The National Christian Foundation opened in 1982 under the leadership of Terry Parker. An attorney with extensive experience in estate and gift planning, Parker saw the need for an organization that worked exclusively with donors who wanted to advance Christian nonprofits. He was helped in those early days by Ron Blue, founder of the financial services firm Ronald Blue & Company, and by the late Larry Burkett, founder and president of Crown Financial Ministries. For its first 12 years, Parker and an assistant handled NCF by themselves. By the mid-1990s, however, the staff needed to grow. This was due in no small measure to NCF’s becoming a leader in the field of “complex giving”—donations of non-liquid wealth such as real estate or stock in closely held private companies. In 1998, Parker hired Texas native David Wills as president. Under Wills, NCF has grown significantly. In 2004, NCF paid out over $220 million in grants. Since its founding, NCF has distributed over $800 million to more than 5,000 nonprofit organizations.
In a recent discussion with Philanthropy, both Parker and Wills shared their insights on such topics as complex giving and the threats posed to it by the Senate Finance Committee’s proposals, the coming growth in international giving, and how Parker’s recent experience with a delegation from China gave him insight into what makes American giving special.
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PHILANTHROPY: What is the scope of Americans’ international giving, and how has the Patriot Act affected that?
NCF: Right now there aren’t a lot of donors interested in funding international efforts—typically less than 3 percent of charitable giving each year goes to international causes. This is more than in years past, but it’s still a low number. It will change in the near future. There’s a greater awareness today of the opportunities to give internationally than there ever has been before. There’s a stress point at play. Events like the South Asia tsunami cause people to look beyond themselves and to recognize there are significant needs in our world. But the tsunami isn’t the only example—others would be September 11, AIDS in Africa, and the war on terror. As Americans, we’re being forced to become more aware of the international community.
The Patriot Act has certainly made giving internationally more challenging. The heart of the problem is that a donor needs to essentially have expenditure responsibility. You need to make sure that the money going overseas is actually being used for purposes that would be recognized in the United States as charitable, and you need to follow up. This reality has forced us to increase our due diligence significantly. We also work even more closely with groups such as Geneva Global, a donor advisor group, which have extensive experience on the ground overseas.
PHILANTHROPY: What response are you seeing donors make to the disaster in South Asia and India?
NCF: We are seeing a very generous response to this disaster. NCF is sending out smaller gifts every other week to help meet the immediate life-preserving needs of the tsunami victims. Most of our donors are requesting that larger grants be distributed over the next six to eight months, when affected nations will need help rebuilding their infrastructure. We have one donor, for example, who has set up a special fund dedicated to rebuilding hospitals, sewage treatment facilities, and orphanages. Contributions to the fund will be matched, up to a total of $2.5 million.
PHILANTHROPY: What would you say to donors who are leery of international giving? What should they watch for?
NCF: People are wise to have concerns. An American charity has a high degree of expenditure responsibility when giving to needs outside of the United States. Not all charities know how to comply with these responsibilities. Further, donors giving internationally have to be exceedingly careful about fraud.
The recent disaster in Asia points to a couple of mistakes that donors should be careful of when making grants internationally, especially in times of crisis. Too often, donors support an organization that’s using the crisis to generate income for itself, or to build up its donor list. Donors should do research before sending money in a disaster situation and ensure they channel funds to organizations already operating in the affected areas that can demonstrate a record of good results. Further, groups that are on the ground before a disaster will also be there after the headlines have passed to carry out the more difficult job of long-term recovery.
Another common mistake is funding organizations that know little about operating a relief effort. We recommend to our donors that they exercise patience as we gain clearer understanding of the organizations that are doing excellent long-term work.
PHILANTHROPY: Did National Christian Foundation see an increase in activity in 2004?
NCF: In 2003, NCF paid out about $113 million in grants; in 2004 we exceeded $200 million. For us, however, the best barometer of how active the year has been is the number of transactions, which includes both funds coming in to NCF and funds paid out. In 2003 we did slightly fewer than 12,000 transactions; in 2004 that number jumped to over 17,000.
PHILANTHROPY: What accounts for National Christian Foundation’s dramatic growth in 2004?
NCF: There are two factors. First is the continued rise in the number of complex gifts we handle. Increasingly, people aren’t only asking, “Should I give to charity?” They’re also asking, “What is the wisest way for me to give?” And while the number of groups serving donors is on the rise, NCF is one of the few with extensive experience serving donors who want to give from sources other than cash or publicly traded stocks. And it’s a huge opportunity.
Based upon estate tax returns, we know that about 60 percent of the wealth people hold is not in the form of cash or publicly traded stock. The wealth is largely found in real estate and in non-publicly traded businesses. Today, for example, there is more monetary value in non-publicly traded businesses than in all publicly traded stock combined. There’s over $1 trillion worth of farmland alone owned in our country. Typically, these non-liquid assets are the best sources of wealth to donate, from a tax standpoint.
For example, suppose someone is about to sell stock they hold in a closely held company that doesn’t have a ready market, and he wants to contribute the proceeds to charity. For tax reasons, it benefits that person to donate the stock to a group like NCF, which can sell it and not pay capital gains tax. Then, all the money from the sale is available for granting. The same is true of retirement accounts, real estate, and other possessions.
The second factor in our growth this year, and it’s benefited others as well, is the stock market. Not so much because it’s gone up, but because it’s been consistent and people feel more secure than they did two years ago. Volatility is what hurts us the most in the market, sometimes even more than a consistent, slow market decline.
Interestingly for us, despite the rapid rise in giving, our fund balance is not significantly increased. That’s because we’re giving money away at a greater clip than ever before.
PHILANTHROPY: How would new regulations on charities being considered by the Senate Finance Committee affect your work with donors?
NCF: There are damaging suggestions in the committee’s proposals dealing with donor-advised funds, private foundations, and supporting organizations. Most of the people we serve have donor-advised funds. The committee’s “discussion draft” proposes that donor-advised funds be required to sell contributions that are granted in forms other than cash and publicly traded securities within one year of the contribution. The draft also proposes an alternative solution—allowing donor-advised funds to receive only cash and publicly traded securities. This would be a serious blow not only to NCF, but such regulations would likely apply to all tax-exempt organizations.
The suggestion leads us to believe the Senate Finance Committee doesn’t have a full understanding of how complex assets work inside of tax-exempt environments. Many complex assets are intentionally and knowingly held for more than a year—a life insurance policy, or a promissory note for example. Yet, they are valuable gifts that are worthy of an income tax deduction and can do significant charitable good. This is not to say the issue isn’t sticky at times. For instance, somebody might give a donor-advised fund stock in a closely held company because he thinks it’s going to sell the next year. It doesn’t sell, and the fund is a one-third owner. Ten years later the fund’s still a one-third owner. This is called “warehousing,” and we would rather that not happen.
We would rather the donated stock be redeemed or purchased back by the donor, because he’s gotten a rather large deduction for a charitable purpose. It’s a situation we’re not comfortable with and think some best practices should be established. But we shouldn’t throw the baby out with the bath water. Legislation is not how you fix a situation such as this.
Donor-advised funds are in the role of fiduciary, and they need to manage their asset base as well as Harvard and Yale universities manage their endowments. I don’t think it’s appropriate to say that these universities can have a privately held investment in their endowment and keep it there long-term, but a donor-advised fund or tax-exempt organization can’t hold the exact same asset in the same manner.
PHILANTHROPY: One way you’re responding to growth is creating Local Christian Foundations. What are these?
NCF: Because local leaders know best the needs within their communities, we’ve created 17 Local Christian Foundations that stretch from Boston to Irvine, California, and we have six more that will be coming on board in the first half of 2005. These organizations exist to develop and encourage Christian giving among donors, and to equip local ministries and organizations to better meet the social and spiritual needs of the community.
Local Christian Foundations are free-standing, tax-exempt organizations with a local board that oversees both the mission and the staff of that organization. NCF is intimately involved—we have a board position on each affiliate’s board, for example, and we have a long-term contractual relationship—but we do give a degree of autonomy to these organizations because each one is different in how it responds to its community’s need.
We’re leveraging our knowledge, experience, and technical/administrative capabilities; the Local Christian Foundation leverages it relational and community-transformational capabilities.
PHILANTHROPY: What sets American giving apart from giving elsewhere in the world? Why are we so generous?
NCF: The Maclellan Foundation of Chattanooga has been active for a number of years in Asia, and we recently joined them in a series of discussions they had with a delegation of Chinese leaders who were interested in learning about American philanthropy. From that experience, we’ve come to appreciate how very different the American situation is.
Initially, the Chinese visited several major foundations with the expectation they would meet and talk with people who could help them understand what drives American philanthropy—they came away disappointed. The Chinese saw the big institution at work, but they weren’t able to discover what they sought—the individual motivation for establishing the institution in the first place.
When the Chinese sat down with Maclellan, they found the model they were looking for. It really goes back to a basic philosophic decision by the early United States government to recognize that religion and the values it imparts, especially as related to charity, are important to this country. We saw this philosophy in action when the federal income tax came into being in 1913. The government recognized that it can’t meet all human needs and that the private sector has to play a vital role. But how does it do that? We encourage the private sector to give by providing a tax deduction for giving to organizations that are providing social services, and, further, we don’t make the receiving organizations pay taxes. It’s basic tax philosophy. It’s not as strong today as it used to be, but that’s how it got into our system.
PHILANTHROPY: How does religious faith play into this equation?
NCF: What the American system did with faith was to create a philosophy that transcends religious belief. The founders took the Judeo-Christian principle of charity and transformed it into a philosophy: Those who accumulate wealth should return a portion of it to society for the good of all mankind.
The tax code itself doesn’t create this generosity, but it certainly encourages those components in society who are motivated to act on their beliefs.
