Philanthropy Information Retrieval Project

Report #114: June 13 – July 13, 2003

The Philanthropy Information Retrieval Project (PIRP) aims to identify and report, in a timely fashion, new ideas and other developments that might affect the field of philanthropy in the years to come. PIRP reports on emerging issues that may be visible only on the horizon, including items from a broad range of sources. The newsletter does not emphasize today’s news, such as the debate over the payout issue; generally refrains from repeating items from major national news sources; and does not try to cover all sides of issues, although it does strive for neutral analysis. PIRP was first published in 1996 by the John D. and Catherine T. MacArthur Foundation and was transferred to the Aspen Institute in 2003. Burness Communications, Bethesda, MD, prepares the copy. PIRP is currently supported by grants from the Robert Wood Johnson Foundation and the Northwest Area Foundation. As the publication’s editor, I welcome your comments and suggestions. – Alan J. Abramson, Director, Nonprofit Sector and Philanthropy Program, The Aspen Institute

1. IRS TO BEGIN SYSTEMATIC AUDITS OF FOUNDATIONS AND DONOR-ADVISED FUNDS, NONPROFIT TIMES REPORTS

The Internal Revenue Service will begin a systematic auditing of community foundations by early fall, according to the July Nonprofit Times. The review of community foundations will be followed by audits of donor-advised funds and private foundations. The IRS is conducting a market segment study of the community foundation sector to develop a baseline against which to evaluate future tax returns from these institutions, the newspaper reported. IRS agents will particularly look for evidence of lobbying activity in its coming audits of private foundations, according to the article. As many as 150 of the country’s 800 community foundations will be audited under this project.

2. FOUNDATION SCRUTINY GROWS BEYOND PAYOUT TO DISCUSSIONS OF 'ABUSES,' 'CONTRADICTIONS'; ONE IDEA: BAN SMALL FOUNDATIONS

What will come of the intense scrutiny of foundations – at a level not seen in decades – by legislators and journalists? The National Committee for Responsive Philanthropy is arguing for a modern-day successor to the seminal 1970s federal Filer Commission that established many of the principles still guiding foundations. Whatever transpires, certainly the scrutiny has grown beyond the original issue, the pending Congressional proposal to alter the foundation payout rate. The New York Attorney General Eliot Spitzer has taken advantage of the scrutiny by calling on Congress to, among other things, increase Internal Revenue Service oversight of tax-exempt groups and “ban” small private foundations, those with less than $20-million in assets. According to a June 26 Chronicle of Philanthropy article, Spitzer argues that these foundations are rife with “serious abuses.”

A July 3 column in the online magazine Slate said that the payout debate, at root, exposes the conflict between whether foundations should exist in perpetuity (“and enrich the executives who run them”) or make an impact quickly and divest themselves of assets. The column concluded by praising one foundation’s spend-out strategy, or “get-poor-quick scheme,” as arguably benefiting society more than if the foundation had opted to spend just the minimum required 5 percent a year over an indefinite period. A July 1 Kansas City Star article addressed the perpetuity question, as well as another wrinkle: whether foundations should be allowed to count their contributions to donor-advised funds at community foundations toward their payout requirement. Currently, foundations can “park” their money in donor-advised funds to meet their payout requirement, without having actually to distribute the money to nonprofit service providers or advocacy organizations.

One of the foundation arguments against the Congressional payout proposal has been that administrative costs, which would be excluded under the proposal, are integral to a foundation’s grantmaking success. But John Quinterno, of the University of North Carolina at Chapel Hill, wrote in a July 1 Philanthropy Journal column that this argument exposes a contradiction.” If operation expenses are critical to success for foundations, he asks in the column, why do foundations “hinder” nonprofit success by only offering limited support for nonprofit operations?

3. FOUNDATIONS MUST BE WILLING TO FAIL TO SUCCEED, AND FOUNDATION BOARDS NEED TO INSIST ON RISK-TAKING, TWO NONPROFIT LEADERS ARGUE

No longer can foundation boards serve in a ceremonial way, and no longer can foundations take an overly safe approach to grantmaking that avoids risk, according to two leaders in the foundation community. The Minneapolis Foundation’s Emmett Carson calls on foundation boards to take a more active role in overseeing grantmaking in the Summer issue of Responsive Philanthropy. This quarterly from the National Committee for Responsive Philanthropy reprinted Carson’s commentary from this year’s Council on Foundations meeting. Carson suggests that foundations should break down their grantmaking into high risk, moderate risk and low risk categories – helping to ensure that they are, in fact, taking significant risks.

Taking risks, and learning from risky failure, is the only way a funder can discover the one great idea or organization that will change the world, according to another nonprofit leader. Mark Charendoff, president of the Jewish Funders Network, wrote a June 20 op-ed in The Forward newspaper that he headlined as a “letter to a young venture philanthropist.” Charendoff said that much of what has been called venture philanthropy is nothing of the sort, in part because too many self-described venture philanthropists have not been innovative, not committed to taking a “risk on a long shot.” To truly succeed as a philanthropist, whether “venture” or traditional, Charendoff suggests one has to be prepared to fail – and walk away from failed grants – all the while “fervently hoping to succeed.”

4. WORKING GROUP SEEKS FOUNDATION SIGNATORIES TO STANDARDS ENCOURAGING SUPPORT OF FAITH-BASED NONPROFITS

A working group on faith-based efforts to fight poverty, led by a former U.S. senator, is recruiting foundations to adopt the group’s consensus-derived common standards and principles to funding nonprofits. The Working Group on Human Needs and Faith-Based and Community Initiatives released a report in the spring calling on the government, individuals, corporations, and foundations to increase giving to help reduce poverty, social dysfunction, and other “human needs.” Chaired by former Sen. Harris Wofford, the Working Group, with a diverse membership, devised standards for private funders that “levels the playing field” for faith-based organizations seeking funding. The standards assert that a participating funder is “transparent to potential applicants about the relationship of faith traditions, if any,” that it prefers or excludes; and that faith-based organizations which meet the funder’s guidelines and also adopt Working Group standards for service providers will be given the same opportunity for funding as other applicants. The nonprofit Search for a Common Ground is overseeing implementation of the Working Group’s recommendations, which are available with the full report, Harnessing Civic and Faith-Based Power to Fight Poverty, at the Working Group’s Web site. For questions, contact Search for Common Ground’s Gerald Kamens; or contact Brent Elrod to sign on to the standards.

5. FOUNDATIONS IN PHOENIX TEAM UP TO BOOST REGIONAL ECONOMY BY STRENGTHENING ARTS ORGANIZATIONS, NEWSPAPER REPORTS

Four Phoenix-area foundations have formed a regional task force to explore boosting the arts as a tool for economic development, according to the June 19 Arizona Republic. The Flinn, J.W. Kieckhefer, and Margaret T. Morris foundations and the Virginia G. Piper Charitable Trust have launched a new effort to draw high-end “knowledge workers” and companies to the area by strengthening the community’s arts and cultural organizations. They have established a blue-ribbon task force of business and community leaders to develop a plan for the region that will attract new workers, stimulate economic development, and enrich the cultural lives of current residents. The task force was inspired by the successes in establishing thriving arts communities in Atlanta, Cleveland, and Denver, among other cities, according to the newspaper. It also developed from a 2002 report, published by the four foundations, that painted a less-than-flattering picture of the state of the arts in Arizona. More information about the task force, which will beGin work in September, is available at the Web site of the Flinn Foundation.

6. WASHINGTON TIMES REPORTS ON HARD TIMES AHEAD FOR ENVIRONMENTAL MOVEMENT, WITH SCALED BACH GIVING FROM ONE OF ITS LARGEST FUNDERS

The environmental movement is losing one of its strongest financial supporters, and many environmental groups will be forced to close shop or consolidate assets, according to the Washington Times. The June 16 article reported on the hard times that have befallen billionaire Ted Turner’s Turner Foundation. The foundation, with significantly reduced assets, announced it will not make any grants this year, will limit future years’ grants, and will lay off at least two-thirds of its staff. The newspaper said that environmental activists will be hurt by the development, and suggested that the “more radical” groups would be most affected.

7. PITTSBURGH NONPROFITS ASKED BY MAYOR TO FUND VITAL CITY SERVICES THROUGH PROPOSED FOUNDATION, PITTSBURGH POST-GAZETTE REPORTS

All nonprofits in Pittsburgh would be asked to help pay for city services under a proposal from the mayor. The June 28 Pittsburgh Post-Gazette reported that Mayor Tom Murphy is proposing that a new “public service foundation” be created that all city nonprofits would fund. The foundation would then issue grants to the city offsetting the costs of government services nonprofits and others receive, such as police and fire protection and street cleaning. The move is the latest effort to get nonprofits to help the city, which is strapped with budget overruns, according to the article. And it is just the latest of various efforts over the years from economically struggling local governments around the country trying to recoup money that nonprofits are legally exempted from paying through taxes.

8. WALL STREET JOURNAL REPORTS ON MAJOR SCIENTIFIC PUSH FROM PUBLIC, PHILANTHROPIC LEADERS TO DEVELOP AN AIDS VACCINCE

After more than two decades of discussion, the Wall Street Journal reports on a real movement to push for development of an AIDS vaccine. A June 27 article reported on a “Manhattan Project”-style effort by public and philanthropic leaders in the AIDS movement to develop a vaccine, declaring that it is “unrealistic” to expect private industry to shoulder the burden alone. This push is being led with what the paper called “catalytic” funding from the Bill and Melinda Gates Foundation, whose global health official told the paper that developing an AIDS vaccine is “the single most important technical advance the world can make for global health.” A caveat to that paper’s notion of the Gates Foundation as a “catalytic” funder came in a July 13 New York Times article. Along with its praise for the Gates Foundation’s global health work, the article suggested that the foundation can sometimes have a “chilling effect” on support from other funders, citing one case where other funders pulled back their support of AIDS vaccine development once Gates upped its funding for the cause.

Related Reading

Corporate Foundation Leader Offers Tips for Foundations to Collaborate with Federal Agencies

For all the talk of collaboration in the foundation community, little attention has been given to encouraging foundation and federal government partnerships, according to one corporate foundation leader. Rayna Aylward of the Mitsubishi Electric America Foundation wrote a column in the June 20 Inside Corporate Philanthropy e-newsletter about her efforts this year to begin her Federal/Foundation Linkages sessions, at which representatives of the government and private and corporate foundations discuss collaborative possibilities. Aylward offers six tips in the column for funders interested in exploring collaborations with federal agencies, including identifying a specific goal and establishing a “hook,” or something that will attract and potentially benefit both sides in the partnership.

New Resources

Publication Helps Foundations Become More Effective By Enhancing Their Grants Managers

By stressing the core function that the grants management staff plays, foundation leaders can help boost their efforts to become more effective. That’s according to the Grants Managers Network’s new publication, Staffing Grants Management: Defining the Standards for Philanthropy. Included in this publication are templates for four critical grants management positions, with necessary competencies and job responsibilities listed.

National Database Offers Information on Nonprofit Social Entrepreneurship

A free, searchable database has been expanded to help foundation and nonprofit leaders nationwide identify organizations as well as ideas for improving sustainability through profitable extensions of nonprofit activities. The membership-based Social Enterprise Alliance has joined with the nonprofit consulting firm Community Wealth Ventures to expand this national database, the Social Enterprise Directory, of nonprofits engaged in “business ventures, cause-related marketing partnerships and licensing agreements.” To access the database, see the Community Wealth Venture’s Web site.

Note to Readers

We would appreciate your offering us information that we can include in a future edition. If you have an item you believe would be helpful to your colleagues, please e-mail it to Doug Rule. Thank you in advance for your cooperation.