Report #128: November 2004
Aspen Philanthropy Letter

The Aspen Philanthropy Letter (APL) reports on new ideas and other developments that may affect the field of philanthropy in the years to come. In contrast to other publications that cover today's breaking news, APL generally highlights emerging issues that may be visible only on the horizon. In line with its role as an early alert system for the field of philanthropy, APL intentionally includes items that are critical of current practice and policy as well as reports that are supportive. APL's predecessor, the Philanthropy Information Retrieval Project, was started in 1996 by the John D. and Catherine T. MacArthur Foundation and was transferred to the Aspen Institute in 2003. APL is currently funded by the Robert Wood Johnson Foundation, the Northwest Area Foundation, and The Philanthropic Collaborative; additional funders are welcome. Burness Communications, Bethesda, Md., prepares the newsletter's copy. As the publication's editor, I welcome your comments and suggestions.
- Alan J. Abramson, Director, Nonprofit Sector and Philanthropy Program, The Aspen Institute

IN THIS ISSUE:

1. CONGRESS CALLED ON TO INVESTIGATE ‘ANTI-AMERICAN’ FOUNDATIONS
2. SCHOLAR WOULD SET PAYOUT REQUIREMENT SO FOUNDATIONS ‘REPAY’ TAX SUBSIDIES
3. FOUNDATION LEADER CALLS FOR MOBILIZATION OF PROGRESSIVE MOVEMENT
4. MAGAZINE REPORTS ON NEW TREND: ‘FANATICALLY BOTTOM-UP GIVING’
5. FUNDERS PROFILED WHO ARE TRANSFORMING MEDICINE, EDUCATION
6. FOUNDATION CONSERVATION EFFORTS MAY VIOLATE HUMAN RIGHTS
7. ‘URGENT’ CALL FOR INCREASED INTERNATIONAL FUNDING
8. REPORT ILLUSTRATES PROBLEMS IN USING FORMS 990 FOR ANALYSIS
9. NONPROFIT LEADER CALLS FOR MORE ACCOUNTABILITY TO MISSION

OF RELATED INTEREST
RELATED READING
NEW RESOURCE

1. CONGRESS CALLED ON TO INVESTIGATE FOUNDATIONS FOR ‘ANTI-AMERICAN FUNDING,’ 50 YEARS AFTER REECE COMMITTEE

A Congressional investigation into foundation practices is needed to expose activities that “seek to de-legitimize the American regime,” according to John Fonte of the Hudson Institute. Fonte led a discussion at Hudson’s Bradley Center for Philanthropy and Civic Renewal Nov. 30 based on a working paper that documents his allegations of “anti-American” funding from foundations.  In arguing that foundations sometimes support regime-threatening initiatives, Fonte points specifically to foundation funding of organizations which feel that the American system is inherently racist and therefore illegitimate, and to foundation support of groups that reject the traditional notion of assimilation of immigrants in favor of group rights, consciousness, and advocacy.  Fonte raises the specter of a future investigation along the lines of the Reece Committee in the U.S. House of Representatives 50 years ago.  The Reece Committee, which looked into allegations of support from foundations for socialist and collectivist activities, “painted with too broad a brush and was often clumsy,” Fonte writes in his paper.  But, it raised questions never really answered about the purpose and public responsibility of tax-exempt foundations. Congress should examine foundation practices beyond narrow concerns about possible financial impropriety. Congress ought to help foster a debate within philanthropy about foundations’ responsibility to “perpetuate the American regime.”

At the Hudson discussion, Fonte was joined by John Earl Haynes, a historian with the Library of Congress, and Teresa Odendahl, the Waldemar Nielsen Chair in Philanthropy at Georgetown University. A Senate Republican staffer also participated on the panel and reported that he believes there are more misdeeds in the nonprofit sector than in the corporate sector. In addition, the Senate staffer also questioned the idea of foundations existing in perpetuity, suggesting that over time foundations can become less accountable as the original donor and close family members and friends become less involved in guiding giving.

2. A COMPROMISE PAYOUT RATE RECOMMENDED BY RESEARCHER

Instead of either leaving the annual foundation payout requirement as it is or raising it, there’s a “viable middle /ground” that could be pursued, according to Stefan Toepler of George Mason University. Toepler analyzes the conceptual and comparative basis for foundation payout requirements in the latest issue of the Nonprofit and Voluntary Sector Quarterly. In his article, Toepler suggests that conceptually, the primary purpose of the payout requirement, as it was established by Congress 25 years ago, is to ensure that foregone tax revenues – resulting from the tax breaks provided for foundation endowments – are offset by foundation spending for public purposes. Toepler’s compromise recommendation is to have Congress raise the rate from the current 5 percent but only require a higher payout until a foundation’s tax subsidies are sufficiently recouped, afterward freeing the foundation to pay out as it sees fit. He suggests this would appeal to both those pushing for more money for present-day charity, through a higher rate, and those focused on future needs, as is the current approach. Further, Toepler compares America’s payout requirements to those in Germany, finding that the American version requires foundations to pay out far more to charity.

3. FOUNDATION LEADER CALLS ON COLLEAGUES TO MOBILIZE A ‘COMPELLING 21ST CENTURY’ PROGRESSIVE SOCIAL MOVEMENT

Foundations should help the nonprofit sector advocate a “compelling 21st century humanistic vision” for the country, according to Stephen Heintz of the Rockefeller Brothers Fund. Heintz was a panelist at the closing plenary at Independent Sector’s annual meeting, held one week after the 2004 election. Politicians follow social movements, they don’t lead them, according to Heintz, who essentially called on foundations to mobilize a progressive social movement, helping progressive nonprofits better frame their issues for public consumption and creating an all-encompassing message addressing all social concerns, from education to climate change. Foundations, Heintz said, “must do more” to transform society, moving beyond their comfort zone and exercising “courage, not caution.” Foundations should consider taking on higher levels of risk in advocating for or against controversial issues, in funding more experimentation, and in increasing financial and intellectual support for advocacy.  Moreover, foundations should carry out their own advocacy campaigns to shine the light on the work of grantees.

4. BUSINESS WEEK REPORTS ON NEW TREND, ‘FANATICALLY BOTTOM-UP’ GIVING, THE FOCUS OF EBAY FOUNDER’S GIVING

Business Week has identified what it suggests is a new force in philanthropy, a force that might be called democratic, even small-bore giving: allowing unaffiliated outsiders, actual strangers, to shape a philanthropist’s benevolence, small gift by small gift. The magazine reported Nov. 29 on this “fanatically bottom-up” giving approach, identifying a practitioner, eBay founder Pierre Omidyar, as part of its annual ranking of “The Top Givers." Omidyar ranked No. 18. Calling it a “third way” of giving, where neither the benefactor nor a chosen group of experts directs the philanthropy, the magazine suggested it “may well disrupt” philanthropy in the same way eBay revolutionized commerce. In two side articles on the Omidyars, the magazine explained that Pierre and Pam Omidyar solicit opinions from anyone online about how they should spend their philanthropy, and that the foundation arm of the Omidyar network offers “mostly smallish” grants to individuals already creating social change. “There’s a fundamental shift in power happening, toward people and small groups and away from large organizations who want to impose a top-down policy,” Pierre Omidyar told the magazine.

5. FORTUNE PROFILES FUNDERS WORKING TO ‘REVOLUTIONIZE’ MEDICINE, EDUCATION: MIKE MILKEN, THE WALTON FAMILY

In its annual ranking of top givers, Business Week said that the “slew of record-shattering” large gifts, and the hands-on approach of many givers, suggests that “today’s Carnegie libraries and Rockefeller yellow-fever vaccines can’t be far behind.” And another business magazine, Fortune, has reported over the past month on two prominent philanthropists working toward “revolutionizing” medicine and education. The Nov. 29 Fortune profiled  former junk-bond investor Mike Milken, whose Prostate Cancer Foundation has “turned the cancer establishment upside down,” the magazine says, by fast-tracking the process of developing effective medicine and therapy to fight cancer. Milken is not the only business figure to push medicine, the magazine notes, but no one else has yet had as big a return on investment as Milken with his hands-on, collaborative approach, in the venture philanthropy mode.

In a previous issue, the Nov. 15 Fortune offered a rare look into the richest family in America, Wal-Mart’s Walton clan, and its central philanthropic focus to date on reforming education, especially in grades K-12. John Walton leads the reserved family’s collective philanthropic efforts – through the Walton Family Foundation and the Walton Family Charitable Support Foundation – often funding controversial efforts, such as charter schools and vouchers, that seek to introduce competition into primary education. The article said that the family foundation makes a huge number of mini-gifts, of a few thousand dollars on average, annually, and that the family has yet to really concentrate on its philanthropy, still focused as it is on growing the business.

6. FOUNDATIONS COULD BE LIABLE FOR VIOLATING RIGHTS OF INDIGENOUS PEOPLES IN CONSERVATION EFFORTS, NONPROFIT LEADER SAYS

Foundations could face lawsuits for violating human rights by funding environmental conservation efforts that effectively force Native Americans or other indigenous peoples from their lands, one nonprofit leader says. Rebecca Adamson of the First Nations Development Institute, in a profile piece in the November Alliance Extra newsletter, gave examples of how conservation efforts of large nonprofits are increasingly at odds with the interests of the indigenous people whose land they aim to conserve and whose interests they often claim to represent. Adamson instructs foundations to pay closer attention to the “unintended consequences” of their funding for efforts to preserve land. She explains that short of forced eviction by the military – which she says has happened – the general pattern is for indigenous territories to be mapped as part of a protected area. Once that happens, residents are denied access or use of natural resources, all but forcing them to relocate. If one of these displaced communities were to bring a lawsuit, Adamson warns, foundations could be held liable for human rights violations.

7. ‘URGENT’ CALL FROM NONPROFIT LEADER FOR FOUNDATIONS TO STEP UP INTERNATIONAL FUNDING; FOUNDATION TO INCREASE COMMUNICATIONS

“There may not be much left for foundations to do if we all don’t get more serious” about international crises such as HIV/AIDS and water shortages, according to John Harvey of Grantmakers without Borders. The Foundation Center’s Philanthropy News Digest profiled Harvey’s foundation membership group and the state of international giving in late October, or roughly a week before the Center released its annual report showing a slight decrease in international giving by foundations in 2003, to an estimated $3 billion. In a Q&A, Harvey discussed the challenges to international funding brought on by a heightened federal regulatory environment, which he said has led some internationally-focused American foundations to consider moving to set up shop in Europe. As a “radical notion,” Harvey said, his organization in the next few years will work to encourage foundations to consider transferring 25 percent of their assets to foundations in the developing world, so they better help grassroots groups. The potential for leveraging philanthropic resources is enormous, Harvey argued, but he said it needs to happen soon as “many of the problems we face are getting worse, and at an accelerating rate.”

Also on the international front, the Ford Foundation will likely step up its work in funding media and communications efforts to help bring greater knowledge about foreign issues and foreign affairs to the American public. Ford’s president Susan Berresford spoke at Independent Sector’s annual conference last month reflecting on her thirty-plus-years experience at the foundation. Increased attention to communications about international concerns is just one among several changes in the foundation’s future, she said in her Q&A.

8. ASSOCIATION ILLUSTRATES PROBLEMS IN USING FORM 990 TO ANALYZE, COMPARE FOUNDATION EXPENSES; NEWSPAPER TAKES THE BAIT ANYWAY

The Donors Forum of Chicago documents through a new study the problems with using the Form 990 to analyze a foundation’s administrative expenses and compare them to similar expenses of other foundations. The association adds its voice to the call for reform of the Form 990, illustrating through the report the problems in using it as a tool to assess effectiveness, which is precisely what many are doing. Administrative expenses, taken alone, inadequately measure how well foundations do their work, according to the forum, since that confuses efficiency for effectiveness. And, according to the Donors Forum, an article in the Nov. 29 Crain’s Chicago Business evidences just this kind of confusion, in using the forum’s cautionary calculations from its study to compare foundations. The newspaper concluded from the findings that foundations with assets of $5 million to $9.9 million make the “least efficient” funding organizations, since administrative costs amount to 22 percent of their grant awards, based on the report’s figures. But the forum responds that foundation work should be evaluated “not just in terms of the numbers, but on the impact on communities and issues funded.”

9. NONPROFIT LEADER CALLS FOR MORE ACCOUNTABILITY TO MISSION IN SECTOR, AND MORE JOINT EFFORTS TO GET AT ROOT OF PROBLEMS

The nonprofit sector needs to make fundamental changes to address concerns about financial accountability, but to truly rebuild trust in the sector nonprofits must become more accountable to their mission, with real results to show for their efforts, according to Brian Gallagher of the United Way of America. Gallagher spoke to the press Nov. 22 in Washington, where he called on nonprofits to focus on getting “concrete results tied to our missions and not just [reporting] the level of activity that we produce.” There are too many unconnected nonprofits working on the same issue, and too often they only touch the surface not the roots of the problem. Gallagher cites, for example, numerous efforts to provide shelter for the homeless, with few initiatives aimed at creating strategies to establish more affordable housing and thereby reduce homelessness in the first place. There are too many nonprofits, Gallagher believes, and the sector as a whole needs to become more market-driven and more competitive. Competition forces nonprofits to pursue value and rethink longstanding efforts to address their goals, he said.

Of Related Interest

Corporate Regulator Calls on Nonprofits to Take ‘Very Seriously’ Current Scrutiny of Sector
The nonprofit sector needs to acknowledge what’s gone wrong and demonstrate a readiness to remedy problems through a process of self-regulation, according to Securities and Exchange Commission Chair William Donaldson. Donaldson, who said he has no direct responsibilities over nonprofits, spoke at Independent Sector’s annual conference last month about “an age of transparency” that affects nonprofits as much as the for-profit corporations that are his domain. And the nonprofit sector appears to be a bit behind the times in this regard, he added in his speech, saying that nonprofits should take the current level of Congressional scrutiny “very seriously.”

Foundation’s Medicaid Choice Effort, Funded Jointly with Government, Expanded
A successful joint foundation/government-funded experimental program to improve the quality of life for Medicaid beneficiaries in three states has now expanded to encompass 11 new states across the country. The Robert Wood Johnson Foundation recently announced the expansion of its nearly 10-year-old Cash & Counseling Program, funded with two agencies within the U.S. Department of Health & Human Services, which offers Medicaid beneficiaries choice of supportive services and caregivers.

Related Reading

Publication Offers Lessons Learned from Nonprofit Communications Capacity Building Effort
Building communications capacity is vital to creating a strong nonprofit. A new publication from the Workforce Strategies Initiative of the Aspen Institute explores the challenges, as well as the importance, of creating a communications function within nonprofit organizations. Building Communications Capacity: Sector Programs Share Their Experiences, a Ford Foundation-funded publication, offers lessons applicable to any nonprofits interested in broadening their communications capacity.

New Resource

OMB Watch Unveils Nonprofit Issues Blog to Weigh in on Government Activity that Affects the Sector
One of the leading government watchdogs, OMB Watch, has just announced the launch of its Nonprofit Issues Blog. This web site contains short, frequent posts from OMB Watch staff that cover a wide range of nonprofit issues and links to various developments pertaining to government activity affecting nonprofits. Recent postings include a summary of remarks by Internal Revenue Service officials about current regulatory activity relating to nonprofits, and an article about controversial charges that the NAACP engaged in illegal campaign activity by endorsing a candidate.

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.