The wrong way to address the nonprofit crisis

More than a third of US nonprofit organizations are running desperately short of funds as the pandemic rages, which is both concerning and unsurprising. When crises strike, demands on food banks, clinics and social service providers inevitably spike. So Jacob Harold — the executive vice-president of Candid, an offshoot of the nonprofit rating agency GuideStar — is not wrong when he says, “If you are a donor who cares about an organization that is rooted in place and relies on revenue from in-person services, now is the time probably to give more.”

Via Twenty20

But the pressing current needs do not support calls for new legislation that would require the fastest-growing new charitable-giving vehicle to make grants at a faster pace. Donor-advised funds (DAFs), which allow tax-deductible charitable funds to be set aside for future giving, have been growing like topsy — from 241,507 accounts in 2014 to 873,228 in 2019. Their assets have skyrocketed as well — from $122.18 billion in 2018 to $141.95 billion in 2019. What’s more, DAF grantmaking for the first half of 2020 is up 66 percent compared to the same period in 2019, according to the National Philanthropic Trust. The DAF payout rate, moreover, tops 20 percent — far more than the 5 percent which mega-foundations like Gates and Ford are required to disburse. 

Which is what makes it so curious that all individual charitable accounts (average balance: $162,556) continue to be the focus of criticism by the billionaire foundation leader John Arnold and Boston College tax law professor Ray Madoff, whose “Initiative to Accelerate Charitable Giving” campaign would force those who start DAFs to disburse funds within 15 years. Indeed, in response to the Candid report, Madoff renewed her DAF criticism, charging that donors are simply storing money that could and should be used immediately.

Here’s where Madoff is mistaken:
The pressing current need demonstrates exactly the opposite of what she’s
proposing. Setting aside funds in fat years allows for charity in lean
years. If regulation forced ongoing spending, unspent account balances
would no longer appreciate in value, and funds would not be available on a
“counter-cyclical” basis — in other words, when they’re most needed.

Forced giving risks requiring spending rainy day funds when the sun is shining. We should celebrate the fact that individual charitable savings accounts have grown so that they can respond to our current crisis. Yes, not all nonprofits will come out ahead, and some may be forced to close their doors. But so have thousands of restaurants and other small businesses. Donor-advised funds are doing their part to stanch the bleeding and don’t deserve criticism or wrongheaded regulation.