Advancing a DAF Regulatory Agenda from Within the Nonprofit Sector

This article comes from the summer 2018 issue of the Nonprofit Quarterly, “Nonprofits as Engines of a More Equitable Economy.”

There are all kinds of dynamics that get in the way of advancing any particular conversation, but in many cases those dynamics are pretty familiar—and if we name them, there is at least a chance that a true dialogue can get traction. The following articles address a set of proposals for regulations having to do with donor-advised funds, or DAFs. These proposals are not actively in play in Congress, but as that field—characterized in part by its built-in veil for individual funds—continues to grow explosively, the need to respond to concerns grows ever more critical.

The Dynamic

Thirteen years ago, former Massachusetts Attorney General Scott Harshbarger wrote an article for NPQ in which he characterized the policy-related behavior of the nonprofit infrastructure as “ragging the puck” (“Ragging the Puck: Not a Viable Strategy for the Whole Game,” Nonprofit Quarterly 12, Special Issue, 2005). He was referring to policy related to regulating the sector itself. “Ragging the puck” is, of course, a hockey term that refers to the practice of worrying the puck around the rink while running the clock down, so that the opposing team has no chance to make a goal. The article was written over a decade ago, but much of the sector’s response to regulatory proposals has remained defensive—largely, attempts to keep regulatory advocates from scoring. There are some exceptions to this, as with the proposal for a Universal Deduction last legislative season—but that was being floated against the tax overhaul’s curtailment of the charitable deduction, and could also have been seen as part of a defensive strategy.

A good defense is great, but if it is your only move, after a while it will become less than effective. At the time, Harshbarger was reacting in part to the insistence by some national groups that the sector could achieve better results through self-regulation and the affirmative promulgation of best practices than it could through external regulation.

Clearly, there is a place for self-regulation and the dissemination by a field of its own standards and best practices, but there is also a place for external regulation—as is the case with the rapidly expanding field of donor-advised funds. The articles in this section give space primarily to those advancing reform proposals, but we also suggest that some of the work needed to respond to those concerns is being done already or could be done affirmatively by the DAF sponsors themselves, with the help of independent researchers who could be used as monitors.

We end, here, as we began—with advice in that long-ago article from Harshbarger:

Too often and too consistently, the nonprofit sector’s leadership has resisted review in the same terms and to the same effect as corporate America. Much of the “leadership” that has had the time and drive to lobby on the regulatory environment at all has or is well aligned with a particular set of vested interests.… While I believe in the importance and mission of our sector, and while I have observed a host of exceptional leaders and governance models, I have great fears that the sector, given the choice, will do exactly what it has done historically, and in fact exactly what the leaders of corporate America are doing now: ragging the puck with task forces and studies proposing more standards and more voluntary action, while at the same time talking only to fellow “insiders” and true believers. Assertions that regulation will divert time and money from our core missions, and that we should not all be tainted by a few bad apples, prevent us from considering the benefits of meeting the challenge to participate actively in the evolution of a carefully crafted, well-tended, well-bounded, well-refereed, and sun-drenched playing field—and one that need not be “one size fits all,” form over substance, or unduly costly.

…What we are missing is the kind of positive, proactive advocacy from the sector—at the national level as well—that will help achieve the best balance of imposed and voluntary accountability measures. We must all value, not fear, the principles of democracy—accountability, transparency, disclosure, checks and balances, integrity, openness, robust debate, public and private-sector partnerships, and, above all, civic engagement by all of us, including an educated, active constituency.

Finally, the following questions by Harshbarger apply as strongly today as they did back in 2005:

So, will the nonprofit sector and its leadership follow the for-profit leaders in its response to the call for more accountability? Will it rally to resist mandatory change by circling the wagons, raising the rhetorical flags, prophesying doom, and trying to run out the clock? Or will it seize the moment to help order the regulatory and accountability landscape?