What’s Going On With Private Foundations?

By: Laurence A. Pagnoni, MPA

All foundations have been impacted by the ups and downs of the stock market and the relief support that nonprofits urgently needed (and still need) because of CV-19. Federal law requires private foundations to spend a portion of their endowments, typically at least 5%, on charitable endeavors each year. Many of the largest private foundations keep close to that 5% floor. But the Ford Foundation, the John D. and Catherine T. MacArthur Foundation, the Andrew W. Mellon Foundation, the W.K. Kellogg Foundation and the Doris Duke Charitable Foundation – jointly announced that they would raise their payout rates substantially above that floor for the next two to three years. Ford, the largest of the five, says its payout will rise to more than 10% of its endowment in 2020 and 2021. That announcement followed an earlier pledge by more than 700 foundations to relax grant restrictions so that the charities they support have greater flexibility to respond to challenges created by the COVID-19 pandemic. 

Why aren’t all foundations doing this?

Not every philanthropist is convinced that this crisis is “once-in-a-century.” There is no iron rule that pandemics may only sweep the world once every 100 years, after all. Foundations that pay out more now will have less to spare if another, possibly even deadlier scourge – perhaps a 1918-like pandemic influenza strain or a highly transmissible form of Ebola – arrives in the not-too-distant future.

Other foundations believe their dollars can be better used to address challenges that aren’t likely to go away in a few years, like systemic racism or climate change. They might decide that nothing about COVID-19 or the resulting recession changes their optimal spending strategy. Still others might think that the present moment is a time to hit the pause button on new projects while social distancing and travel restrictions make it hard to conduct on-the-ground evaluations of potential grantees.

And it’s important to underscore that if past performance is any guide to future results, the foundations’ temporarily higher payout amounts cannot be sustained forever. If the Ford Foundation had spent at a significantly faster rate in its early days, it wouldn’t have been able to provide the grant that launched the Mexican American Legal Defense and Education Fund at the height of the civil rights movement. If MacArthur had spent significantly more early on, it would have had less money to devote to the “loose nukes” problem in the former Soviet Union after the Cold War’s end. The decision to spend more now inevitably means spending less later.

The problems of the present are easier to see than the challenges of the future are to imagine. But those future challenges aren’t necessarily less important to address.

What else are some big foundations doing?

The Ford Foundation is issuing $1 billion of “social bonds” to finance its new spending. MacArthur is issuing $125 million of bonds, and the Doris Duke Charitable Foundation is issuing $100 million of bonds. The other two foundations in the group of five have yet to reveal their plans for financing the additional spending. For Ford, what that means is that a foundation is borrowing $1 billion from investors in exchange for a legally enforceable promise to pay the money back at the end of the bond term and to pay interest each year in the meantime. Ford’s bonds will have terms of between 30 and 50 years.

It’s important that you understand what’s going on with institutional funders (foundations) so that your approach and cultivation of those funders is successful. Many nonprofits are doing research studies to find new foundation funders. If we can conduct that research for you, please contact us.

We welcome your comments about this post on the LAPA blog.

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