A new analysis out of Bloomberg News takes a closer look at donor-advised funds and the private foundations that use them to help meet their charitable missions.
The authors did include a brief comment by the Philanthropy Roundtable on the many benefits of DAFs:
Defenders of the funds say their convenience stimulates more giving. Wealth advisers point out that it takes just a couple of clicks to make a gift. “DAFs are flexible, accessible giving vehicles that really democratized charitable giving,” says Elizabeth McGuigan, senior director of policy and government affairs at the Philanthropy Roundtable, a group that advocates for fewer restrictions on charitable giving. Foundations use the funds for legitimate purposes such as pooling resources and donating internationally, she says, and any changes to DAF rules could have unintended consequences. “Charities lose in the long run if there are more handcuffs on charitable giving,” she says.
Unfortunately, they spend much of their nearly 4,000 words echoing what critics of DAFs have claimed yet gotten wrong in recent years. In the hunt for sensational villains among wealthy individuals giving their money away to charities, these authors missed their mark.
Authors Dig for Data Diamonds, Find Pebbles
The Bloomberg authors conducted an original analysis of data on private foundation use of DAFs. The authors looked at 360,000 990-PF filings from private foundations.
However, of these, the researchers were able to find only 1,000 instances (or 0.3% of their sample) where they argue, “Foundations would have fallen short of their required payout for the year were it not for contributions to DAFs. …” This is an odd statement, as the foundations likely would have paid out directly to a charity if they did not choose to pay through a DAF. There’s no evidence they would have not otherwise met their payout requirement.
The authors found that roughly 0.3% of foundations may have leaned on DAF gifts for some or all of their payout. In these filings, the authors looked at 4.6 million charitable grants. Of those, “the review revealed about 7,300 grants from private foundations to more than three dozen major sponsors of the funds.” The math here: 0.2% of the grants made by these foundations were to DAFs. With at least 99.8% of the grants going directly and immediately to charities, these figures are not exactly worth a flashy expose on the issue.
This is particularly true because this analysis is missing the other side of the equation. The authors note that $800 million over six years was contributed into DAFs, but how much did these donors send out of their DAFs? Anecdotes throughout the article suggest it is not zero dollars. The authors note, for example, that Elon Musk made over $5 million in gifts to the American Civil Liberties Union through his DAF. There is little to suggest these 0.3% of foundations are stockpiling charitable funds with no intention to give them to charities.
Another anecdote cited highlights why a particular donor gives through a DAF: “The transfers can be an efficient way to donate. Nwamaka Agbo, CEO of Regan Pritzker’s Kataly Foundation, says the built-in infrastructure of the funds speeds up giving. Of the $58 million Kataly sent to DAFs in 2020, $40 million of it was distributed to nonprofits that year. …” Even these rare instances the authors came up with are far from nefarious abuses of the working regulatory structure.
Authors Make Compelling Case for Donor Privacy
It’s true we don’t always know where these private individuals choose to donate. The authors themselves illustrate the value of giving through DAFs in a time where how you give to charity can land you in a media hit piece for your choices.
One example they use is a donor who publicly stated she had been under intense public scrutiny for charitable grants made by her family’s foundation. Unsurprisingly, following this public shaming, the foundation is more frequently using a DAF to protect its privacy in giving. Another individual quoted told Bloomberg that, “his clients often prefer secrecy for purely modest reasons: ‘Most of the donors I work with would love to see in the news more about the good work charity is doing and less about who gave to what charity.’”
Donor privacy is an important part of why DAFs are a popular tool for all types of givers.
Apart from Underwhelming Data Findings, No New Arguments
Despite coming in at a whopping 3,800 words, the authors fail to make new arguments against these popular, flexible charitable giving accounts. Instead, they rely on the tired talking points that we have refuted here before.
For example, here are just five of the responses we have already offered to anti-DAF rhetoric repeated by the authors:
1. “Private foundations are using [DAFs] to sidestep federal laws designed to make sure the wealthy donate money to the needy in a timely fashion”
- Foundations may use DAFs for numerous legal and legitimate purposes that fulfill their charitable missions.
2. “DAFs paid out grants of $34.7 billion in 2020, the National Philanthropic Trust estimates, but that’s $13.2 billion less than they received.”
- By this math, DAFs paid out nearly three-quarters of what was contributed in a single year. DAFs payout rates are robust, no matter how they are calculated. Assets within DAFs that aren’t immediately paid out do appreciate – yielding even more resources for charities and those they serve.
3. “More of those gifts are getting soaked up by DAFs rather than going directly to the needy”
- A 2021 report uses flawed methodology to falsely assert DAFs have led to less money for charities, ignoring the significant benefits of DAFs to donors, charities and the communities they serve.
4. “The flood of assets into the funds has irked lawmakers, nonprofits and even some billionaire philanthropists. They’re calling for new rules to unlock more of the almost $1.5 trillion in private foundations and DAFs.”
- The legislation that includes these new rules has no momentum. To the contrary, there is bipartisan opposition among lawmakers and vocal opposition among those in the charitable sector as well.
5. “Especially galling to those pushing for change is that much of the money flowing into charitable vehicles in effect comes from public coffers.”
- Charitable funds are not public property. When an individual voluntarily gives to a charity, the donation does not belong to the government. The tax deduction was built into our tax code as an acknowledgment that we shouldn’t tax money that individuals give away and can no longer consume.
We all share the goal of getting more money to charities and the most vulnerable in our communities. It may be popular to attack the wealthy in our society, but we don’t foster more generosity by attacking and shaming those who are voluntarily giving to help those in need.
A better use for the word space would be to cover some of the good coming from the 99.8% of grants that foundations made directly to charities.
