The Political Quicksand of DAFs and Supporting Foundations

October 11, 2018; Forward and Haaretz

Among the problems that critics have with donor-advised funds (DAFs) and supporting foundations is the lack of transparency around individual funds—and the lack of accountability to mission sometimes exhibited by the DAF sponsor in simply passing along responsibility for decision-making (barring any threshold legal issues) to a donor advisor. This is a problem in particular for sponsors other than commercial funds, whose missions are broader. We have written about this problem before as it occurred at the Baltimore Community Foundation and at a Jewish federation. A recent investigation by Josh Nathan-Kazis, writing for the Forward, illustrates the problem once again.

Canary Mission is a small nonprofit organization that has raised a heated debate within the Jewish community. Formed to support Israel, its strategy is to “document people and groups that promote hatred of the USA, Israel, and Jews on North American college campuses” and publish a list of students, professors, and organizations it believes are spreading anti-Israel and anti-Semitic ideologies. Some welcome Canary Mission’s activities, seeing them as helping Jewish students flourish on campuses that might be hostile. The Forward and others concerned about current Israeli strategies view the organization’s efforts as less benign: “The dossiers [they publish] are meant to harm students’ job prospects, and have been used in interrogations by Israeli security officials.”

As the Forward covered this controversy, it tried to understand how the organization was funded after finding that the website provided no information about its leadership or finances. Its investigation found that DAFs or support foundations controlled by two major nonprofits had allowed these entities to make significant contributions to Canary Mission. With that discovery, these organizations have been put in the middle of a controversy they might not have chosen to be partisan in.

According to the Forward, the Helen Diller Family Foundation, a supporting foundation of the San Francisco Jewish Federations, “earmarked $100,000 for Canary Mission. It made the donation to the Central Fund of Israel, a New York-based charity that serves as a conduit for US taxpayers seeking to make tax-exempt donations to right-wing and extremist groups in Israel.” Digging further, the Forward documented that these funds ended up in the hands of the Canary Mission. The Forward also found that the “Jewish Community Foundation of Los Angeles, one of the largest Jewish charities in the country, made a series of grants totaling $250,000 to Megamot Shalom, the Israeli nonprofit organization that the Forward has identified as the likely operator of Canary Mission.” This Los Angeles foundation’s funding came from a DAF on the “advice” of the fund’s original donor.

The issue is not whether a donor can donate funds to Canary Mission. However one sees their purpose and activities, they are a 501c3 in good standing. But when it comes to organizations whose missions differ widely from those of the groups they fund, it puts their resource development strategy into a bind: “A person who advises federations on fundraising issues…said that federations fear losing business to the non-Jewish donor advised funds, controlled by major investments firms like Fidelity and Vanguard, which impose no ideological restrictions on the grants they will approve.”

Kerry Philp, senior director for strategic marketing and communications for the Jewish Community Federation of San Francisco, the Peninsula, Marin and Sonoma Counties, speaking to Haaretz, described the challenge of managing donor advice: “We review each grant recommendation at the time that it is submitted to the federation, to determine if the organization adheres to our granting guidelines. This applies to organizations across the political spectrum. We aim to make the best decisions with the information that we have at the time. Because organizations are dynamic, an organization that previously received a grant may not be in compliance with our guidelines today, and vice versa.”

Within the Jewish nonprofit community, the risk of bad publicity or ethical conflicts seems to have been well worth the cost. Lila Corwin Berman, a professor of history at Temple University and Director of the Feinstein Center for American Jewish History, wrote in the Forward about how effective the strategy has become:

So reliant have federations and community foundations become on tax-based charitable vehicles that the potential advantages of exercising oversight over them, for example, to consider whether allocation requests meet the mission of the public charity or even are simply channeling money to decent organizations, are far outweighed by the potential losses. Federations and community foundations have become unsustainable without these charitable funds; in 2013, donor-advised funds and supporting foundations constituted almost two-thirds of federations’ total endowment assets, and the proportion for community foundations is far larger.

For leaders of these two organizations, and every other nonprofit who has seen DAFs and supporting foundations as key to building their fiscal strength, the Canary Mission story should serve as a case study worthy of deep consideration. First and foremost is the need to clarify who is in control of the funds. Is it the nonprofit who has been given the funds, or the donor who has made a gift but wishes to retain control? An earlier NPQ look at DAFs and political controversy found that in some organizations, control is ceded almost completely to the donor. As Jay Tcath, executive vice-president of the Chicago Jewish United Fund, said at the time, “It’s the donor’s money sitting at JUF, and very wide latitude is then given to the donor…which is why there are groups on the right that are going to be funded that antagonize the left, and groups on the left we fund.” While this view is not legally the case—the funds are not still the donor’s to control—it does represent a pragmatic reality of capturing donors.

Diving into the DAF and supporting foundation waters requires being ready to answer difficult questions. Are the tradeoffs worth the benefits? How will an organization say “no” to a large and powerful donor? Is the organization ready to manage the fallout if their advisors push them into stormy seas?—Martin Levine