Condemned to Repeat the Past: Lessons from History for Foundations and the Legislative Process

History As A Teacher: The Interactions Of Foundations And Legislators

In foundation circles, it is an oft-repeated truism that McGeorge Bundy, when he led the Ford Foundation, and his foundation colleagues botched their relationships with Congress when they testified against federal regulation and specifically what led to the 1969 Tax Act’s controls on private foundations. Though their dire predictions of the collapse of foundations after the Tax Act hardly came to pass—in fact, foundations boomed in numbers and assets following it–Bundy and his big foundation colleagues have morphed into philanthropic archetypes of how not to handle elected state or federal legislators.

The performance of some California foundations on May 12^th may be instructive for philanthropic leaders eager to avoid becoming New Millennium protégés of McGeorge Bundy. On that day, the California Senate Committee on Business, Professions and Economic Development met to discuss pending legislation that would have required large California-based foundations (with assets over $250,000,000) to report on the racial/ethnic composition of their grantees, their grantees’ target communities, and the foundations’ own staff and board leadership.

The funders all pretty much knew that they had struck a deal with the legislation’s sponsor, Assemblyman Joe Coto, to pull the bill. In fact, at the end of the hearing, Coto asked his Senate counterparts not to vote on AB624 while he and the foundation leaders wrapped up negotiations. The resulting deal committed 10 foundations to an unspecified “comprehensive set of grantmaking activities….in the multi-million dollar range…over several years, to begin in 2009” that “will lead to increased funding for capacity building and technical assistance targeted to minority-led and grassroots community-based organizations” and “support for leadership development activities that will bolster and train a diverse pipeline of executives, staff, and board members for the nonprofit and philanthropic sector.”

With the legislation pulled off the table, one foundation executive noted in his personal blog that he could now “sleep well at night.”

But that pending deal didn’t stop the hearing, which was part of the scheduled process for the California legislature. What was surprising was that the legislators took the deal at all, especially after the performance of the foundation executives. Therein lies the story of whether philanthropy has made much progress since the days of Mac Bundy in understanding how to deal with elected legislators—or perhaps in how to deal with the legislative process itself.

Questions and Difficult Answers

The questions and comments from Senators at the May 12^th hearing clearly suggested that to a man they didn’t buy the foundations’ arguments and in fact were rather nonplussed by the answers or non-answers they received. There are lessons for foundation execs working state legislatures or perhaps their national congressional counterparts.

For example, one foundation executive expressed surprise that the Senate Committee hearing was even being conducted, having expected the foundations’ discussions with Coto to have resulted in a stop of the legislative process, a sentiment that Committee chairman Mark Ridley-Thomas took with distinct umbrage. It’s probably not a good tactic for a foundation person to be seen as hinting that legislators, by considering legislation, are doing something that they shouldn’t be doing. In the measured tones of a disappointed schoolmaster teaching civics, Ridley-Thomas explained that any negotiations that foundations and their lobbyists might have been having with Coto did not mean that the legislative process in the Senate could not and should not move forward.

Another foundation executive assured a senator that he could quickly generate a figure on how much philanthropic money had gone to the senator’s poverty-stricken Central Valley area but didn’t have the figures at his fingertips. He might have, with some effort, been able to explain how much money his foundation put into the Central Valley, but for the philanthropic sector writ large, that answer rang disingenuous. Wouldn’t the nonprofit sector and government love to be able to plug in a census tract or zip code and calculate how much philanthropic money went into that jurisdiction. The committee members knew that they weren't going to be getting a sector-wide answer with the exec's commitment to meet separately with that senator to provide him with the answers.

One of the foundation speakers in opposition to the legislation, after characterizing the Community Reinvestment Act’s reporting requirements as having failed to end poverty, clearly not the purpose of CRA and not connected to the CRA focus on bank lending,suggested that instead of “mechanistic” and “mandatory” reporting, the foundations and the legislature would be better served by a full discussion with foundations for a partnership to “lift those families out of the poverty and inequity they deal with.”

Senatorial heads—most of them relatively liberal Democrats in the hearing room–must have snapped at the mischaracterization of the CRA, one of the nation’s clearly most successful regulatory acts that has undone the nation’s shameful history of bank redlining. The Senators responded almost in unison that the legislation such as AB624 and its call for foundations’ CRA-like reporting would not in any way be a barrier to a conversation about how to better deploy foundation resources to deal with family poverty. It’s probably not a good idea to attack the policies that clearly work—and are supported by all of the senators on the dais–as a strategy for defeating a legislation whose sponsor cited the policy that works as his inspiration and model.

All of the foundations at the hearing shed many crocodilian tears for the reporting burden AB624 would place on nonprofits to identify the racial/ethnic composition of their leadership and boards and their communities. They used testimony from the executive director of the California Association of Nonprofits (CAN) that there were 146,000 nonprofits in California, two-thirds of them unstaffed, that would be unnecessarily burdened by having to report on the racial and ethnic demographics of their leadership and service areas. What she and the assembled foundations failed to note is that the foundations that would have been covered by the legislation provide no support to the vast majority of those nonprofits.

In fact, most nonprofits do not get foundation grant support. Most tiny nonprofits as described by the CAN executive are completely out of the foundation funding picture, and only a very minuscule proportion are on the radar screens of the specific big private foundations targeted by AB624. Their numbers of foundation grants to California nonprofits, even if there were no overlapping organizations, would not reach the vast majority of California nonprofits, not to mention the reportedly unstaffed majority. In all of 2006, all California private grantmaking foundations with assets over the AB624 threshold of $250,000,000 gave only 4,389 grants of over $10,000 to California nonprofits (the actual number of nonprofits receiving foundation grants is much less, given that most of the grant-receiving organizations probably received more than one). Given that legislators regularly hear from nonprofits asking for access to government moneys, they know how little money their nonprofit constituents typically get from foundations, making the nonprofit reporting burden charge a little hollow.

Shades of Affirmative Action

It’s probably also not much of a tactic to look at legislators to a man committed to affirmative action and then trot out arguments that sound like they were drawn from affirmative action’s opponents. For example, one funder observed that the proposed legislation would have said “to rural white underserved communities in the state of California, you don’t matter, your issue doesn’t count [compared to] the people identified in the legislation, [that] their issue matters, their issue counts,” ignoring that many rural areas, especially in California, are hardly a proxy for “white underserved”.

Another raised the specter of reverse discrimination, a frequent tool of affirmative action opponents: “My concern is that this bill may set up two tiers of sort of nonprofit organizations in the minds of some of our foundations, those nonprofits that seem to meet the threshold requirements of this bill and those that do not, and I get concerned that decisions will be made based on who meets the requirements of this bill rather than who can provide the most effective services to the communities we’re all trying to serve.”

The hoary charge of unqualified minorities delivering lower quality on-the-job work product appeared in one foundation executive’s suggestion that grants to minority-led groups will result in poorer program service: “We should be influence (sic) to help people in low income diverse communities no matter who supports them and not necessarily through a particular group of organizations…This is a design to not necessarily to do the best grants we could do in low income communities.”

Like the mischaracterization of the Community Reinvestment Act, the foundations’ exhumation of arguments that sounded like they were from conservatives’ anti-affirmative action playbook doesn’t win friends among legislators whose constituencies include the intended beneficiaries of affirmative action.

Ultimately, as the senators quickly realized, the opposition of the foundations was less to the bill’s specific reporting requirements than to the prospect of future governmental “intrusion” in the work of foundations. In response to the senators’ questions, the foundation opponents repeatedly cited the fear, as expressed by one, of “the slippery slope question, what comes next,” “what will be chosen next”, “the grave concern that this is the beginning of the slippery slope”, “what’s next in terms of additional mandates”. State Senator Leland Yee summarized the foundations’ arguments against AB624 in this way: “The difficulty I have accepting the arguments of the opposition [is] because they’re opposing what they’re fearful of down the road, the intrusion of government to basically tell you how you might fund; what you’re afraid of is not what is in this bill, you’re worried about what this might lead to.”

Despite their lobbying muscle and the likelihood that they would have easily persuaded Governor Schwarzenegger to issue a veto, the foundations had no desire to confront a dynamic that would legitimize one state’s inquiry into the substance of what foundations deliver for their tax exemption. As expressed by Senator Dean Florez, legislators clearly did not buy the foundation executives’ assurances that substantial progress had been and was still being made on racial/ethnic equity pursuant to the voluntary actions of foundations: “why aren’t they voluntarily doing this, otherwise we wouldn’t have to be here." At issue was not simply the specific components of Assemblyman Coto's bill, but the foundations' concerns that the California legislature and others might begin to inquire about the outcomes and societal benefit our society gets from philanthropic expenditures.

Like Mac Bundy on Capitol Hill in the 1960s, the California foundations were arguing as much against all government intervention and regulation as they were against the specifics of the legislation being considered. Signing a deal with Coto on providing assistance to minority-serving nonprofits closes the Pandora’s box on potential governmental intervention that the foundations en masse had no desire to leave open. But it doesn’t close the book on what legislators have now recognized, that the foundations were essentially saying to the State Senate, stay out of our business. That isn’t a message that goes over well.

Lessons of Bundy

Three decades later, a foundation observer of Bundy’s testimony on Capitol Hill in 1969 remembered with a sense of agreement that Bundy “was not unconscious of the considerable superiority of his mind to those granted most mortals,”including presumably the Ways and Means Committee members who were elected by those mortals. On paper, at least, with the exception of his Cassandra-like doomsaying, Bundy’s testimony reads cogently and for the most part accurately, regardless of whether one agreed or disagreed with his analysis. It must have been a perception of his haughty condescension (perhaps abetted by his connection to the Johnson Administration’s Viet Nam war debacle) that earned him the sobriquet of “arrogant” in his ultimately unsuccessful dealings with Congress.

In the case of the California foundations, a combination of inaccuracies, exaggerations, and condescension did not stand foundation witnesses well at the California State Senate hearing. Surely there might be one or more among them who wishes he could retrieve and edit his words from the tape of the hearing. But overall, it would be worthwhile for foundations to listen to the testimony and ask, have foundations truly learned the lessons of McGeorge Bundy’s Capitol Hill experience.

In other states, it seems that foundations may have done just that and listened to the tapes of the May 12^th hearing, because they’ve adopted what appears to be a more conciliatory, cooperative tactic.

In Pennsylvania, a state legislator who wants to see more racial/ethnic grantmaking by large foundations indicates that he is getting positive feedback and cooperation from nine foundations he contacted for information. Under his sponsorship, foundations and nonprofits in the Pittsburgh area have begun meeting to talk about getting more resources into the hands of community-based, people of color-led organizations. In New York City, the meetings of the NYC Collaborative for Fairness and Equity in Philanthropy, a gathering of community-based organizations looking for more openness toward racial/ethnic diversity, are actually held at the New York Regional Association of Grantmakers. In both cases, as things stand right now, the efforts to work on increased foundation support for people of color-led organizations are following a cooperative trajectory that doesn’t denounce the legitimacy of the issue or of the inquiries that might be launched by local nonprofits or legislators.

The Bundy experience in the late 1960s reemerged in some foundations’ responses to the introduction of the Charitable Giving Act of 2003 (H.R.7), which would have converted the 5 percent mandatory spending minimum to a 5 percent all-grants minimum, with foundations’ admin on top. Neither sponsor of the bill—Republican Roy Blunt of Missouri and Democrat Harold Ford Jr. of Tennessee—was motivated by anything more than getting more money into the coffers and budgets of operating nonprofits and minimizing to the extent possible inappropriate or wasteful foundations’ administrative expenditures.

Foundations reacted in fury[6] against this Congressional violation of the 5 percent payout sacred cow. Reportedly, some foundation people called Capitol Hill offices to express their displeasure in less than politic manners, one might say. Like the California foundations that relied on the right wing Alliance for Charitable Reform to do much of the heavy lifting in opposition to AB624,the foundation opponents of H.R.7 at the national level eventually recruited then Congressman Tom DeLay to intervene and ultimately scuttle the Blunt/Ford legislation. The bill might have been killed, but there was little question that foundations did not distinguish themselves in their Capitol Hill interactions.

Not surprisingly, in the wake of H.R.7, the foundation sector’s national trade and lobbying organization, the Council on Foundations, recruited a former member of Congress as its new CEO in 2005, with the rather obvious intent of improving the tenor of interactions between the captains of philanthropy and the elected legislators governing this nation. The results on Capitol Hill have been, from a philanthropic lobbying perspective, positive. The Council got Congress to establish a Congressional “philanthropy caucus” geared to promoting foundations as good guys in society. The accountability juggernaut of former Senate Finance Committee chairman Charles Grassley (R-IN) has been replaced by the relative silence of his successor, Max Baucus (D-MT). In the House of Representatives, the Council appears to have crafted a positive relationship with John Lewis (D-GA), chairing the Ways and Means subcommittee with direct oversight responsibility for philanthropy.

But there is a big difference between the political savvy of a former Republican Congressman backed by the Council’s professional government relations staff and the significantly less politically skilled foundation CEOs testifying in their own words and fielding legislators questions, as evidenced by the performance of some foundation execs at the California State Senate this past year. It would appear that the lessons that should have been learned from the Bundy history have yet to fully permeate foundations.

Those lessons might include remembering that those legislators that Bundy’s admirers saw as his intellectual inferiors were actually elected by the voters of America in a democratic process, the same voters whose ballots resulted in the election of this nation's first African-American president on November 4th. No plebiscites put foundation CEOs in their positions in charge of tax exempt capital. Foundations exist under a tax exemption granted by government, enacted by legislators elected by voters. That gives those legislators, whether Ridley-Thomas in the California Senate or Grassley at the U.S. Senate Finance Committee, the right to ask probing questions of exactly what philanthropy is doing under the aegis of their 501(c)(3) status and for whose benefit.