(May 7, 2020) It is unacceptable for charitable foundations to hold tens of billions of dollars in assets, and give only a tiny percentage away each year, according to the 87% of Canadians. This data comes from to a recent poll conducted by Ipsos and Giv3, the organization behind Giving Tuesday in Canada. (The survey has a margin of error of +/-3.5%.)
“Canadian taxpayers do not realize that charitable foundations have accumulated over $80 billion in assets, using taxpayer’s money via charitable tax credits,” say John Hallward, chairman of Giv3. “But once people are informed, they overwhelmingly feel our tax policies need to be changed, forcing more of those billions to help our struggling economies.”
Individuals who create charitable foundations in Canada receive generous tax credits of up to 70% of the funds the put into the foundation. Revenue Canada says foundations must spend 3.5% of their assets each year, which is called a disbursement quota (DQ). The DQ requirement in the U.S. is 5% a year.
COVID-19 has further exposed wealth inequality in our society. As the crisis develops, lobby groups like Imagine Canada and others are actively campaigning for a $10 billion stabilization fund from government for the Canadian charity sector. Under these conditions, it’s no surprise that charitable foundations are coming under unprecedented criticism in Canada and the United States, as they are dispersing so little of the wealth they have at their disposal.
On May 4th, in a USA Today opinion piece, U.S. charitable foundations were called upon to increase their payout to 10% a year for three years, a move that would inject $200 billion into their economy and help the most vulnerable people. The author of the piece, Scott Wallace, is the grandson of Henry A. Wallace, the 33rd vice president of the United States, and co-chair of The Wallace Global Fund. He went on to say,
“These giant vaults — private foundations — can literally last forever. No matter how huge or urgent the crisis, whether it’s a health pandemic, an economic collapse or a climate catastrophe, under federal law, they never need to spend more than five cents on the dollar in any given year. And the vast majority of American foundations do just that, even though 5% of their endowment is typically considerably less than they gain from investing the rest of their assets in the stock market. As a result, they actually manage not only to live in perpetuity, but to grow larger, too.”
Megan Tompkins-Stange, an assistant professor at The Ford School, who specializes in philanthropy tweeted that she felt the position of foundations represented a “profound moral failure.”
There are efforts in Canada to promote a higher disbursement quota for Canadian foundations. Kate Behan, managing director of Charity Intelligence, has been working with an ad hoc group called Give Five (a team that includes Malcolm Burrows, Bill Young and others) toward a specific goal: to get 100 Canadian foundations to sign a pledge to voluntarily increase their payout from 3.5% to 5% for 2020. If this goal is met, the increased payout would generate an estimated $700 million for Canadian charities, says Behan.
“I’ve heard about Give Five who are trying to get at least 100 foundations to sign a public pledge to disburse 5% of their assets this year,” said Hilary Pearson, former CEO of Philanthropic Foundations Canada said in an interview with The Charity Report on April 29th. “I think they could get 100 foundations to agree. Foundations are understanding the need for extraordinary action.”
Assuming 100 Canadian foundations did make a voluntary pledge to move from a 3.5% payout to a 5% payout- is that enough to make a dent in the size of crisis Imagine Canada claims the charitable sector is experiencing?
John Hallward says no.
“The current policies regulating foundations are not working as well as they should. The most recent reported data indicates over $80 billion of financial assets have been accumulated within foundations … growing at about 10% a year for the past decade, well above inflation and the growth in our GDP. Clearly, foundations have chosen, on their own accord, to accumulate assets rather than disburse more money to charities.”
Hallward is advocating for a pilot project to raise the minimum disbursement quota for foundations in Canada to 10% a year, for five years. He says his plan offers a balance between accomplishing greater good, sooner, while allowing some longevity to foundation capital. He says it respects taxpayers by applying the charitable activity to the same generation of taxpayers who gave the tax credit.
“A 10% DQ would quickly direct billions of additional dollars annually,” says Hallward, “It would help alleviate the massive funding pressure so many charitable organizations are currently experiencing. The money is already in the foundations. We just need stronger policies to ensure foundation leaders are disbursing more of it sooner.”
“The disbursement quota has been gradually whittled down,” says Bahen. “In 1969, a foundation’s disbursement quota was determined by the average ten-year investment percentage minus the inflation rate, which would put it about at what John [Hallward] is talking about. But it was reduced to 5% and now it’s down to 3.5%. And all that happened behind closed doors. It’s exciting to me that there is a debate growing around this now.”
Scott Wallace put it starkly in his op-ed,
“To paraphrase a parable I once read, suppose a deadly famine was sweeping the land, and you had 100 tons of food. Would it be morally right to give away only 5%, hoarding the other 95% or 95 tons for generations yet unborn as today’s children shrivel and die of starvation? The same question must be asked of philanthropy.”
And although Hallward and Behan differ on the necessary percentage increase in the disbursement quota, both agree with 87% of Canadians in that the status quo is not acceptable.
“Foundations will be judged on what they did now,” says Kate Behan. “[Former governor of the Bank of England and the Bank of Canada], Mark Carney told the Economist ‘When [COVID-19] is over, companies will be judged by “what they did during the war”, how they treated their employees, suppliers and customers, by who shared and who hoarded.’ I hope foundations step up to the plate on this one.”
“I urge foundation leaders, policy makers and the public to consider this issue more closely and to act quickly to affect change for the public good,” says John Hallward. “Imagine what could be accomplished with billions more flowing into the charitable sector each year starting with the COVID-19 crisis.”
As she deals with the complications of running a106-bed homeless shelter and a 50-bed violence against women shelter in downtown Toronto during a global pandemic, Carol Latchford, executive director of the Red Door, spoke a bit more plainly in a Feature Interview with The Charity Report this week.
“I don’t want to talk badly about my brothers and sisters in charity, but my message is this,
‘Get up off the money and build something. How much money do you need to sit on? It’s too much. Get a grip. That money has been donated for a function. It doesn’t seem fair. Get up off of it and get something going.’