What Does the Pandemic Have to Do with Payout? Ask Karen!
America is home to more than 80,000 private foundations. Recently, 300 of them decided to speak on behalf of all by asking Congress to force private foundations to temporarily increase their annual payout from five to ten percent.
Gee thanks, Karen!
Such “Karen knows best” proposals—however well-intentioned—should honor, rather than ignore, underlying realities of grantmaking, even in the era of the coronavirus.
Mandates versus Collaboration. Legislating higher payouts does little to encourage collaboration and creativity in grantmaking. Anecdotal evidence suggests that even in an era of social distancing, private foundations are collaborating more than ever with one another, other community foundations, their nonprofit partners, and many others to create greater flexibility and impact with their grantmaking, thus helping nonprofits sustain and rebuild their communities during this difficult time.
Donor Intent. How does doubling the payout of a foundation whose mission is to protect marine wildlife help with the pandemic? It doesn’t. Similarly, what do you say to a foundation whose benefactor required equal distributions over a 10-year sunsetting period? Donor intent letters and mission statements—not the opinions of those disconnected from the foundation and the community it serves—should always dictate the terms of a foundation’s grantmaking and payout.
Pay Now or Later? Foundation fiduciaries (investment committees, advisors, managers, board members) develop long-term strategies to manage the foundation’s portfolio of liquid and illiquid assets. Abruptly increasing payouts could disrupt years of deliberate investment planning. Worse, forcing the liquidation of assets to meet higher payout today could lead to decreased payouts over the long-term, thus reducing a foundation’s effectiveness in addressing problems created by the next crisis.
DAFs Are Already Doing It! The proposal would also impose payout requirements on donor advised funds (DAFs). However, payout by DAFs already averages about 14%, far above the minimum threshold these 300 foundation leaders are suggesting. Giving appears to be on the rise already without mandates. Fidelity Charitable—the nation’s largest donor advised fund—reports giving by its donors is up 18% over last year, providing $2.5 billion to the nonprofit sector.
Many communities throughout the country have not yet experienced large-scale coronavirus outbreaks and may never need to deal with its effects. It is Hoplin Jackson’s view that giving individual foundations the freedom to make grantmaking decisions—including whether to increase giving—should be left to those responsible for honoring donor intent and their on-the-ground assessment of the most effective way to respond to the coronavirus, if at all.
Of those who have decided to help, some have completely scrapped their strategic plans and are giving every single dollar to coronavirus-relief efforts. Others are staying the course, offering stability and continuity to their nonprofit partners. Still others fall in between.
The pandemic has affected many nonprofits differently. Many are experiencing increased demand for their programs or services. Others are seeing no changes or decreased demand for their programs. For example, nonprofits with online educational programming are seeing unprecedented demand for their services, many of which require a nominal fee to participate. Thus, their revenues are growing, too. This potentially frees supporters to redirect resources to other causes which may not be faring as well.
We believe coronavirus-created “Karens” are well-intentioned and, like all of their colleagues in the foundation community, understand the gravity of the current pandemic and want to help in a meaningful way.
Hoplin Jackson shares their sentiment but believes that philanthropic entrepreneurship—not new mandates and regulations—is the fastest way for foundation leaders to do what they do best … find creative solutions to pressing social needs, including this pandemic.