Congratulations to everyone involved with the May/June issue. It was extraordinarily well done. The topics and the timeline pulled me through the entire issue.
Depending on your perspective, one may disagree with the selection of key occurrences or interpretation of events. However, the presentation was compelling and informative.
One minor point: on page 56, for 1987 you cite 100 community foundations in the United States. Perhaps that was the number of community foundation members in the Council on Foundations. Giving USA cites the 1998 Foundation Directory (1985 data) with 160 community foundations. The twelfth edition of the Foundation Directory (using 1987 data) reports 175 community foundations. These are probably both underestimates. Certainly 100 is not an accurate figure.
A 1970 study by the Council on Foundations cited in Norm Sugarman's paper dated February 1, 1975, prepared for the Commission on Private Philanthropy and Public Needs (Filer Commission), identifies 238 community foundations. By 1987 there were at least 350 community foundations.
James I. Luck, President
Payout: Feedback on Feedback
In the "Feedback" section of the January/February issue, a group of individuals announced their intention to spark discussion about the 5 percent payout requirement for private foundations and the giving practices of grantmaking public charities.
The proposed two-tier agenda: increase payout (even to the extent of spending down a foundation's endowment) and directing more money toward social and economic justice, should concern both newly formed and older philanthropic entities on both fronts.
First, the assumption that foundations are growing in value while giving less than they should ignores the fundamental principles that have kept foundations so effective in communities over time-investing assets in ways that keep the relative buying power of the grants budget equal to or greater than the opportunities served by those grants.
During the past 15 years, increases in market values of many portfolios have far exceeded the 5 percent payout requirement; but the dollars flowing into the community have increased dramatically as well. An argument to spend all unrealized gains or even a significantly larger portion during the so-called "good times" does not take into account the long-term characteristics of investing nor the long-term benefits to the community that come from the growth of foundation assets.
What if the argument to spend all income and all gains each year had been accepted in 1985? A foundation then worth $50 million would still be worth $50 million or less today, and the community would be receiving $2.5 million per year instead of the $20 million per year or so on a $400 million endowment. In 1998, the value of many portfolios gained less than 5 percent before and/or after payouts. Given that, should foundations be allowed to pay less than 5 percent in grants?
The 5 percent payout requirement is similar to the now-popular "total return spending policy" adopted by so many nonprofit agencies' endowment committees. It takes into account that growth stocks usually yield less than 5 percent per year in dividends, so some unrealized gains (growth) are realized to help make up a "reasonable" spending policy, reflecting the decision to buy growth stocks. For foundations, the 5 percent rule is both reasonable and challenging over time.
Second, the authors of the "Feedback" letter imply that there is not sufficient attention by grantmakers to issues of social and economic justice. Without reviewing their data it is hard to know, but one might wonder which grants would meet their criteria as "socially just" grants.
Would a grant to a major research university to help attract high-tech industries to the city or state count as socially or economically just? One might argue that the resulting training, meaningful employment and higher per-capita income would benefit the general population so significantly that the "underserved" segment of the population would be helped in a meaningful way.
Would grants to an independent school or college or to a museum or zoo or park count? Do these community assets so indirectly benefit the fabric of a growing dynamic, socially and economically just community that they do not count?
Does a grant to Habitat for Humanity count? Do we acknowledge the help given to various subgroupings of beneficiaries such as minorities, women and children, if, in a particular neighborhood effort, the new homeowners are minority women with children? Should we not consider a grant to Habitat to Humanity as a grant serving families, women, minorities, children or the economically disenfranchised?
Does a grant to the Girl Scouts count? The YMCA? Girl Scouts are helping significantly in the inner city; the YMCA is the largest daycare provider in Atlanta. Do they count as addressing social and economic justice?
Perhaps the definitions need to be clarified. One might suspect, however, that the implied complaint is that philanthropic dollars are not being spent quickly enough and on the "right" things. It is hoped that the current system of growth-oriented investment, steady allocation of resources, partnerships with persuasive grantees and accountability would continue to serve our communities in much the same way as it has so effectively in the past.
John W. Stephenson
The Fraser-Parker Foundation
More on On-Line Nonprofits
I just read "Great Internet Expectations" (January/February) and thought readers would also be interested in DigitalWorks, a Web site where small businesses can go to work on-line.
So many nonprofits have small staffs and even smaller budgets that it is imperative to wear many different hats and find ways to manage their operations and market themselves cost-effectively and efficiently. DigitalWork's suite of tools allows businesses to complete a range of business tasks on-line, from basic operations like finance, recruiting, or creating a banner ad campaign for increased visibility. DigitalWork offers discounted rates to nonprofits.
For more information, visit DigitalWork's Web site at www.digitalwork.com.
Schwartz Communications, Inc.