thanks, Dan —

      I agree with you in everything that you write, and I love the way you and your wife use your fund.

      Most of us who are suggesting reforms to donor-advised funds have three areas we’d like changed — and I’d be curious about your reaction. First, that money contributed to donor-advised funds needs be distributed within a certain number of years. (I think fifteen years is the sweet spot, though there has been discussion of having a shorter period.) So if you put $10,000 into your fund in 2016, that money (and its appreciation) needs to be out the door to charity by, say, 2031. Second, private foundations could not contribute to donor-advised funds. (Private foundations often do this to meet the technical requirements of directing 5% of their value each year to charity, but we lose track of what happens to the money once it’s in the donor-advised fund. And for some of the donors, as with Charles Koch, that’s exactly the point. They don’t want us to know.) And third, if financial advisors receive a fee for managing the money in donor-advised funds, they need to disclose that to the donors.

      What do you think?

  2. As a DAF account holder, I would have no issue with your 3 suggestions and I think the 15 year maximum holding period is reasonable.

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