September 10, 2021

TO: The California Congressional Delegation
FROM: California Association of Nonprofits
RE: Support for the Accelerating Charitable Efforts (ACE) Act

Dear Members of the California Congressional Delegation:

On behalf of the California Association of Nonprofits (CalNonprofits), I am writing to express support for the Accelerating Charitable Efforts (ACE) Act introduced in June by Senators Angus King (I-ME) and Chuck Grassley (R-IA) and to ask you to support this important legislation. The ACE Act will strengthen America’s nonprofit organizations, and the communities we serve, by restoring the connection between charitable tax benefits and benefits to charities.

CalNonprofits, a statewide policy alliance of more than 10,000 organizations, is the voice for California’s nonprofit community. Through our advocacy, we protect and enhance the ability of California nonprofits to serve our local communities, our state, the nation, and the world. We advocate for sufficient public investment in our communities, and because private philanthropy is also an important funding source for nonprofits, we support efforts to bring greater accountability to charitable donation utilization and greater transparency to philanthropy overall.

The events of the past 18 months reinforce the important role that nonprofit organizations play in providing services to our communities, from serving food to the hungry to providing clothing and shelter for Americans in need. Recent events also reinforce that current charitable giving laws impede the flow of resources to nonprofits, and steps must be taken to increase that flow, especially at a time when our services and programs are most needed.

Current law allows donors to receive an upfront tax benefit for their charitable contributions, yet when funds are donated to vehicles such as donor-advised funds (DAFs), they can accumulate indefinitely without being distributed to charities. In other words, state and federal coffers experience significant losses as a result of these tax benefits, without the guarantee of comparable benefits to society of having the donated funds go to support charitable goals.

California, for example, loses more than $340 million each year because of tax deductions given related to DAF donations alone. Meanwhile, nationwide more than $1 trillion sits in private foundations and $140 billion in DAFs, rather than being used to support working charities. A recent study of 2,600 DAFs at Michigan community foundations found that, in 2020, 35 percent of the DAFs made no distribution of funds, and 22 percent donated less than 5 percent of their assets.

At the same time, many of our nation’s charities are facing financial hardship. One report showed that more than one-third of nonprofits nationwide are in jeopardy of closing within two years. The nonprofit workforce remains deeply affected by the pandemic. National nonprofit employment data show that as of June 2021, the sector is still down 682,000 jobs, which in turn affects local economies and reduces access to services.

In California, there are more than 92,000 active nonprofits. Nonprofits affect the lives of every Californian every day; we are key economic drivers, service providers, and employers in the state. The nonprofit sector is the fourth largest employer by industry, employing more than 1.2 million Californians. Nonprofit economic activity generates about 15 percent, or one-sixth, of California’s Gross State Product. Nonprofits mobilize volunteers who contribute the equivalent of 331,000 full-time jobs in service to communities. When California’s nonprofit sector is strong, so are our communities. (For additional information about California’s nonprofit community, see our 2019 Causes Count publication.)

As California’s leading nonprofit policy alliance, we support the ACE Act because the reforms it offers go a long way to addressing the mismatch between the public cost of upfront tax deductions for donations and the often-delayed public benefit, when donations sit indefinitely in philanthropic vehicles such as DAFs. Nonprofits need resources now more than ever; this bill will help free up resources currently held in philanthropic institutions and get more funds to nonprofits more quickly. For these reasons, CalNonprofits respectfully urges you and your colleagues to co-sponsor this important legislation. Thank you for your consideration.

Sincerely,

Jan Masaoka, CEO, California Association of Nonprofits