Foundations urged to give more to poor

Philanthropies asked to donate 6% of assets, up from 5% minimum

Tax laws discourage increase

The question is raised: First loyalty to needy or to group's survival?

July 02, 2000|By Kate Shatzkin | Kate Shatzkin,SUN STAFF

A small but growing chorus of high-profile philanthropists and advocates for the poor is calling for foundations to increase the amount they give in grants each year, arguing that the huge gains in the stock market should be used to reduce the gap between the country's haves and have-nots.

In Maryland, managers of many large foundations say it is more important to preserve themselves for the community, something that even a small increase in payout would threaten over time.

The debate calls into question whether the purpose of foundations is to exist forever, as community resources, or tackle today's most pressing problems with all their financial might.

Since 1981, Congress has required foundations to spend about 5 percent of their assets each year on charitable work. That includes making grants and administrative overhead.

"It depends upon whether you want to be in the charity business or the philanthropy business," said Timothy D. Armbruster, president of the $97 million Morris Goldseker Foundation in Baltimore, which keeps its grant expenditures at close to 5 percent.

"Charities are in the business of alleviating pain and suffering now," he said. "What philanthropy tries to do is help create the knowledge, the institutions, and, you hope, sort of the civic will ... to make it less likely there will be misfortune in the future."

As a group, foundations have been clinging to the minimum, almost exactly 5 percent.

Over the years, foundations have come to see that floor for giving as a ceiling, said Teresa Odendahl, executive director of the National Network of Grantmakers, which has launched a campaign for foundations to give 6 percent. That campaign might soon become a push to change the legal requirement.

Pressing problems

"We think the philanthropy field in general is too set in its ways," Odendahl said. "There's no necessary reason why all of these institutions have to last forever. Our argument is that the problems of today are so pressing that we should address them today."

Odendahl's campaign has some high-profile backers, including George Soros, a billionaire financier-turned-philanthropist who wants his charitable spending - which totaled $570 million last year - to end when he dies.

Other benefactors are giving their foundations an expiration date, guaranteeing that at some point they will spend well beyond 5 percent. The newly formed $600 million Virginia G. Piper Charitable Trust in Scottsdale, Ariz. - to be headed by Judith Jolley Mohraz, who is resigning the presidency of Goucher College for the job - is designed to give itself away within 50 years.

"We're seeing some acceleration in that," said Dot Ridings, president of the Council on Foundations. "But the reason most large foundations are established in perpetuity is on the basis that societal problems will always be with us, like death and taxes."

5 percent vs. 6 percent

Another reason for that is evidence that foundations paying out 5 percent eventually contribute more to charity than do those that consistently give 6 percent.

A recent study by the Council of Michigan Foundations found that foundations that gave 6 percent annually over a 30-year period would pay out less because their overall portfolios would be shrinking.

A study by the chairman of Barnard College's economics department, commissioned by Odendahl's group, came to different conclusions, finding that foundations could give as much as 8 percent without eroding their endowments, especially taking into consideration the flood of new gifts that high-technology wealth is expected to bring to foundations in the decades to come.

Other ways to help

At Baltimore's $270 million Abell Foundation, contributions have hovered around 5.5 percent of assets for the past several years. President Robert C. Embry Jr. said that's because board members believe studies such as the Michigan council's.

Abell supplements its giving in other ways, such as investing in companies such as a glass manufacturer in South Baltimore, which fulfill its aims of job retention and economic development while making money for the foundation.

Robert W. Schaefer, executive director of the $240 million France-Merrick Foundation in Towson, said that foundation gives close to 5 percent on the assumption that the stock market's recent boom won't continue and that it will be important to be around when the boom ends.

Good times, bad times

"When the economy isn't good, and people don't have jobs, and they aren't getting big bonuses, the first thing they're going to cut is their charitable giving," he said. "Hopefully, foundations will be there when times are bad."

Some local foundations have been giving 6 percent and more. The Annie E. Casey Foundation has hovered near 7 percent during the past few years, even before its holdings soared as high as $3 billion on paper this year because of the initial public offering of UPS stock.

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