Friday, January 4, 2019

Donor Advised Funds: Ethics & Issues

There's been a lot of buzz about donor-advised funds (DAFs) lately.

For the uninitiated, DAFs are investment funds for charitable donations. You deposit money, get an instant tax deduction, avoid capital gains tax on appreciated assets, get a reduction in your gross estate - and then use that money to fund charities of choice over time. DAFs are set up and managed through commercial funds (Vanguard, Schwab, Fidelity), community foundations, and comment funds (such as Jewish Federations).

Here's the buzz (with 2017 Giving USA stats):
  • Contributions to DAFs have increased significantly as a share of total giving over the past decade (10.2% in 2017). 
  • The number of DAFS increased by an astonishing 60%.
  • Grants from DAFs totaled $19 billion, increased 20%, outpaced contribution growth, and were 40% of total funds granted through all foundations.
  • Contributions to DAFs are at an all-time high.
  • DAF assets saw phenomenal growth of 27.3%.
  • DAF grant payout has been 20-22% for the past 5 years, higher than that of conventional foundations.
  • A significant proportion of these new DAFs are modestly funded ($5,000 and under).
Here are the issues for the nonprofit sector:
  • DAFs are completely private; there is no legal or IRS requirement for any public accounting or public grant process. So, unless you know someone, or your local community foundation connects you, there is no way to even make your case for a grant.
  • DAF donors can remain completely anonymous and unrevealed. If so, you don't have the wherewithal to build relationships or cultivate repeat donations.
Here are some cautionary tales:
  • John and Laura Arnold made a $120,000 grant to the Police Special Grants Fund under the Baltimore Community Foundation to be used for a massive secret community surveillance project. The CEO and the Board didn’t know about it (nor did the community).
  • The Jewish Community Foundation of Los Angeles made a series of grants to Canary Mission on the advice of a DAF donor. Canary Mission spies on students, professors, and organizations it believes are spreading anti-Israel and anti-Semitic ideologies, publishes lists meant to harm job prospects, and shares these lists with Israeli security officials.
  • Three groups that promote anti-Arab, anti-Muslim rhetoric, and conspiracy theories received money through DAFs held by the San Francisco Jewish Federation. 
  • Tech billionaires Nicholas Woodman (GoPro) and Jack Dorsey (Square/Twitter) established DAFs through the Silicon Valley Foundation to great public acclaim. All were funded with significant gifts of appreciated stock. We haven’t heard a word since about either of these supposed charitable funds.
And here are the basic legal and ethical issues:
  • As 501(c)(3) nonprofits, sponsoring organizations have a legal and ethical duty to assure that grants made are consonant with their missions.
  • At the same time, federations and community foundations have become deeply reliant for assets and fee income from DAFs. 
  • They also fear losing business to commercial firms that impose no ideological restrictions on the grants they will approve. 
  • Yet oversight has frequently been minimal, even through IRS rules state that, “once the donor makes the contribution, the sponsoring organization has legal control over it. The donor retains advisory privileges with respect to distribution of funds.” 
Here's my take: As citizens, we need to hold our community foundations accountable - and those organizations need to be vigilant in abiding by their core principles, rather than financial needs. As nonprofits, we need to acknowledge that DAFs are here to stay; our job is to do our homework to the best of our ability in connecting with DAF donors to make our case - and to assure them of public anonymity should they desire it. As donors, we need to use this tool in a principled manner, not just for tax benefits - and pledge to actually contribute all of those funds each year to nonprofits that do good work.

The bottom line: DAFs have become a key factor in nonprofit funding, and we need to monitor them - and work with them.

Friday, November 16, 2018

How to Deal with Nonprofit Freak-Out

So many worries and so little time – grant deadlines, fiscal shortfalls, underpaid staff working too many hours, boards that hate to ask anyone for money, and yet again another year-end fundraising campaign. 

And on top of that - the foundations of our democracy are threatened, Trump’s behavior is becoming more and more unhinged, the appointment of Judge Kavanaugh poses a threat to abortion and LGBTQ rights, and Christine Blasey Ford still can’t go home because of daily threats. 

In the midst of all of this meshugaas (Yiddish for craziness), it’s important to take some time to take of yourself. Here are some ways to do that:
  • Breathe. Really – deep breaths in and out periodically are a good way to relax and alleviate your deadline anxieties. 
  • Smile. It actually improves your mood (and that of others around you). And note that smiling when you ask for a donation via the phone - as well as in person - improves your chances of success.
  • Tell a joke. There’s nothing better than a good (or even bad) joke for changing the mood. Here are three I just found: Why did the Mars marching gift programs fail? Wrong atmosphere. Why didn’t the Invisible Man donate? He couldn’t see himself doing it. Why was the cemetery fundraiser so popular? People were dying to get in.
  • Stretch. Move away from your desk and do some yoga stretches. Even five minutes of exercise can help. Better yet, leave the office, get some fresh air, and take a brisk walk around the block. 
  • Repeat my favorite nonprofit mantra to yourself: "Excellence is not perfection." We all make mistakes; it’s the human condition. Learn from them, laugh at yourself, and move on.
  • Give thanks. Remember all the things you are grateful for. Thank your staff. Thank your board members. Thank your donors. Thank your lucky stars that you go to work every day for a nonprofit that tries to make the world a better place. 
And try to remember that the end of the world is not coming (yet). Take a moment to savor the Democrats’ blue wave. Remind yourself that Ruth Bader Ginsburg is back to work despite three cracked ribs. Have a wonderful Thanksgiving with your family and friends. Tell them you love them. Have a moment of hope. It’s way better than the alternative.

Monday, October 15, 2018

Fundraising Update: Bad News, Good News

It used to be part of my fundraising trainings to say that 70% of Americans make charitable donations. Which meant not only that on average 7 out of the 10 people they knew were willing to support nonprofits, but also that it isn’t just rich folks who are philanthropic.

Here’s the bad news:
  • The percentage of households that give has now dropped to 56%. This decline encompassed both secular and religious sectors; much it was first driven by the 2008 recession, then by general anxiety and caution as times have improved. 
  • There’s been a serious decline over the past 10 years in how many small and medium donors give and how much they give. This decline has occurred in every age group and at every level of education, though the biggest drop has been among people 51 to 60 years old, an age bracket that is typically more willing to make charitable gifts.
  • Total giving is actually at record levels – but gifts at the high end are driving this growth, fueled by a booming stock market. A Blackbaud analysis found that 1% of households accounted for 49% of contributions in 2015. 
  • That means more nonprofits are increasingly dependent on significant donations from the wealthy. And multi-millionaires often get to drive the focus of giving. 
  • Pundits are predicting things will get even worse, given that many middle income folks will likely not itemize due to the so-called tax reform.
Here's me looking at the bright side, with some trends and tips it’s worth thinking about:
  • It's less than before, but 6 out of 10 people still make charitable gifts – and that’s a lot of potential donors.
  • I’m guessing most of you never got and don’t expect to get multi-million dollar donations from the 1% anyway.
  • Online giving increased 32% last year – so you should include an online option in all your fundraising pitches, make your donate button prominent on your website and emails, and be sure the process of making an online donation works smoothly (i.e. – try it yourself).
  • Millions of dollars will pass from one generation to the next in the coming decade – so get a robust planned giving strategy in place now.
  • Organizations with deep roots in their communities are better positioned to sustain donors, because of strong personal connections – what you do is tangible, and that’s important. So be sure to nurture those relationships in every way you can.
  • I've never believed that getting a tax donation is what motivates most ordinary folks to support worthy causes; perhaps it’s my rose-colored glasses, but I think folks give because they care. Your job is to communicate what you do and make them care about your work.
And remember - the main reason people give is because they got asked. So ask; ask more often; ask with conviction and a compelling message. Because if you don't ask, they won't give.