Update: on Wednesday, June 10th a modest bill to affirm the ability of the Attorney General to establish reporting guidelines for donor-advised funds (DAFs) passed successfully in the State Assembly. CalNonprofits – along with NextGen Policy and philanthropist/banker Kat Taylor – is a co-sponsor of this bill: Assembly Bill 2936.

Next, it goes to two State Senate committees and then, if it passes in committee, for a Senate floor vote. More on this bill later in this email.

As the COVID-19 crisis reveals inequalities and poverty and is increasing inequality and poverty, attention has turned both to increasing charitable donations as well as to increasing the impact of philanthropy. DAFs have frequently been in the public eye lately:

• Recent federal legislation: Included in the CARES Act, a new, temporary, universal charitable deduction of $300 explicitly excludes donations to DAFs and to private foundations. This new "above-the-line" deduction will encourage households who do not itemize on their taxes (an estimated 90% of taxpayers) to deduct up to $300 for donations to nonprofits. It's unusual to see a particular type of philanthropic vehicle excluded in this way. Learn more about this deduction.
• "COVID-19 exposes need for increased scrutiny of 'donor-advised funds' in philanthropy;” OpEd by Kat Taylor and Drummond Pike in the Sacramento Bee (May 14, 2020)
• "Where Has Facebook Billionaire Sheryl Sandberg's $320 Million in Philanthropy Giving Gone To?" Forbes December 2019

It's noteworthy that traditional "liberal" and "conservative" voices may not be on their expected sides on this issue. The large Wall Street DAF sponsors such as Fidelity and Vanguard are aligned with both progressive and right-leaning foundations in opposing any regulation of DAFs. At the same time, both right-leaning Republican conservatives in Congress and left-leaning think tanks and nonprofits are critical of how billions of dollars – for which people have gotten tax deductions – can sit unused in DAFs for decades.

Donor-advised funds in California

We don't have data from after the COVID-19 crisis began two months ago, but there were 157 DAF sponsors headquartered in California (including Schwab but not Fidelity or Vanguard). These 157 sponsors held $4.5 billion in assets. Donations by Californians to donor-advised funds cost the state (conservatively) $340 million each year in state taxes not paid by California donors, giving the public a stake in how these funds are used.

In a CalNonprofits poll last year, we learned that for 65% of nonprofit respondents, monies from DAFs represent less than 5% of their individual donations total, and 83% reported that DAF funds represent less than 10% of their individual giving totals. When asked about DAF account-by-account (fund-by-fund) reporting, 63% of respondents supported they would like to see such a reporting requirement, and 85% said that distribution requirements for DAFs should be a priority for CalNonprofits.

At CalNonprofits we believe that donor-advised funds are a unique and important vehicle for people to give. But while people who give to DAFs receive better tax treatment than donations to private foundations, there is much less transparency with DAFs than with private foundations. We support keeping DAFs as unique vehicles, but also want to explore how this relatively new phenomenon can be appropriately regulated.

California legislative efforts

Close watchers will remember that last year, CalNonprofits co-sponsored a bill (with NextGen Policy and philanthropist/banker Kat Taylor) – authored by Assemblymember Buffy Wicks – that called for limited transparency in donor-advised funds (AB 1712). Although the bill passed through the policy committee, it stalled in the fiscal committee.

This year, Assemblymember Wicks introduced an even more modest bill (AB 2936) that establishes some definitions for terms related to donor-advised funds, which are not currently defined in California law. In addition, it affirms the ability of the Attorney General to require reports:

"The Attorney General shall establish a classification for sponsoring organizations that maintain one or more donor-advised funds…[and] shall receive reasonably current, periodic reports as to all charitable trusts or other relationships of a similar nature, which will enable the Attorney General to ascertain whether they are being properly administered . . . "

At CalNonprofits we believe that such reporting is in line with reporting that other nonprofits are required to do and is appropriate oversight of these frequently very, very large funds.

We are again co-sponsoring this bill with NextGen and Kat Taylor, and other prominent supporters include the Women's Foundation of California, the California Tax Reform Association, and the Nonprofit Partnership in Long Beach. Opposition includes the League of California Community Foundations, the Jewish Federation of San Diego, and the Silicon Valley Community Foundation.

Now that this bill has cleared the Assembly, it goes to the State Senate. Subscribe to our email list to get the latest updates.

DAF-to-DAF transfers

One concern that the proposed legislation does not address: DAF-to-DAF transfers and transfers from private foundations to donor-advised funds. Currently, transfers from private foundations to DAFs count toward the 5% minimum payout private foundations must make annually. CalNonprofits recognizes there are legitimate reasons for such transfers, but such transfers should not count towards private foundations’ meeting their annual minimum payout requirements.

A recent study by the Minnesota Council of Nonprofits looks at funds paid from private foundations to just the five largest DAF sponsors: Fidelity, Vanguard, Goldman Sachs, Charles Schwab, and National Philanthropic Trust. In the eight years ending in 2018, they found that 1,435 private foundations "donated" $2.5 billion to donor-advised funds: transfers that counted towards their 5% payout requirements.

We know DAFs are controversial in the nonprofit/foundation community. DAFs are a valuable vehicle through which donors can give to nonprofits; we also believe that some regulation – while protecting donor anonymity – is in order. And one responsibility of a membership association like CalNonprofits is to take on issues where members don't feel they can take up the issue individually.

At the same time, we remember what CalNonprofits former board member Sarah Pillsbury said: If we are working on something that we could accomplish in our lifetimes, we are not thinking big enough.

We look forward to your thoughts and comments of all sorts below.