Tag Archives: nonprofit quarterly

Jessica Gordon-Nembhard: I see community as a community of workers, but by workers, I mean people who are expending human energy and solidarity to perfect their lives. And we’re doing it together…We all see communities as groups of human activity and work, not separate from the political economy. We’re all workers—especially African-Americans. We never really had the luxury to separate the two. Everything we do, in some ways, is about work.

Lloyd Hogan, in his book On Black Political Economy, talks a lot about the internal and the external labor markets. The internal, of course, is social reproduction: how we survive, and all the things we do to survive. The external is all the things we do to exist in a market system: the ways that we make money in order to do the internal labor. I want to get us out of the market system. If we see ourselves as expenders of human energy, if we exalt work and labor not as the things we do to make money, but the things we do as human beings—that’s what’s going to help us get to the next level—out of capitalism and the individualistic mode. We have been alienated from ourselves as workers. We’ve been made to see work as bad. We have to exploit ourselves to make some money. We have to do what other people want. It’s the way that we’re the most highly exploited as human beings, as women, as Black people, as people of color…The labor market is where we get exploited, and putting ourselves in the labor market exploits ourselves the most.

But I think we need to change that relationship and see labor as part of our movement toward human perfectibility. That’s why I also like Nina Banks’ notion of Black women’s labor in communities: that it’s so hidden. It’s not even seen as worker labor, but we need to really make it more visible, make it more valuable, because that’s where real change happens. That’s where we practice how to live differently, but it’s so undervalued in our system…If we focus on maximizing human energy, the energy we expend to reproduce, sustain, and free ourselves…It’s the energy we use to produce innovations, so that we can keep perfecting our social reproduction and our sustenance, and so that we have the prosperity and leisure to be human beings, and to perfect ourselves as human beings. It’s the work we do so that we can address racial and gender exploitation and turn those things on their head.

We need to put our energy into that kind of education and practice of human liberation through solidarity economics. That’s where we start to help people, to realize, to think through, to change this language. Instead of work being bad, work is our human energy. It’s the thing we do together to make our lives better, to make ourselves better. We can then think about what the new system of relationships—cultural, economic, social relationships—are based on that kind of a notion: that we’re all exalted beings who are trying to make things better for ourselves, our families, our communities—and we’re doing it together. And the work we do is not something to be alienated from or upset about, but it’s the end product. And somehow, creating, using culture, using a sense of community, using new economic systems to make sure that we are focusing on that, I think, is the way to go.

This article originally appeared in the Nonprofit Quarterly. See the original article here.

Gar Alperovitz: The question of culture is posed, for me anyway, in several different ways, but how we as individuals understand ourselves in community. Do we see ourselves as extreme individualists pursuing our own goals only? Or do we see ourselves as partners, friends, members of a community of common interest and common work? That last phrase is very complicated, because how deep the common work is, how deep the community is, is really a critical question. It can be very light. I’m from Racine, Wisconsin. We had a community, but it was not much of a community. I have been in smaller cultural communities, and I think many others have as well, and there are different depths. I once visited an Israeli kibbutz many, many years ago. And I found in that particular one I visited a deep community; many of them don’t have the same kind of community.

But ultimately, to me, community means: how do we see our relationship one to another? Are we together, one and one, in some kind of common enterprise? Or are we only all in it for me, me, me, me? Obviously, the former is what we’re after. A couple of things I’d like to introduce into this discussion: what are the economic institutions that can nurture community? The most obvious one in our culture is maybe, and I say this carefully, is the cooperative. Because it’s something in common. But in fact, cooperatives have been very, very tiny in their growth. One of our researchers has studied that they have not produced much of that cultural feeling. Are there other institutions that might be built that say we’re all in it together? Can we build that?

This article originally appeared in the Nonprofit Quarterly. See the original article here.

If you speak to an urban economist about why housing is so expensive, they will typically cite two gaps. [One is] the gap between the number of people who want an affordable unit and the number of affordable units that exist. They will also talk about the gap between wages and rent…Do they speak to speculation? Do they speak to the historic recission of the federal role in housing production? No.

Krystle Okafor, “Reconceiving the Federal Role in Housing Policy,” 2021

Prior to the COVID-19 pandemic, millions of people in the US already struggled to afford housing. In 2019, based on data from Harvard’s Joint Center for Housing Studies, 37.1 million households—more than three in 10 Americans—were “housing cost burdened,” spending 30 percent or more of their income on housing, while about one in seven households—17.6 million total—were “severely cost burdened,” spending half or more of their income on housing.

It hasn’t gotten any better since. When the pandemic-induced economic shutdown took place in 2020, there was a surge in tenant organizing. This tenant organizing protected many, but rent has continued to climb, making housing even more unaffordable. In 2021, the average monthly rent nationwide increased by 14.1 percent.

Last summer, NPQ, in partnership with Shelterforce, offered a webinar on social housing—a comprehensive approach centered on a combination of public and nonprofit housing provision. As New York University (NYU) professor Gianpaolo Baiocchi—a panelist on that webinar along with NYU law school student Krystle Okafor—and coauthor H. Jacob Carlson noted last year in Boston Review, the dominant approach to affordable housing production in the US has consisted of “subsidies and tax-breaks for private developers.”

This system has been highly profitable for real estate interests but has failed to generate the amount of affordable housing needed and has perpetuated structural racism in the housing market. What is required instead, Baiocchi and Carlson argued, is “a housing system where a significant portion of housing provision happens outside of the market”—in other words, social housing.

This year, a new report by Amee Chew, Social Housing for All: A Vision for Thriving Communities, Rental Power, and Racial Justice, published by the Center for Popular Democracy and Renters Rising, takes up these issues. Chew’s report identifies how the US housing system has become a housing inequality machine. It lays out how social housing works in other countries, such as Finland and Austria, and it specifies how to implement a social housing approach in the United States.

The US Housing Inequality Machine

So how did affordable housing become so scarce in the first place? Chew’s report identifies some of the mechanisms. Three key levers are the following:

• Follow the (federal) money

Back in the 1970s, federal expenditures for the US Department of Housing and Urban Development (HUD)—i.e., the agency charged with ensuring housing affordability—had a (suitably) larger budget than federal subsidies for high-income homeowners and wealthy investors. However, by the mid-2000s, tax expenditures—that is, write-offs that upper-middle class and wealthy taxpayers use to reduces their tax payments, such as mortgage interest and property taxes deductions and reduced rates on capital gains income—exceeded HUD’s budget by more than a factor of three (7). In other words, current US housing policy grossly underspends on affordable housing and grossly overspends on subsidizing housing for the wealthy.

How badly does the US government underinvest in affordable housing? Chew points out that back in 1978, the federal government spent 1.41 percent of gross domestic product (GDP) on affordable housing. By 2018, that number had fallen to 0.25 percent of GDP (19). Total GDP today in the US exceeds $24 trillion. If the US spent an additional one percent of GDP on housing today, that would be $240 billion a year.

• Discounted sale of foreclosed properties to corporate buyers

The Great Recession had a devastating effect on homeownership rates in Black and Latinx communities. As economist James Carr wrote in NPQ back in 2020, during the Great Recession, “median net wealth for Latinx and Black households fell 44.3 percent and 47.6 percent, respectively. Non-Latinx white wealth fell by 26.2 percent.” Between 2006 and 2014, nearly 10 million US homeowners lost their homes to foreclosure.

Who acquired the foreclosed properties? As Clara Miller detailed in NPQ last year, corporate buyers often swept in. This practice, she notes, was seen by federal regulators “as a means to fast-track the acquisition of a large backlog of distressed properties.” It also marked, adds Miller, “the largest stripping of assets from working class and BIPOC communities in US history.” As Chew explains, this process of corporate consolidation of property ownership continues today. According to Chew, “In 2021, investors bought one in seven homes sold in top metropolitan areas nationwide, the most in over two decades; they targeted these purchases in majority Black neighborhoods” (6).

• Real estate speculation

As Chew observes, “Wealthy investors often treat buildings as tax shelters. And whether the buildings sit empty, no longer functioning as actual homes but as ‘safe deposit boxes in the sky,’ is incidental to big investors” (6). This, of course, fuels gentrification. As Chuck Collins has detailed, the city of Los Angeles alone has tens of thousands of empty housing units, as many global investors have taken to using real estate as a way of hiding their assets, with anonymous ownership entities often holding legal title. This global investor capital, adds Collins, has super-charged “gentrification dynamics by injecting additional cash and disruption into the market.”

The Social Housing Alternative

From the 1930s through the 1970s, the main federal housing program in the US was public housing. At its peak, there were over 1.3 million units of public housing. As of 2021, that number has fallen to 958,000. Beginning in the 1970s and 1980s, US housing policy shifted to providing vouchers (subsidies to private landlords) on one hand, and tax credits (often purchased by banks to offset corporate income tax liabilities) to finance affordable housing production on the other. As Chew details, this shift to private provision not only enables for-profit firms to get their “cut” of affordable housing subsidy dollars. In programs like the low-income housing tax credit program, this shift also means that affordability restrictions often come with an expiration date.

For these reasons, Chew advocates a shift back toward public provision, while also supporting community production through cooperatives and nonprofit community land trusts. But her vision of social housing is far more ambitious than simply advocating for a return to adequately funded public housing. Rather, she outlines an extensive set of principles to guide policy (21). These include the following:

• Decommodification of land and housing—housing as a right
• Deep affordability and scale—housing as “reparations, designed by and for Indigenous, Black, Brown and other communities of color”
• Commitment to quality construction and accessibility
• Democratic community control and tenant rights, including rights for tenant unions
• Racial and gender justice, including a focus on spatial desegregation
• Integration with care infrastructure (e.g., childcare, elder care)
• Green construction methods
• A commitment to solidarity economics, defined as part of a “larger interconnected cooperative economy—including labor unions, worker cooperatives, public banks, and more—that is organized around meeting human needs, rather than profit”

Lessons from Finland and Austria 

But can social housing work?

To build her case, Chew compares Vienna, Austria with Philadelphia. Both cities, she notes, have roughly similar populations. So, how do their housing policies compare?

                                                Vienna                       Philadelphia

Public housing                      220,000 units            12,850 units

Subsidized housing             200,000 units            13,640 units

Total                                       420,000 units            26,490 units

Notably, Vienna has more than 15 times as much available social housing as Philadelphia. All told, in Vienna, 46 percent of homes are off market and 60 percent of residents live in some form of social housing.

To understand the issue at a national level, Chew compares the US to Finland. Nationwide, Chew notes that four percent of US housing is public or subsidized in some way, compared to 16 percent of housing in Finland. Scale, Chew notes, is important. If social housing is a large enough proportion of the total housing stock, then “it is able to lower housing prices and dampen speculation throughout” (28). The Finnish system, she notes, combines multiple institutions to support affordable housing. Not only do cities own housing (about 60,000 units in Helsinki alone), but a publicly owned company builds much of the housing, and construction is financed by a public bank (11).

Towards a US Social Housing Vision

The struggle for social housing in the US remains a difficult one. But Chew outlines a few areas of possibility. At the federal level, the $150 billion-plus that Build Back Better would have provided is clearly blocked, at least for the time being. As Chew details, Representative Ilhan Omar (D-MN) has introduced a 10-year, $1 trillion Homes for All bill that maintains a vision of what federal social housing policy could look like.

But while federal action in the short term is unlikely, there is greater promise in some places at the state and local level. One possible tool, Chew notes, are land banks, which are increasingly common public agencies at the county level in the US, although they typically have a narrow purpose of acquiring and revitalizing tax-delinquent, distressed, or vacant property. In Europe, Chew points out, public land banks have often been employed to acquire land for social housing.

One place where social housing ideas are starting to make inroads is in California. In 2019, the state passed public banking legislation enabling the eventual creation of public bank authorities in cities within the state. In July 2021, the state allocated $500 million to support community land trust acquisition of foreclosed properties. The funds also are aimed at retarding the pace of the corporate real estate acquisitions detailed above.

Chew also notes the rise of “community opportunity to purchase act” (COPA) legislation at the local level, such as a 2019 law passed in San Francisco; the passage of rent control in St. Paul, Minnesota in 2021; and legislation passed in 2021 in New York state that facilitates the conversion of distressed hotels into affordable housing.

The range of possible policy action and advocacy is extensive. As Chew points out, “Cities…can all pass measures to create public banks, land banks, acquisition funds, housing trust funds, accelerator funds, and more, to support the development of social housing.”

In conclusion, Chew sees in social housing policy a vital tool, which can begin to “correct the impacts of past racist housing policy” (40). Such a policy framework, she adds, will enable families to “have access to quality, stable housing regardless of their household members’ economic circumstance, race, gender, immigration status, physical and mental ability, or criminal legal history” (41). To get there, Chew insists, tenant organizing must be at the center of how social housing policy is achieved. To stay there, she adds, will demand democratic accountability rooted in a vision of solidarity.

This article originally appeared in the Nonprofit Quarterly. See the original article here.

Decision-making, like much of our lives, has moved online during the pandemic. At the same time, there are growing calls for funders, organizations, and institutions to make decision-making more inclusive and shift power to impacted communities. How can we make more democratic decisions online?

A new wave of digital participation platforms can help. Platforms such as Decidim, Citizen Lab, and Your Priorities can effectively engage communities throughout the process of making budget, policy, and funding decisions. They can make engagement easier, more transparent, and more accessible. Thousands of government institutions are already using digital participation platforms. It’s time for nonprofits and foundations to upgrade our digital decision-making tools.

Individually and through our organizations, we have surveyed, tested, and evaluated these new platforms. We each have experience running participatory grantmaking and decision-making processes online using different platforms. At Open Society Foundations, we are interested in the potential for digital tools to encourage meaningful participation, and as such we supported the establishment of FundAction, a digital fund and platform in Europe. At People Powered, we recently reviewed and rated the best digital participation platforms, and we have used them to engage our global members in making funding and policy decisions.

The results are promising but not perfect. Digital participation platforms can help you make better decisions online, but they can also reinforce inequities and take up excessive time and resources. Below, we explain why you should consider using the platforms, what to watch out for, and what you need to know before you start.

You Can Make Good Decisions Online

First, the good news. Digital participation platforms can enable people to learn, debate, and decide together in more inclusive ways. They generally have several core functions that work well: collecting, reviewing, and revising ideas and proposals; voting on proposals; and reporting outcomes. Along the way, people can receive updates, give feedback, share information beyond the platforms, and integrate offline and online discussions. Advanced platform features are increasingly using artificial intelligence, algorithms, and randomization to connect people and ideas in new ways.

These platforms can make it easier to reach more informed decisions that have broader support. They make engagement easier by automating and distributing work— by collecting ideas, for example, and compiling votes. They make decision-making more transparent by documenting and sharing key information and discussions online, in usable formats. And they make participation more accessible by creating easier opportunities for people to engage at times and in places and languages that work for them.

At FundAction, a European community of activists has used one such platform to make decisions about funding priorities and grants. FundAction is a participatory fund that aims “to shift power to make decisions about funding from foundations to those closer to the issue, strengthen collaboration and mutual support among European activists, and build the capacity of activists and the social movements they work with.” The community is spread across many countries in different time zones, so people need to engage asynchronously at times most convenient for them.

The platform that FundAction uses has made it easier for activists to share their work with people outside their thematic or geographic community, which has helped build solidarity and buttressed political education. For example, disability justice activists shared links to their proposed social model of disability on the platform, making it easier for peers and reviewers to learn about the concept and ask questions. The questions and responses are shared transparently with all, saving the activists time as they do not have to repeatedly address the same points. This open format also serves as a reminder that all of us have questions, as well as solutions, to contribute.

People Powered has used a platform to allocate funds at a global level—and also to decide new organizational policies. People Powered is a global hub for participatory democracy that aims “to expand people’s power to make government decisions.” Its community of members from over 35 countries provides direct support for programs such as participatory budgeting and citizens’ assemblies. Members have used the platform to propose and debate funding allocations and policies and then vote to allocate funds to new projects (e.g., mentorship, trainings and a digital participation platform guide and ratings) and approve new policies (e.g., for membership, board elections, inclusion, and accessibility).

The digital participation platform has provided People Powered with long-term infrastructure for countless meetings and discussions. While video calls and WhatsApp exchanges are often the most inclusive spaces for global member discussions, the platform has served as a central place to collect ideas and feedback. The site’s translation services have made these discussions more easily accessible to our members, most of whom do not speak English as a native language. The platform has also enabled clear and transparent voting, reporting of vote results, and subsequent project implementation. 

Technology Isn’t a Short-Cut to Equity

The transparency and “flatness” of digital tools, however, can be mistaken for fairness. The technologies may treat everyone equally, such as allocating the same number of votes in preference polls or randomized participant selection, but this may deepen inequities. Access to a decent internet connection, familiarity with platform navigation, and comfort with online discussions vary. Providing the same information and opportunities to everyone simultaneously may seem fair, but it does not necessarily deliver equitable results.

Platform developers and supporters often encourage maximum transparency, but this can result in information overloads that undermine inclusion. Platforms strive to be the ultimate tool for all your participation needs, but some needs are better met by other means.

For example, People Powered was advised to create event pages on its platform for every group call and to post the call discussions and outcomes on these pages. After sinking hours into this work, staff decided not to bother. The most important outcomes—project ideas—were already collected elsewhere on the platform, and staff could do more for transparency by reaching out individually to less active members than by spending hours creating additional pages that only the most active users would see. If so much is shared that people feel too overwhelmed to open the platform and review updates, then you’re not cultivating transparency—you’re creating fatigue.

Likewise, equal opportunities to participate do not necessarily result in equal (let alone equitable) participation and indeed may still lead to certain people having disproportionate power. A more sophisticated approach looks at outcomes and then iterates. If only certain groups are participating, then we are failing in our ambition to achieve equity.

For example, an algorithm that randomly generated a group of decision-makers at FundAction resulted in four of the six on the panel being Serbian. There are two measures needed to correct this. Most simply, adapt the algorithm to account for geographical diversity. But the more complex—and necessary—solution is to understand whether and why Serbians are over-represented in the community—and take steps to address that. This work needs to happen through direct communication and organizing, beyond the constraints of a platform.

Technology is not neutral, and we need to compensate for its biases. This requires extra outreach and discussions with people who face digital barriers, extra time to allow people with less connectivity to participate, and active moderation and language support. Sometimes this means going against the tech-first recommendations of developers and limiting online participation to make more space for human discussions outside of the platform.

Expect to Iterate

Relatively young, these technologies are still works in progress. While their core functionalities are well developed, new features are constantly being added and tested. If you use new features, you can expect to encounter some surprises. Sometimes these are glitches that may be easily fixed, for example when a platform sends out automated announcements to users. In other cases, these are software limitations that you need to work around.

While it can be frustrating to learn and adapt, this experimentation and flexibility is healthy. Good decision-making processes should be iterative, and online platforms allow for customization as you go. You can quickly change how you engage based on feedback. This flexibility is especially helpful now, as COVID restrictions, economic conditions, and workplace practices are constantly shifting.

At FundAction, one area of constant iteration is how to classify work, identities, and communities in ways that help organize the work while also respecting the political struggles around categorization. To ensure that we’re funding a diversity of issue areas, we ask people to tag their work as “housing justice,” “racial justice,” or “digital rights.” But while an ever-expanding list may offer a fuller picture, it will never be exhaustive. Allowing people to claim multiple tags may be a nod to the intersectional nature of their work, but it also adds to complexity and limits the platform’s functionality. We will never tell our full stories in a series of tick-boxes, and each time we try, we discover new challenges. But once this messiness has been acknowledged, we can move closer to technology that supports our work and human dignity.

There Are (Too) Many Options

Configuring a platform is not the only complex challenge—first, you have to select the right platform. There are dozens of digital participation platforms trying to do similar things. You may be overwhelmed by the options. While the promotional materials all sound impressive, don’t believe everything you read. In a young and oversaturated market, developers often make claims that their products don’t back up.

The good news from this competitive marketplace is that you can often get developers to address your needs. If you need a particular feature or functionality, let developers know. This feedback will also help improve the quality of the tools, so they better address user needs.

One of the most promising things about the platforms are their constantly expanding range of features and functionalities. You can connect like-minded proposals using algorithms, enable diverse voting methods, and set up public reporting and monitoring dashboards. These features and new ones can be tailored to your needs.

Many of these features are still raw. You can view content in different languages, but only with many clicks. You can create a dashboard, but you may not be able to display the exact data you want. You can send mass messages to users, but you can’t fully control what the messages say. But all of these are solvable problems. The more people use the platforms, and the more funders invest in them, the better they become.

So, are you ready to upgrade your online decision-making? Or do you work with communities that are struggling to shift from in-person engagement to hybrid or online spaces? If so, review the platform ratings and guide and pick an option with a strong track record that fits your needs and budget. Set up the features that you need, watch out for over-reliance on technical solutions, and iterate as you go. And don’t forget to share what you learn to help us all to make better decisions.

This article originally appeared in the Nonprofit Quarterly. See the original article here.

For more than a decade, donor-advised funds—commonly called DAFs—have, as NPQ has covered widely, been growing faster than any other type of charitable giving vehicle. Today, DAF sponsors—which hold, invest, and manage nearly $160 billion in these funds until they are distributed to individual nonprofits—rank among the largest recipients of charitable revenue in the country.

In 2020 (the most recent year for which data is available), grants made from DAFs to operating nonprofits were more than double what they were just four years earlier. But contributions to DAFs regularly exceed payouts. According to the National Philanthropic Trust, even as donations from DAFs in 2020 hit a record $34.67 billion, contributions to DAFs were an even higher $47.85 billion. Consequently, and buttressed by a rising stock market, the amount of money sitting in DAF accounts that has not yet made it into the bank accounts of operating nonprofits continues to rise.

We have surprisingly little information about where DAF money goes. For sure, annual reports from industry groups offer aggregate giving numbers and even data on broad giving categories (such as “public benefit” nonprofits). Yet, other than outside voices like our own or that of Ray Madoff of Boston College, there are strikingly few independent data sources.

But that is changing. The DAF Research Collaborative (DAFRC), organized by Dr. H. Daniel Heist of Brigham Young University and Dr. Danielle Vance-McMullen of De Paul University, is rapidly increasing knowledge of the DAF field. As the collaborative details on its website:

Donor-advised funds play an important role in the modern philanthropic landscape. As such, philanthropic leaders and policymakers are highly motivated to enact policies that maximize the public benefit of these funds. However, leaders and policymakers do not currently have access to a robust evidence base to inform these policies. In addition, little is known about how DAFs affect and reflect giving by high-net-worth individuals more broadly. A more robust evidence base regarding DAFs is especially important in the current era of evidence-based policymaking.

Indeed. And not a moment too soon. To date, research on DAFs has largely been shaped by sponsors who have a vested interest in defending the $160 billion now stored in DAF accounts. They find ways of presenting cherry-picked data to support the status quo and to attack more accurate findings that do not.

What We Are Learning—Early Findings from the DAF Research Collaborative

DAFs, as NPQ readers are aware, function like charitable bank accounts. Donors can give money to a DAF and take a tax deduction immediately. They can then recommend grants from that DAF to whatever charities they want, on whatever schedule they want. These tax deductions are subsidized by the American taxpayer to the tune of up to 74 cents on every dollar donated. In fact, the wealthier the donor, the greater the tax subsidy, since charitable giving can be used not only to reduce income taxes, but also estate, gift, and capital gains obligations.

But there is no legal requirement that the money placed in DAFs must be transferred to nonprofits working for the public benefit. DAF accounts are also almost completely opaque. There is almost no way to find out how quickly individual DAF accounts are paying out to operating nonprofits, if at all.

This is what makes DAFRC’s research so important. The collaborative was able to collect account-level data for 13,000 DAF accounts from 21 community foundations and single-issue sponsors (sponsors working in a specific topic area, such as faith-based nonprofits). This is just the kind of data that most DAF sponsors have been reluctant to release and which has therefore been missing from almost all major analyses of DAFs.

The collaborative discovered that the median annual payout rate of the accounts they analyzed was a mere 11 percent—less than half the aggregate rates typically touted by DAF sponsors and their lobbyists. Additionally, 35 percent of the accounts analyzed paid out at less than five percent of their assets, including 29 percent of accounts that gave no annual grants whatsoever. Indeed, 14 percent of DAF accounts paid out nothing—no grants at all—over the entire four years covered by DAFRC’s analysis.

Of the three types of DAF sponsors in the United States, single-issue organization sponsors have historically had higher payout rates than other types of sponsors, and community foundation sponsors have traditionally been thought to do the best job of prioritizing the interests of their communities over the demands of their donors. This is why community foundations received a carve-out in the Accelerating Charitable Efforts (ACE) legislation currently making its way through Congress, which, among other things, would require individual payout minimums for DAFs for the first time. The bill would not subject DAFs held at qualifying community foundations to the same payout requirements as DAFs held at other sponsors. The low payout rates reported in the DAFRC study, however, raise questions about whether such a blanket carve-out is warranted.

Commercial DAFs, the third type of sponsor, remain a mystery, since the DAFRC analysis did not include any data from them. This leaves a huge slice of the DAF pie off the table; at last count, commercial DAFs hold $100 billion of the estimated $160 billion in total DAF assets. Five of the ten largest charitable recipients in the country are commercial DAFs, including the largest single recipient of charitable giving, the Fidelity Charitable Gift Fund, which took in $4 billion in donations in 2020 alone. Even if account holders at commercial DAFs are paying out at rates similar to those reported in the DAFRC study, it means that an immense amount of revenue is being sidelined from operating nonprofits and stockpiled in DAF coffers.

Additional Areas of Concern

Our own research bolsters DAFRC’s findings. Over the past year, on behalf of the Institute for Policy Studies, a nonprofit thinktank, we examined three aspects of DAFs: 1) how much grant money flows from commercial DAFs to other commercial DAFs instead of operating nonprofits; 2) how much money flows from private foundations to commercial DAFs instead of operating nonprofits; and 3) how dependent community foundations have become on their DAF programs.

As we did not have access to the dataset that DAFRC has assembled, all the data we used was based on publicly available tax returns for DAF sponsors, private foundations, and community foundations. Based on these Form 990 nonprofit federal filings, we created what we called our Charity Data Lab, a custom-built database of electronically filed nonprofit tax returns, which we used in the bulk of our analysis. Though our data set did not include foundations or DAF sponsors that filed paper returns, it allowed us to analyze the behavior of a wide set of organizations. Starting with tax years ending July 2020, the IRS now requires most charitable returns to be filed electronically, so our data source should become more comprehensive in future years.

In our research on DAF-to-DAF giving, we examined grantmaking by 39 of the nation’s top commercial DAF sponsors, all of which are either affiliates of financial corporations, such as Fidelity Investments or Goldman Sachs, or are clearinghouses of DAFs on a national scale, such as DonorsTrust or the Tides Foundation. We found that in 2019, commercial DAF accounts granted more than $1 billion to other commercial DAF accounts, all of which counted as charitable grants. This type of granting is growing astronomically: just $209 million was transferred between commercial DAFs in 2015. The 2019 figure represents fivefold growth in four years.

In our research on foundation-to-DAF giving, we found that in 2018, private foundations likewise granted nearly $1 billion to commercial DAF accounts, all of which counted as charitable payout for those foundations. Private foundation giving to commercial DAFs averaged $737 million per year from 2016 to 2018, including more than $934 million in 2018 alone. Given past trends, it is quite likely that the total of such transfers today exceeds $1 billion. Meanwhile, grants to commercial DAFs made up 100 percent of all charitable distributions for 157 foundations over these three years, and more than 90 percent of charitable distributions for another 152 foundations.

As for community foundation sponsors, we found that DAFs now account for almost a quarter of the typical community foundation’s assets and more than a third of both incoming contributions and outgoing grants. For the largest community foundation in our data set, the Silicon Valley Community Foundation, DAFs make up a full 88 percent of its asset base and account for 98 percent of both its incoming contributions and outgoing grants. Several smaller community foundations are not far behind.

A Sliver of a Hope for DAF Reform?

Our research—together with that conducted by DAFRC—adds to a growing body of evidence as to why DAF reform is needed. President’s Joe Biden’s 2023 budget proposes one such reform: excluding private foundation grants to DAFs from counting toward the foundations’ annual payout requirements—the amount that private foundations are required to spend each year for charitable purposes—unless that money quickly ends up in the hands of operating nonprofits.

Additional reforms are needed. Certainly, for example, we should set an annual minimum payout requirement for DAFs, and we should prevent DAFs from counting grants to other DAFs as part of that payout. The ACE legislation, mentioned above, would also set some important standards here. Jan Masaoka, Executive Director of CalNonprofits, a trade association of California nonprofits, argues persuasively about the need for firm philanthropic “rules for the road.” Alan Davis, of the Crisis Charitable Commitment, has argued for even more far-reaching changes—such as ending the practice of allowing the evasion of capital gains tax through stock donations.

Seen in this context, the measure in Biden’s budget proposal is exceedingly modest. But at least it would mark a modest step towards keeping the fire burning under the feet of DAF donors, motivating them to move money out of DAFs and into the bank accounts of operating nonprofits, where such money belongs.

This article originally appeared in the Nonprofit Quarterly. See the original article here.