We’re Pushing for DAF Reform—But Far More Is Needed

The most significant aspect of the DAF problem is a critical design flaw, or perhaps a feature, that is of, by and for the rich. As every Inside Philanthropy reader knows, unlike private foundations, donor-advised funds have no payout requirement whatsoever and no requirement to disclose any of their grantmaking, which make DAFs rife for hoarding and abuse by the rich.

Now, in an effort to tackle the problem at scale, the Crisis Charitable Commitment (CCC), a project we launched a year ago, is targeting its new initiative on “sponsoring organizations” that house and administer DAFs. The DAF Sponsor Initiative (DSI) focuses on “Big DAFs,” which CCC defines as having assets of $1 million or more. While we, of course, encourage reasonable minimum payout and transparency for all donor-advised funds, the DSI is most concerned with such funds being used by the wealthy to generate generous charitable tax deductions and simply to park their money while it is invested and grows tax-free without any short- or near-term benefit to nonprofits.

The DSI will recognize those sponsoring organizations that report publicly that 50% or more of their Big DAFs meet a 10% payout and in the aggregate that their Big DAF payout exceeds 10% (in other words, both the median and mean must exceed 10% payouts). DSI will also give “above and beyond” recognition to those sponsoring organizations that visibly and robustly promote a 10% distribution by their DAFs.

As part of this launch, CCC is thrilled to recognize the three sponsoring organizations to have met the DSI Standard and become our first signatories. Each of these three forward-thinking organizations represents one of the three categories of DAF sponsoring organizations

Community Foundations: The San Francisco Foundation, founded in 1948, is one of the nation’s largest community foundations and is “committed to advancing racial equity and economic inclusion to ensure that everyone in the San Francisco Bay Area has a chance to attend a good school, get a good job, live in a safe and affordable home, and have a strong political voice.”
National Foundations: The Tides Foundation was an early national leader in providing a home for DAFs in a foundation that promotes a “world of shared prosperity and social justice.”
Commercial Foundations: The Amalgamated Foundation is the charitable arm of Amalgamated Bank, which, “for 100 years, has championed workers’ rights, economic justice, racial equity, human rights and the environment.”

In addition to being inaugural DSI signatories, both the Tides Foundation and the Amalgamated Foundation are receiving “above and beyond” recognition for actively promoting higher DAF distributions by their clients. The Tides Foundation has been promoting a Get Off Your Assets (GOYA) effort, which includes asking its approximately 50 DAFs with $1 million or more in assets to join CCC.

Recognizing that “DAF providers—particularly those connected with major financial institutions—can be more focused on accumulating assets and providing donors tax benefits than charitable giving,” the Amalgamated Foundation launched its own “Giving Pledge,” to “encourage [its] donors to grant out a minimum of 10% of their assets annually.”

As Amalgamated Bank recognized, the large commercial foundations are the biggest source of concern in terms of hoarding and lack of transparency, as well as the home of most of the Big DAFs, as an adjunct and service for their for-profit investment arms.

DAFs in perspective

While CCC and its DAF Sponsor Initiative remain focused on voluntary measures to increase pandemic and related crisis giving, our work is intended to complement and support legislative efforts like the Emergency Charity Stimulus, which would require DAFs and private foundations to pay out 10% of assets for the next three years. Through its 102 signers, CCC has demonstrated both that such giving is reasonable and responsible and that it will take legislative action to mandate that the other 149,000 plus wealthy Americans follow suit.

While the importance of the DSI cannot be overestimated, it is also important to consider the broader philanthropic landscape. A few weeks ago, I was on a webinar with approximately 40 informed philanthropoids. We were given a survey question: What change would most effectively move more money, in a timely way, to social impact (pick only one)? The choices, followed by the breakdown of responses, were: “Voluntary norm-changing efforts” (19%); “Wealth tax” (29%); “Foundation payout policy changes” (0%), and “DAF policy changes” (52%).

The survey results surprised me because of a simple fact: DAFs have only one-tenth as much money as private foundations (approximately $120 billion versus $1.2 trillion), and foundations have only one-tenth as much money as rich people, the 0.1%, those with assets over $30 million (combined $12 trillion in assets). Nevertheless, the philanthropy insiders felt that DAF changes—representing just 1% of all money available for charitable giving—would make the biggest impact.

To put this in perspective, increasing foundation payout rates from 5% to 7% would generate as much money for nonprofits as a 20% payout requirement for DAFs. And Jeff Bezos alone made more money during the pandemic than the total amount of assets sitting in DAFs!

Thus, while addressing DAF abuse makes sense and clearly strikes a chord that should be played, we philanthropists must not lose sight of the largest wealth hoarding and inequality solutions. Which raises the question: Where is the donor class in supporting a wealth tax like the one proposed by Sen. Elizabeth Warren, which at 2–3% would raise more revenue for public investment than all DAF assets combined? The proposed Millionaires Income Surtax (10% additional tax on incomes of couples making over $2 million) would generate tax revenues more than twice what private foundations distribute.

Fellow philanthropists, we must significantly change how the donor class answers the question, “Are we giving enough?” Because we all know there is excessive wealth and inequality and insufficient public investment. One important step we can take is to encourage all sponsoring organizations to meet the DSI challenge, posed by us and the San Francisco Community Foundation, the Tides Foundation and the Amalgamated Foundation, to promote transparency and charitable distributions by wealthy donor advised funds. But it’s one step of many that are necessary.

Alan S. Davis is founder of the Crisis Charitable Commitment, president of the Leonard and Sophie Davis Fund, and a board member of the Patriotic Millionaires.

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