Philanthropy: Whose money is it anyway?

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[Image description: A pink piggy bank, staring directly at the camera with its small, dark, mysterious eyes. Beige background. Image by quincemedia.com, obtained from Pixabay.com]

Hi everyone. This post may be a little serious, due to one more mass shooting. As a parent, I think of death a lot, but mainly in the context of who would take care of my kids if my partner and I unexpectedly died. It should not be the opposite; no parent should ever have to contemplate whether their kids may survive the school day, much less endure the agony of losing their child. I am thankful for those of you who are working to advance responsible gun laws and other relevant policies and programs. Our sector needs to flex its advocacy muscles more. While we’re doing that, though, there are other challenges we need to take care of.

Unicorns Unite, the book that I co-authored on how to build strong, effective partnerships between foundations and nonprofits in order to solve entrenched societal problems, is now available. Thank you to all our Kickstarter investors and supporters for making it happen. While Jessamyn Shams-Lau, Jane Leu, and I tried to make the book fun and engaging—you can read the whole thing in one sitting—there are some really important points in the book, such as the question of to whom philanthropic dollars belong.

Several months ago, I was at dinner with a few nonprofit and foundation colleagues. It was nice to see nonprofits and funders sitting down together for a meal. As the evening wore on, we started talking about the frustrations of funders and donors who refused to pay for things like rent and electricity or staffing. The funders in the room were sympathetic. We continued talking about how much time is wasted, how many people burn out because of these ancient, harmful philosophies and practices.

Finally, an ED said, “Well, at the end of the day, it is the donors’ money. They get to dictate whatever they want done with it.” I looked around the room. A few people nodded sadly in agreement, as if we were discussing some sort of immutable law of existence, like “an object in motion stays in motion” or “there will be hummus and baby carrots at a house party.”

We have internalized this philosophy, and it shows. We nonprofits become grateful and deferential to funders. We put up with crappy policies and practices. We don’t provide honest feedback when funders do ridiculous or damaging things (which is why GrantAdvisor.org was created, allowing for anonymous public reviews of foundations).

We need to get out of this mindset. If we are to unlock the full potential of our sector—which includes nonprofits, funders, donors, and volunteers—then we have to have a different view of philanthropic dollars. 

First of all, philanthropy exists in great part due to the failure of our tax system. Lower-income people pay disproportionately more taxes:

According to the Institute on Taxation and Economic Policy, the state and local tax rate for the poorest 20 percent of individuals is double that of the top 1 percent (10.9 percent vs. 5.4 percent). New data from Thomas Piketty, Emmanuel Saez and Gabriel Zucman allows us to go further: When unrealized capital gains are included in the wealth-building of the richest 1%, the overall tax rates plunge for the super-rich, causing the poorest Americans to pay the highest rates.”

Seattle, where I live, has some of the most regressive tax policies ever:

“A household earning $25,000 in Seattle pays about $4,200, or 17 percent of its income, in state and local taxes, according to a report from the liberal-leaning Economic Opportunity Institute. But a $250,000-income household pays $11,000, which pencils out to just 4.4 percent of income.”

This means that lower-income individuals are paying a larger share of their incomes to maintain public services that we all benefit from. Many donors that I talk to know this, and this is one of the reasons they are donating to nonprofits.

Meanwhile, private foundations are created to do good, but also to avoid paying taxes (and that’s even understandable, given the state of our government). But, as Unicorns Unite’s lead author Jessamyn, Executive Director of the Peery Foundation says:

“Once a person, family, or other group places assets into a foundation, it no longer belongs to individuals or families. It doesn’t belong to staff or boards or corporations or nonprofits. Nobody owns the money in a foundation. It belongs to the foundation, which is also not owned by anybody — not even the founder or the board. The funds in a foundation exist to serve the public good. It’s not our money. Even if we know this is true, we all still act as if the money belongs to the foundation’s donor, board, or staff members.”

None of this is to say that we nonprofits are entitled to donations or grants. No one owes us individual organizations any money. But this pervasive, internalized philosophy that we’re working with “other people’s money and should be grateful” does not do our sector or the people we serve any favor, not when it allows for ineffective or destructive practices to continue unchecked.

As more foundations are founded, as more money is put into Donor Advised Funds, as wealthy individuals gain greater benefits from the new tax breaks while also paying disproportionately less in taxes, we need to shift toward the belief that philanthropic dollars are contributions toward the common good, and treat them accordingly.

What does this mean? For nonprofits, it means we must be responsible with the money invested in our organizations. That includes avoiding fraud and waste, but it also includes ensuring our operations are sound, and that includes investing in our infrastructure and providing fair, livable wages and professional development. Also, we need to help keep philanthropic dollars accountable to the communities we serve, just as we would keep tax dollars accountable. When foundations are doing harmful things like not paying salaries or making us write a three-act play to get $5,000 or something, we need to let them know. 

For foundations, it means doing a better job of being stewards of public dollars. That includes listening to community members and trusting the organizations who work directly with them. It also means putting aside long-held orthodoxies to do what is best for the public good, diversifying board of trustees beyond just family members, giving multi-year general operating, increasing payout, and considering sunsetting. (Take inspiration from the Chorus Foundation).  

Above all, it means we nonprofits and funders/donors, must work together more effectively as true partners. As my co-author Jane Leu of Smarter Good says in a recent article:

“We need to aspire to partnerships that look entirely different than what we know today. The superpower of the nonprofit world is turning dreams of a better future into reality. Let’s start with bigger dreams, build epic partnerships, and see success multiply.”

The news has been filled with terrible things happening. We as a sector need to do our work. But to do that well, we have to get rid of harmful philosophies. When funds are set aside for philanthropic work, they no longer belong to the donors. Nor do they belong to nonprofits. They now belongs to the public, and we all—in our various roles—must do a better job ensuring they are used wisely to do the most good. 

Join the NAF community by being a patron on Patreon, and keep more posts like this coming. They’re usually funnier than this. 

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