(September 27, 2021) Confidentiality, power imbalance and fear of speaking out publicly have all surfaced as concerns in the lead up to the Finance Department’s first ever disbursement quota--DQ consultation, Boosting charitable spending in our communities. The submission deadline is Thursday, September 30.
On the surface, it would be hard to imagine that a person working or volunteering for charity in Canada who wouldn’t be happier with private and public foundations having to give a higher percentage of their assets to charitable causes. But very few of these people are prepared to say so in public.
In its preparation for this article, The Charity Report spoke to more than a dozen high-ranking executives, consultants, accountants, civil society leaders, and legal experts who have worked in, or adjacent to, the charity sector for years and believe that not only must the disbursement quota be increased across the board, but that the wealthiest foundations shouldn’t be allowed to amass huge amounts of assets and that the charitable tax credit system needs reform.
They are, however, reluctant to go on the record with their objections and insights because 1) they might jeopardize their organization’s current funding, 2) they are afraid their organization will be struck off foundation donor lists for future funding or 3) they see speaking out as a CLM (career limiting move), especially if they are involved in post-secondary fundraising.
The Finance Department is saying it will do its best to protect confidentiality, and that when making a submission, the person should indicate whether they want personal identifiers to be removed from the document.
But it is hard to know whether this kind of reassurance will encourage people to speak up or if the worry of having a money tap turned off is too entrenched to be overcome.
So, what can the government expect to hear from its consultations?
It will be considering input from the Advisory Committee on the Charitable Sector (ACCS), a consultation committee the Finance Department set up to advise it on regulatory issues.
The ACCS is co-chaired by the CRA and two charity sector representatives, Hilary Pearson, a former long-time CEO for the lobby organization, Philanthropic Foundations Canada (PFC) and current charity lobbyist Bruce MacDonald, CEO of Imagine Canada, which most recently led—and encouraged charities to participate—in an effort pressuring the federal government to provide the sector with a $10 billion stabilization fund, saying the charity sector would collapse without the influx of government cash.
In June, the PFC issued a "policy brief" on the DQ, saying the consultation would be "a missed opportunity if they focused solely on the disbursement quota" and laid out what it called "enabling conditions" for foundations, which included a release of "direction and control" regulations and incentivizing foundations for making "mission-related" investments.
Since the policy brief in June, PFC struck a working group, chaired by Jean-Marc Chouinard from the Chagnon Foundation (#2 foundation in size; $1.3 billion in assets 2019) and including members Justin Wiebe from the MasterCard Foundation (#1 foundation in size; $35.8 billion in assets), Claude Pinard from the Saputo Foundation (#7 in size with $370 million in assets in 2019), as well as Leanne Burton from MakeWay, a collection of donor advised funds, and Rachel Renaud, from the Roasters Foundation, a small foundation with less than $5 million in assets.
On September 8, it posted a blog on is website saying PFC will be recommending a DQ increase from 3.5% to 5%, "with a reasonable transition period to adapt to the new DQ regime." The 5% DQ matches the rate of the DQ in 1976, which foundations lobbied to have had lowered to 3.5% since that time.
Imagine Canada had already gone on record on being "not being opposed" to an increase in the DQ, but not seeing any reason to raise it either.
The mid-September release of the ACCS recommendations could only be best described as a messy affair. They were initially released as a copyrighted product of Carters Professional Corporation, a legal firm associated with one of ACCS’s committee members Terrence S. Carter, a prominent lawyer in the charity foundation space.
“That was obviously an error on our part because a firm template had been used to post the submission with standard copyright verbiage and I failed to properly check it before the submission got posted late on Friday afternoon,” Carter told The Charity Report. “This was totally an error on my part which I take full responsibility for and have apologised to my fellow ACCS members … I had the submission reposted without the reference to copyright.”
It is not entirely clear why Carters oversaw the preparation of the final document.
But it is the contents that caused several observers in the sector to pause. To some, its recommendations seemed to come from a world other than the one people have been living in for the past 18 months.
There “are statistics that leaders in the philanthropic sector are well versed in,” said Yonis Hassan in a piece for the Future of Good on September 22, “which is why I am so frustrated that 14 members of the Federal Government of Canada’s Advisory Committee to the Charitable Sector (ACCS) decided to submit a recommendation to the government that does a disservice to 13 million volunteers and two million Canadians that are employed in the charitable and non-profit sector.”
Hassan is CEO of the Justice Fund and a board member of FoodShare Toronto.
Given the make-up of the committee, it is not surprising the report speaks from the point of view of foundations, not of the charities and non-profit organizations who are working in their communities and dealing with the dramatic uncertainty posed by the coronavirus pandemic, an uncertainty that has become deeply personal for many.
“The ACCS agrees with the goal of supporting organizations who are providing service to the most vulnerable,” says the report. “However, the DQ is but one tool in the policy toolbox. We do not believe that there is clear evidence that raising the disbursement quota alone, without making other legislative changes and using other policy tools, will achieve that goal.”
It expounds on the lobbying agenda of foundations—saying how loosening the “direction and control regime” will “make it easier” to fund the groups representing marginalized people, and “to help ensure that organizations serving vulnerable and underserved members of society are eligible to benefit from charitable donations.”
It talks about the lack of data, of improved education for finance professionals working for foundations, and the shocking-if-true suggestion that foundation assets might be double-counted.
The ACCS also believes “that an intermediate sanction for one time failure to comply with the DQ obligation is unnecessary as compliance agreements (a tool in the current toolbox) could be used to require a charity to eliminate its shortfall which is the desired result.”
Without the slightest trace of irony, it ends with suggestion that “the investment in the sector is happening in new and innovative ways. Impact investments, social enterprise, crowdfunding, social finance bonds, and other instruments are changing the asset map of the sector.”
This all, of course, is happening with next to no help from private and public foundations, who have no requirement to invest their billions of dollars of wealth to promoting anything close to the common good.
As top-rated American news host Rachel Maddow might say, there are two versions of what’s going on in the world today, on Earth One and Earth Two.
“It’s telling that a committee made up of a majority-white led, white serving, white consensus (what we call the W3s) use social justice narratives as a justification on why we shouldn’t make a change to the disbursement quota right now,” says Hassan. “The ACCS attempts to pivot the discussion from the disbursement quota to qualified donees, on a consultation process for the disbursement quota is manipulative.”
He says that he agrees the Canadian charitable sector needs comprehensive philanthropic reform, something the Justice Fund has been calling for but “it’s not surprising that a committee composition in favour of foundation interests, maintaining their tax-payer assets, and power and influence over the sector, would advocate for incrementalism and sustained virtue signalling.”
“The sector members of the ACCS were nominated by the Minister of National Revenue in 2019 based on our individual skills and experience in the sector,” co-chair Hilary Pearson told The Charity Report in an email. “We worked together as a committee over the summer to accomplish this review, conducting our own research and doing the writing ourselves.The submission which we made to Finance Canada on August 31 was fully discussed and endorsed by all sector members of the ACCS.”
Mark Blumberg is a lawyer specializing in charities and, for a decade, his firm has suggested that the disbursement quota was not in line with the significant investment returns on investment and their obligations to society, and needed to be increased.
A piece he wrote with Jessie Lang on September 24 said,
“We recently reviewed the deeply flawed ACCS submission … it is reflective of the views of a small number of foundations who are opposed to change and don’t wish to be required to contribute any more to society. Some of these foundations advocate for greater tax incentives for donations that will predominantly benefit the very wealthy and for de-regulating the charity sector so that these foundations can operate with little or no oversight.”
Just this week, The Charity Report released its own study that shows the top 20 private foundations in Canada (representing 63% of the asset value of all private foundations) held 4.0 billion dollars in assets in 2006. In 2019, that had grown by about 40 billion to 44.6 billion dollars. Yet, their giving increased just over 750 million dollars. That would be the equivalent of someone with a net income of about 450 thousand dollars a year giving way about 7 thousand dollars to charity.
And to give some context to the billion-dollar numbers, the annual budgets of all for Atlantic provinces was less than 30 billion in 2018.
The consultation on the disbursement quota has revealed significant fault lines within the charity sector that might explain, at least in part, why trust in the sector is at an all-time low. And the divisions are not going away any time soon.
“What other business defines itself by 3.5% of its operations, as opposed to the 96.5% of the business it does,” Bill Young, founder of Social Capital Partners told The Charity Report in February. “Why would anyone have objections to increasing this? If a foundation’s purpose is to do good, then it will help do good.”
CEO of Community Foundations of Canada (CFC) Andrew Chunilall compares current foundation spending practice to trickle-down economics when wealth amasses at the top of society, it trickles down to the benefit of all. In reality, trickle-down economics—largely manifest through tax policy—has led to a society’s wealth amassing into the hands of fewer people.
“Trickle-down philanthropy is not working,” he says.
The DQ consultation is a canvas upon which the crevices in the sector can be painted. Deadline for submissions is September 30.
On September 28, The Charity Report received an email from Jean-Marc Mangin, CEO from Philanthropic Foundations Canada through a spokesperson, indicating that in a September 8 blog on the organization's website, he indicated PFC is recommending a raise from 3.5% to 5% with a period for transition.
Through that spokesperson, Mr Mangin also objected to The Charity Report's characterization of PFC as a "lobby group" saying "PFC is a small charity, with limited staff and volunteer capacity, and a stated charitable purpose, governed by a volunteer board of directors made up of diverse representatives from across the foundation sector."
This, despite Philanthropic Foundations Canada being registered as a lobby group on the Canada's Registry of Lobbyists, and Mangin himself having met with officials in at Finance Canada and the Treasury Board to discuss "taxation and finance" as recently as last month.