The Emperor’s Old Clothes
Charity auctions have turned into big money-raisers, and the success of online auction firms like eBay have confirmed their popularity. But are we really ready to start bidding on…dictators’ underwear? Well get the gavel ready, because the Romanian government is auctioning off the personal possessions of late dictator Nicolae Ceausescu (deposed in 1989 and brutally dispatched following a brief trial) and his wife Elena. From the black 1975 Buick Electra that Richard Nixon gave them as a goodwill gesture to Mrs. C’s fur coat collection to the spiffiest in Brezhnev-era home furnishings—everything must go! Proceeds from the sale of the Ceausescus’ booty go to helping the Romanian people dig out from under the social and economic ruin caused by decades of communist misrule.
For years, television personality and Certified Deep Thinker Bill Moyers has railed against the influence of money on government. Thus it must have been something of a surprise for many of his viewers to learn recently that Moyers is president of a foundation that has spent more than $15 million…trying to influence government. Moyers acknowledges that he has never disclosed to his viewers that as president of the New Jersey-based Florence and John Schumann Foundation (for which he is paid $200,000 per year), his organization has subsidized coverage of the pernicious role that money plays in politics and has spearheaded efforts at changing campaign finance laws. According to experts in media ethics quoted by the Knight Ridder news service, “many news organizations prohibit their journalists from advocating or having any financial interest in issues they cover because such mixed allegiances would raise questions about the independence of their reporting.” Emphasizing that no Schumann money has been spent on his PBS shows, Moyers denies a conflict of interest. “I practice journalism as a form of public education, and I practice grant-making as a form of public education.” Yet it turns out that Moyers’s interviewees in a recent PBS special were also his grantees. In an interview with the Washington Times after this latest discovery, a PBS spokesman acknowledged that they should have disclosed the conflict of interest.
Chugging Right Along
The charitable giving money train just keeps on rolling. The Boston Globe reports that the number of community foundations in America has more than doubled over the past decade to a total of 545, while their assets have more than tripled, to $21 billion. So much for hysteria about how the “charitable checkbooks” offered by Fidelity, Vanguard, and now Charles Schwab (see below) would undermine community foundations. At the same time, a new study from the Indiana University Center on Philanthropy suggests that there is no end in sight to the charitable boom. The “Philanthropic Giving Index,” an indicator modeled on the Consumer Confidence Index, has dipped a tiny bit over the past six months, but remains very high. “These results indicate that the current and future picture for philanthropic activity and charitable contributions is bright,” says Eugene Tempel, the Center’s executive director. Meanwhile, the Chronicle of Philanthropy’s recent survey of the nation’s largest nonprofits found that salaries of top nonprofit executives rose 5.7 percent last year, nearly double the previous year’s increase.
The newest entrant into the charitable checkbook derby is Charles Schwab & Co., which has just launched its own donor-advised fund. For a minimum donation of $10,000 you can open what amounts to your own charitable mini-foundation. Schwab has plenty of competition. Fidelity’s Charitable Gift Fund is now the fifth-largest public charity in the country, with assets of $1.7 billion (and because of its unusually high payout rate, the fund is actually ranked first in the nation in terms of the amount it gives out each year). Late entrant Vanguard’s charitable coffers are currently brimming with $82 million in donor-advised largesse.
Pay Now, Pray Later?
After all those headlines trumpeting the boom in foundation assets, it was only a matter of time before someone would revive George Wallace’s rallying cry about hoarding of assets by “those fellows” at the “multi-billion dollar tax-exempt foundations.” It is a criticism whose popularity has been waxing and waning (in rough correlation with the ups and downs in foundation endowments) for decades. Congressman Wright Patman, Democrat of Texas, flogged the issue through a series of hearings culminating in Congress’s legislating a fixed annual payout rule in 1969. Thirty years later, after an enormous run-up in foundation assets, the call to raise the payout rate is once again in its waxing phase. The New York Times reports that the National Network of Grantmakers, a group of “progressive” foundations, has called for the rate to be increased 20 percent (to a total of 6 percent). The Times cites a new study, commissioned by the Network, which argues that the rate could be raised as high as 8 percent without seriously eroding foundations’ long-term health. Many in the foundation world bristle at the proposed change, arguing that a payout rate over 5 percent would threaten their sustainability and arguing that they can help grantees even more in the long run by, well, continuing to exist in the long run. The last time Congress adjusted the payout rules was in 1981, lowering the requirements on foundations after a string of poor stock market years. Then, foundations successfully argued that the combination of poor market returns and a higher payout rate was driving them under and frustrating their missions. Whatever adjustments are made to the current payout rate, look for this little set-piece of nonprofit history to repeat itself the next time the stock market swoons.
Whose Money Is It Anyway?
The Network’s arguments for a higher payout rate do sound an awful lot like the old soak-the-rich arguments for higher taxes. They also seem to spring from the same notion that everything is really owned by the government, and that it is the duty of policymakers to determine the optimal amount that we should be allowed to “keep”—what Irving Kristol refers to as “socializing money in rhetoric prior to socializing it in fact.” This worldview (one could be forgiven for having thought it extinct) also seems to inform the thinking behind a recent article in Worth sounding the alarm bell over the sums the U.S. government “gives up” by allowing tax exemptions for charitable foundations and donors. It seems that there has been an increase in the ratio of tax dollars “foregone” by the government to dollars distributed from foundations, thus making the whole enterprise “inefficient.” And since “the government isn’t collecting enough in taxes, and the foundations aren’t distributing enough in grants,” we need to re-think the deductibility of grants to foundations. The article also seems to have conveniently missed the extraordinary stock market run-up of recent years, which has caused foundation assets to rise more quickly than payouts. Still, if only government had that money instead.
Supreme Court Weighs in on Vouchers, Sort Of
In a neat twist, the United States Supreme Court has managed to encourage and consternate both sides in the tuition voucher debate. The Supremes let stand an Arizona ruling that allows the state to give tax credits to people who give money to private and religious schools for scholarships, dismissing arguments that the credits violate separation of church and state. The decision prompted pro-voucher attorney Clint Bolick to declare that “the momentum remains on the side of school choice supporters.” But what the black-robed ones giveth, they also taketh away—momentum included. Just a week later the court let stand a Maine law that denies state aid to religious schools. In Maine, where many children live in small towns or remote areas that don’t have public schools, private schools that accept these children are eligible for state funding. The Maine law that was challenged bars these tuition subsidies from going to parochial and other religious schools. Further complicating matters, last year the court had let stand a Wisconsin law authorizing Milwaukee’s path-breaking voucher program (which does allow public funds to be used for private and religious schools).
Sugar, No Cream
Meanwhile, a foundation-funded study shoots new holes into a perennial argument against vouchers. Voucher opponents have argued that these programs would “cream” the highest-performing students from troubled public schools. But new research funded by the David and Lucile Packard Foundation found little or no evidence of “creaming” after careful study of a large privately funded voucher program in San Antonio. Education Week reports that when the voucher program was announced, school officials predicted that most of the children who took advantage of the voucher offer would be the higher-achieving students. But when researchers compared the test results and survey responses from hundreds of children participating in the program and compared them to those of their peers in the public schools, they found only slight differences between the two groups. Paul E. Peterson, of Harvard University’s Program on Education Policy and Governance, co-authored the report with Harvard colleague William G. Howell and David Myers of Princeton-based Mathematica Policy Research. “If this is the extent of creaming, I would say that it’s not something to be substantially worried about,” said Peterson.
That Legendary Yankee Parsimoniousness
The city of Boston has taken a tight-fisted approach to a problem that affects many municipalities, namely how to make up for lost revenue when a piece of real estate is acquired by a nonprofit and—poof!—disappears from the property tax rolls. In some cities the loss is only a minor problem, but Boston has a number of special characteristics that have turned this into a simmering feud between nonprofits and tax collectors. First, the city is home to an inordinately large number of nonprofits (as much as 50 percent of property within the city is held by colleges, hospitals, historic sites, and other nonprofits), many of whom are not exactly mendicant (Harvard is putting the finishing touches on a capital campaign that has raised a record $2.33 billion). Second, Boston is constrained in its ability to raise revenue through property taxes by Proposition 2 1/2, which limits the tax rates that the city may levy to 2 1/2 percent. So Boston has been quietly (until now) asking nonprofits to make “voluntary” payments of what their property tax assessments would have been. According to a report in the Boston Business Journal, some nonprofits have proven reluctant, if not downright recalcitrant. Harvard has, after years of “acrimony,” agreed to pay the city $40 million over 20 years. Other schools have forged their own agreements with the city. “Some institutions have embraced [payment in lieu of taxes] more than others,” explains the city’s head assessor.