By Elana Maryles Sztokman, PhD
This week, The New York Times ran a rather aggravating op-ed about Foundations and the Congressional efforts underway to get them to actually give more charity. It seems that many foundations just barely spend the 5% of assets required by law to maintain their foundation status, and that 5% includes spending on administrative expenses such as salaries and overhead. The bill before Congress would give extra benefits to foundations that give away more than 6% – that is, they would get to pay 1% tax instead of 2% tax.
The reasons why this op-ed was so annoying are twofold. For one thing, it highlights the painfully widening wealth disparities between those donating to organizations and those doing the work of the organizations. If foundations are sitting on such enormous fortunes that can go largely undiminished for generations, it makes you wonder why it is often so hard for organizations to raise money. The gaps here are just astonishing. For people working in the field of not-for-profit work, those who spend increasing resources on fundraising and answering to donors, reading about how much wealth there is out there that is just sitting around untouched is excruciating.
The second reason why the op-ed hit a raw nerve is because of the exasperating double standard between foundations and not-for-profits when it comes to administrative expenses. Organizations are constantly under ridiculously stringent rules when it comes to administrative expenses – anywhere from 15-25% are the expectations, although most foundations only allow their grantees to spend less than 10% of their donations on admin costs. Some donors explicitly say that their funds may not be spent on admin at all. Yet, astoundingly, some of these same donors, apparently, are spending almost all their money on admin costs.
Non-profits constantly struggle with this expectation of minimal admin. The reality is, if salaries and overhead are the main components of admin costs, one can even argue that most of what organizations spend money on is really admin. If you want to start an organization doing pretty much anything, you need someone to do it and a space to work from. There is a lot that can be accomplished with a staffer and an office. Entire educational programs can be created with what is effectively “admin costs” – send a great educator into a room full of teens and magic can happen. But in terms of what donors are looking for, that’s often not good enough. “Funding” a program means creating program costs. But what is a program cost? Travel to a venue? Producing booklets? Hiring a consultant or a team of consultants? Many of these items can equally be seen as admin costs or as program costs. (This, by the way, is why freelancers are so much easier for organizations to hire than actual staffers: it’s easier to read on a budget that a freelance “consultant” would be a program expense, rather than why a regular paid professional would be.) Despite the fact that most of what many not-for-profits do is paid for by work that should be categorized as “admin”, this kind of work is so undervalued by donors, especially foundations. The process of trying to show low admin while doing the real work on the ground causes great strain on organizational professionals who need to design budgets that appeal to donors who don’t like to see admin.
But that’s not the worst part of the story of foundations and organizations. The worst part is the description from the Times’ article about the double standard regarding foundations. These same foundations that hate to support admin costs are allowed to spend unlimited budgets on their own admin costs – and they get to call it charity! That is, whatever money foundations spend on their own staff and overhead counts as part of the five percent that foundations need to “give away” as charity. Foundations can set up elaborate offices with generous salaries for people whose job it is to write a check. The discrepancy between how organizations are treated and how foundations are treated is, frankly, infuriating.
To be fair, there are many foundations that do much more than write a check. Many foundations create their own phenomenal programs. Others conduct extensive due diligence about the organizations that they support. If a foundation issues Calls for Proposals and sits several times a year to review applications, then a qualified staff is definitely required. And certainly the process of vetting organizations before giving is a vital process for keeping organizations in check.
However, these foundations that do the work according to the way they were envisioned are in the minority. Three-fourths of foundations give away only the bare minimum of what they have to. And most foundations today have a “no unsolicited requests” policy, which makes me wonder what their staff does most of the time. I cannot help but wonder how many foundations are basically a front for providing family and friends with permanent, cushy jobs and offices while giving away a tiny little fraction of their assets – while being hailed as running a philanthropic institution.
If Congress really wants to encourage foundations to be charitable, the solution is straightforward. Very simply, demand from foundations what foundations have been demanding from organizations. That is, limit the amount of many that they can spend on admin. Restrict the proportion of spending on admin vis a vis actual charitable giving to not-for-profit organizations. And maybe even institute salary caps (gasp!). That would ensure that foundations do what they are set up to do: support the vital work of not-for-profit organizations.
Dr Elana Maryles Sztokman is an award-winning author, educator, researcher and speaker. Her most recent book, “The War on Women in Israel: A story of religious radicalism and the women fighting for freedom”, was released in September by Sourcebooks. Find her at www.jewfem.com