Moral Court for Charity

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According to the Chronicle of Philanthropy, the House Ways and Means Committee is planning to hold hearings based on committee chair Charles Rangel’s (D-NY) interest in asking “nonprofit organizations to show why they deserve to be tax-exempt and what they do to help the poor and elderly.”[1] That sounds very tough, akin to his predecessor, Bill Thomas’s (R-CA), frequent and pointed inquiries into what nonprofit hospitals were doing to merit their status as nonprofits.[2]

A tax lawyer at the committee promised that Rangel’s hearings would be “more sympathetic” to the nonprofit sector than the Republican-led scrutiny the past few years in both the House and the Senate, the latter through the Senate Finance Committee led by Charles Grassley (R-IA). If Rangel’s question stands, he is asking a similar question to his predecessor, asking the “community benefit” question that Thomas and Grassley (and many state attorneys general) have posed to nonprofit hospitals: what are nonprofit organizations (not just hospitals) doing to provide assistance and support for the poor, the disadvantaged, and the disenfranchised in our society?

No one should take the purpose of this hearing as a softball for foundations to hit out of the park. Rangel’s question is serious and important and merits a serious response from foundations.

Foundations have long known that Rangel was not going to let more than a half trillion dollars sitting in the endowments of 80,000 or so grantmaking institutions go by the boards without asking how that money was reaching the constituencies that Rangel has represented in Congress for some three decades. It was a matter of time. The Council on Foundation’s focus on four big issues —poverty, public health, environment (climate change), and disaster relief[3] —at its just-completed annual meeting looks like part of the sector’s strategy of responding to Rangel’s and his peers’ interests in the “substance” of what foundations deliver rather than the mechanics of their ethics and accountability

In addition, the Council on Foundations supported by several funders has launched a well-financed initiative addressing issues of “diversity,” though it is unclear exactly what the foundation sector means by the issue and what it is willing to do. On the four emerging themes and the topic of diversity, the Council’s Seattle conference spurred some interesting conversation spliced with an unfortunate tendency of foundations’ to promote themselves and their wares.

If Rangel and the Ways and Means Committee are concerned about more than well-crafted foundation PR stories, they might ask about some real substance: Where is foundation money going; Who’s getting it and who’s not in terms of addressing the interests of low-income American families?

  • Who Gets–Grantmaking for Ethnic/Racial Minorities: Grantmaking for minorities has declined as a proportion of grants awarded by the generally largest foundations (the Foundation Center surveys typically focus on roughly 1,000 foundations, now they include the grants of over 1,150 foundations which artificially boost the totals somewhat).[4] In 1998, 9.9% of the grants of these foundations were designated for ethnic or racial minorities, a proportion that declined to 7.6% in 2004, but increased to 8.2% in 2005. For African-Americans/Blacks, the proportional plummet has been more significant: 3.8% of these grant dollars went to African-Americans in 1998, but only 1.9% in 2005. Even though total foundation grantmaking has increased enormously over this time, the increase in grant dollars for African-Americans/Blacks rose from $307,419,000 (from 1,005 foundations) in 2002 to only $315,458,000 (from 1,154 foundations) in 2005.[5]

Note: These figures are probably much worse for the other 79,000 foundations’ grantmaking not counted in the Foundation Center numbers. For the 100 largest foundations in the Foundation Center survey, 9.9% of their grant dollars went to ethnic or racial minorities and 2.4% specifically for African-Americans and blacks; for the other 1,054 foundation s in the FC survey, the proportions plummeted to 6.1% for ethnic/racial minorities and 1.3% specifically for African-Americans/Blacks. The mass of smaller foundations presumably devote much lower proportions of their tax exempt assets to ethnic/racial minority issues and populations.

  • Who Gets—Grantmaking for the Economically Disadvantaged: Despite the foundation sector’s planned attention to examples of how foundations address issues of poverty, foundation grant totals may not be keeping up. The proportion of foundation grant dollars (from generally larger foundations) targeted to economically disadvantaged population groups was 16.7% in 2002, 20.3% in 2004, but only 15.7% in 2005. Grants dollars targeted specifically for the poor/indigent dropped from 19.1% in 2004 to 14.6% in 2005.

  • Who Gets—Civil Rights Groups (Domestic): Although foundation granting for “civil rights and social action” purposes has hovered pretty consistently between 1.3% and 1.4% in recent years, the grantmaking of larger foundations to civil rights groups has dropped precipitously. In 2005, only 1.2% of the grant dollars of 1,154 larger foundations, totaling $190,383,000, went to civil rights organizations. By way of contrast, in 2000, 1.4% or $216,759,000 grant dollars from 1,015 foundations went to civil rights organizations. Between 2000 and 2005, grants from the larger foundations to civil rights organizations dropped 12.2%.
  • Who Gets—Minority-Led Organizations: There is no official data that foundations report on giving to minority-led nonprofits. In 2006, the California-based Greenlining Institute issued a report on grantmaking by 24 “national independent foundations” and 10 California foundations.[6] Based on an analysis of 13,566 grants awarded in 2004 by the national foundations, Greenlining concluded that 7.7% of grants and 14.7% of grant dollars were given to minority-led organizations. However, when one $535 million grant from the Bill and Melinda Gates Foundation to the United Negro College Fund is excluded, the percentage of grant dollars to minority-led organizations drops to 3.6%. While the methodology for the Greenlining study has been subject to some controversy, the study results prompted the introduction of a bill in the California legislature to require foundations with greater than $250 million in assets to report on the racial/ethnic leadership (board and staff) of the groups receiving their funds (and on the vendors and consultants hired by those foundations).
  • Grantmaking for What—Community Improvement and Development: The grantmaking of the dominant foundations for community improvement and development as an issue has dropped not only as a proportion of total grantmaking, but even in absolute numbers. In 2004, the top foundations devoted 4.4% of their grant dollars, or $684,089,000, to community improvement and development. That plummeted to 3.5% or $567,969,000 in 2005. In traditional community development terms, foundations appear to be receding in their support, a fact that is borne out by grantmaking to “community improvement organizations”—the grants of larger foundations specifically directed to community improvement organizations were only 4.2% of grant dollars in 2005 compared to 5.1% in 1999.
  • Grantmaking for What—Employment/Workforce Development: Of particular interest to urban areas should be various categories of human service funding, particularly grantmaking for employment (job training, job placement, workforce development). Although workforce development has been a recent focus of the Council on Foundations,[7] foundations have not put their money behind that issue. In 2005, for the largest foundations, the proportion of their grant dollars going to employment issues was 0.7% or $114,357,000. That is down from the 2004 when foundations devoted 0.8% and $126,567,000 to this topic—or 2001, when foundation grantmaking for employment was 0.9% or $147,576,000. In absolute terms, foundation grantmaking for this issue has dropped 22.5% between 2001 and 2005. It is difficult to imagine that Rangel will not be armed with the annual reports on New York City employment showing the continuing and deepening disconnect between young African-American males and opportunities in the labor force.[8]
  • Who Governs U.S. Foundations: Regardless of the race/ethnicity of foundation staffing, the authority for decisions about foundation grants and foundation investments rests with foundation board members or trustees. Remarkably, the racial composition of foundation boards[9] shows a higher proportion of white board members (87.7%) than the composition of Fortune 500 boards (86.6%). Only 6.7% of foundation board members are African-American compared to 9.1% of Fortune 500 board members and 10% of Fortune 100 boards.[10] The larger foundations (assets over $500 million) tend to do a little better in diversity, with African-Americans comprising 11% of board members, than smaller foundations.[11]
  • Who Runs U.S. Foundations: There is some reluctance by foundations to provide very specific data on the racial/ethnic composition of their staff, but the statistics show disproportionately few positions held by minorities, a trend that gets worse for higher level positions. For all full-time paid foundation staff, 76.8% were white in 2006, down slightly from 77.2% in 2005. Blacks comprised only 11.4% of paid foundation staff, barely up from 11.1% in 2005 (only 2% of full-time paid foundation staff were black males in 2005). For “program officer” positions, only 4.2% were black men (compared to 12.8% black woman, 16.3% white men, and 52.4% white women), and for chief executive officers and chief giving officers 1% were black men and 1.8% were black women compared to 41.8% white men and 51.8% white women.[12] These statistics are drawn from surveys of members of the Council on Foundations, a small subset of the generally larger foundations. An obvious point to be drawn is that the diversity statistics for much smaller foundations and for non-reporting foundations would be even less impressive.

One can easily imagine polite, friendly questions from Congressman Rangel, touching on these statistics. Rangel has represented New York City’s Harlem community long enough to want to see not PR about public/private partnerships, but real results—and real foundation grantmaking directed at the needs of the poor and the indigent.

Endnotes

1        Chronicle of Philanthropy

2        Baltimore Sun

3        “Four Challenges of Our Time” [Council on Foundations]

4        Foundation Center data drawn from FC Stats

5        Grantmaking for African-Americans/Blacks was actually much higher in 1998, surpassing $367,067,000 and nearly 4.0% of the grant dollars of the larger foundations. While various explanations have been used to explain the drop in grantmaking, such as the termination of particular foundations’ programs targeted to African-Americans, none have addressed why other foundations have not increased their grantmaking in this area to make up for the declines. Compared to independent/family and community foundations, corporate foundations give distinctly larger proportions of their grants for African-American/Black populations.

6        Investing in a Diverse Democracy: Foundation Giving to Minority-Led Nonprofits (Fall 2006)

7       The Council on Foundations sponsored a one-day program on workforce investment in May, 2006, focusing on models and best practices

8        Cf. PDF and other reports from the Community Service Society in New York City.

9        Foundation Management Series 12 th Edition, pp. 35-38

10      2005 Catalyst Census of Woman Board Directors of the Fortune 500; and the Alliance for Board Diversity’s Women and Minorities on Fortune 100 Boards (2005); Note that the Executive Leadership Council’s study of Fortune 500 corporations puts the African-American board member proportion at 8.1%.

11      Both the Fortune and foundation figures are drawn from self-reported data by corporations and foundations. One can well assume that among the non-reporting corporations and foundations, the diversity figures look much less robust.

12      These statistics come from the Grantmakers Salary and Benefits Report 2005 and the executive summary of the 2006 edition. The combination of CEOs and CGOs in the statistics masks somewhat the fact that among CEOs, the proportion of positions held by African-Americans is even lower than these small proportions.