Foundations Decry Charitable Giving Changes

WASHINGTON – Some of the country's biggest donors are fuming over proposed changes to the tax code that would require private foundations to exclude administrative expenses from the 5 percent of charitable contributions they are required to pay out of their investment assets each year.

According to reports, 18 of the nation's largest private giving foundations — including the Ford Foundation (search), the Carnegie Corporation (search) and the William and Flora Hewlett Foundation (search) — have hired hotshot lobbyists to fight changes they say will keep them from fulfilling their missions.

Among the high-visibility lobbyists is former New York Republican Rep. Bill Paxon (search), who has been hired by 18 major foundations to lobby against the measure.

"What we’re pointing out is that the overwhelming majority of foundations are operated efficiently and effectively, and we want to make sure that the baby is not thrown out with the bath water,” Paxon, a former member of the House GOP leadership, told the latest issue of the Chronicle of Philanthropy.

Changes to the Charitable Giving Act (search) were introduced by Reps. Roy Blunt, R-Mo., and Harold Ford, D-Tenn., last month. The new rules would stop foundations from counting their own overhead costs as part of the required 5 percent charitable giving each year.

“Our country’s charities face a crunch,” Blunt said in a statement last week. “Our bill will help expand their base of resources so they can continue to do the good work of helping everything from the arts to the homeless.”

Existing law requires private foundations to give away at least 5 percent of their investment assets each year to charitable organizations in exchange for special tax breaks. A recent report by the National Committee for Responsive Philanthropy (search) found that private foundations were writing off more than $4 billion in administrative overhead as part of their charitable giving each year.

According to Sloan Wiesen, spokesman for the NCRP, requiring foundations to give all of their required 5 percent directly to charities will encourage efficiency and accomplish what the foundations were set up to do in the first place: serve humanitarian purposes.

“We feel this would encourage the right kind of spending, and discourage the more wasteful, wrong kind of spending,” he said.

Approximately 66,000 private foundations give an estimated $26 billion a year, according to the NCRP, with the average single grant to charities equaling $134,000. In the top 100 foundations, $833 million of the $9 billion in charitable grants paid out in 2001 went to operating and administrative costs. According to the group’s June 2 report, more than half of that sum went to rent, trustee fees, executive compensation and staff salaries.

If the foundations were forced to pay those costs themselves, said the report, “It could boost grantmaking to America’s charities to $4.3 billion annually, while safeguarding the perpetuity if the nation’s private foundations.”

But not everyone agrees.

The National Council of Foundations has joined the lobbying effort to strike down the changes, which are pending in the House Ways and Means Committee.

According to officials with the National Council of Foundations, these administrative costs are part of the grantmaking process and, despite reports to the contrary, pay for services to charities like providing annual reports of the foundation's activities and technical assistance such as in-kind computer support and training. Expenses also include conferences and research that benefit charities as well as government programs.

“In the same way Congress needs staff to carry out its work responsibly, so do foundations,” the group said in a recent memo to its membership. “Administrative expenses are research, technical assistance, due diligence and communication with the public and policymakers.”

But Julio Dantas, spokesman for the National Network of Grantmakers, said with some organizations' assets running into the hundreds of millions, they can find a way to adjust to the changes.

“We’re talking about a small amount,” he said. “The real issue here is, foundations need to respond to the public need — they should not be about housing wealth.”

The New York-based Foundation Center says that although administrative costs are figured in, independent foundations on average went above the minimum over the last several years, spending an average 6 percent on charitable giving each year.

The Senate has already passed revisions to its charitable giving law that did not include the administrative overhead exclusion.