As the philanthropic reform movement broadens, an important bill has been introduced in Congress: the Accelerate Charitable Efforts (ACE) Act, authored in the U.S. Senate by Senators Chuck Grassley (R-Iowa) and Angus King (I-Maine) in June of this year.
If passed, this bill would establish limits on how long funds can stay in donor-advised funds (DAFs), provide some transparency on foundation-to-DAF transfers, and encourage higher levels of giving by private foundations. The bill also gives advantages to DAF accounts under $1 million at community foundations.
We at the California Association of Nonprofits (CalNonprofits) support this bill, and we have written a letter to California's congress members urging them to support it as well.
The stakes are high: Right now, private foundations hold more than $1 trillion, and there is more than $120 billion in donor-advised funds. And despite increased COVID giving, private foundations and DAFs have more money at the end of 2020 than they did before the pandemic started.
This bill emerges as wealth inequality grows greater and greater and the contrast between need and wealth could not be more starkly felt. We nonprofits and foundations are used to thinking of this gap as something to be addressed in society at large, but it exists just as sharply within our own nonprofit/philanthropic community.
Key provisions of the ACE Act would:
Note: Only DAFs established after the passage of the ACE bill would be subject to the above.
In most areas, nonprofits and grantmaking foundations share goals and values. Grantmakers in, say, the environment or disabilities, find the nonprofits working in those areas, and nonprofits seek out grantmakers interested in their work. As 501(c)(3)s, we share in benefiting from being exempt from corporate income taxes.
But sometimes foundations and nonprofits find themselves institutionally on different sides of a public policy issue. We are currently at such a point of divergence: most nonprofits want to see more philanthropic resources go to our communities and so tend to support philanthropic reforms that will do that, while some in philanthropy are resistant to such reforms, believing, for instance, that such bills would decrease giving. This divergence is reflected in the varied reactions to the federal Accelerate Charitable Efforts (ACE) Act, which CalNonprofits supports and which is opposed by the Council on Foundations. Although the ACE Act isn’t perfect, we believe it will free up resources currently being held in philanthropic institutions and will help bring much-needed additional resources to nonprofits and the communities we serve.
Philanthropic reform is not, however, just about need, or just about getting more money to nonprofits. It's also about fairness.
In particular, we at CalNonprofits are concerned about the mismatch between the timing of the "public cost" and the "public benefit." When donors place money or other assets into private foundations, they receive an immediate tax deduction. When a donor puts money into a donor-advised fund, the donor immediately pays less in federal and state income tax. In fact, California loses more than $340 million each year because of deductions related to DAF donations alone.
And the "public benefit" can come very slowly, if at all. Private foundations are required to spend out only 5% of assets each year, and even so they can count many of their administrative expenses towards that very low goal. And there is no time requirement at all for donor-advised funds — the money can stay there unused in perpetuity. We at CalNonprofits think there should be a timeline shorter than infinity!
We continue to value and appreciate the power of foundations and donor-advised funds as vehicles for individuals to support many important causes, even those with which we might not agree. We know there are many foundations that exceed the current payout minimums, and many donors who distribute their DAFs within reasonable time frames. In a similar way, however, although most automobile drivers are careful drivers, we still need speed limits, driving rules, driving tests, blood alcohol limits, and enforcement.
Many nonprofits don't feel they can voice views that might be contrary to those of the foundations and individual funders that support them. So those of us who can speak up have a responsibility to do so.
In summary: The ACE bill is not perfect. But it has been crafted thoughtfully and represents an important direction: bringing the public cost and the public benefits of foundations and DAFs into better alignment, and accelerating the movement of already-donated funds towards active, operating nonprofits.
The California Association of Nonprofits (CalNonprofits) supports the passage of the ACE bill, and we have sent letters to California's congressional leaders to that effect. You can see our letter here.
See also: Our overview of philanthropic reform