The ethical argument for foundations to increase their annual payout rate beyond 5%

[Image description: A lit candle in the darkness, being shielded by the wind by a hand. Image by Ai Nhan on]

I know many of you are reeling from the domestic terrorism that happened over the weekend, committed by white supremacists, spurred on by the racist president of the United States, aided by coward Senate Majority Leader Mitch McConnell, who stopped two gun control bills passed by the House this year (HR 8 ad HR 112) from even being voted on in the Senate.

I wish I had words of comfort, maybe some inspirational quote by MLK Jr. or Gandhi about how Good Always Wins in the End, or something, but I don’t. I am just as sad and angry and heartbroken for all those lives lost as you are. My oldest child is about the same age now as the kids who were killed at Sandy Hook, and all I can do is send him off to his school each day hoping that some white supremacist won’t gun his class down. Same with the preschooler. I start having ridiculous thoughts about buying bulletproof backpacks for them, as if that would actually protect them.

This is where we are as a nation. The last few years have been hellish on all fronts, and things do not seem to be getting better, despite my best attempts at optimism. We nonprofits have been dealing with the increased challenges our communities, especially marginalized communities, have been facing.

And we do it with the same level of resources provided, the same desperate pleas, the same exhaustion of never having enough to carry out our missions. This is in great part because foundations are only required to spend 5% of their net investment assets each year, and counted in this 5% is the funds they spend on operations.

I know there are arguments for keeping foundations existing in perpetuity, such as presented in this piece: “Perpetual foundations also are the mainstays of many charities, providing steady support year after year for local community needs including homeless shelters, arts programs, conservation efforts, youth sports programs, and other important pillars of civil society.”

But in light of the horrors all around us, this argument no longer makes sense. In fact, the hoarding of 95% of the resources has starved nonprofits’ abilities to do our work, which has allowed injustice to go on unchecked and has led to the death and suffering of thousands. This makes it unethical.

Imagine if there’s a famine, and you have seeds for crops that would feed people. Would it be ethical to give out only five percent of the seeds, because you want to save 95% for future famines? Never mind that the best way to get more seeds is to plant them so they could multiply. You let them sit in a box somewhere, thinking that you will be helping some fictional future population, while existing children die slowly from malnourishment. Would that be the morally right thing to do?  

Because that is what’s been happening, what many foundations are complicit in. A few years ago, I remember hearing staff from advocacy organizations lamenting the fact that there was barely any funding for voter registration and civic engagement. We, including the organization I was leading at the time, knew that the voting rates among many disenfranchised communities were alarmingly low. We were desperately cobbling tiny grants together. $5,000 here, $10,000 there. With these pitiful amounts, which we appreciated nonetheless, my organization set up tables in front of ethnic grocery stores to register people to vote. We partnered with a Buddhist temple and got our young bilingual leaders to sit down one-on-one with elders and help them understand the policies they were voting on.

There was so much more we and our communities wanted to do. We knew that it was critical to mobilize people if we wanted to stop the racist, xenophobic, homophobic, misogynistic policies that were tearing at society. And yet no foundation wanted to fund civic engagement and community organizing at anywhere near the amount that it would take it make it successful. The excuses were always the same: “That doesn’t align with our priorities,” “resources are limited so we want to focus only on basic needs,” “our trustees are trying to avoid politics,” “you didn’t have a pretty logic model,” etc.

And in part because of the lack of funding years ago, we have today, where there is a real and constant threat of white nationalism and domestic terrorism, ignited and fueled by right-wing ideas and messages. 2020 is coming up, and progressive foundations seemed to have learned nothing. As I mentioned here, progressive funders are being way outspent by conservative ones in many key areas that have rippling, wide-reaching effects. Conservatives funders know that spending more money strategically now will lead to major effects in the future. Investing in indoctrinating youth in conservative ideas, for example, will lead to conservative judges, politicians, and business leaders. That’s why, according to this report:

“Between 2008 and 2014, conservative youth organizations received nearly $500 million more in contributions than progressive youth organizations. The largest conservative youth organization’s total revenue is larger than the combined revenues of the wealthiest four progressive youth organizations.”

Meanwhile, progressive funders cling on to the 5% payout rate, ensuring that we will never be able to solve problems effectively, which means they will keep spreading. Every problem we have been trying to address—homelessness, environmental degradation, poverty, racism, transphobia, elderly neglect, child abuse, gun violence—has been met with one excuse after another. But the biggest one has always been “resources are limited.” No, resources are not limited. They are not limited when hundreds of billions are just sitting there in foundations’ banks (and Donor-Advised Funds, but that’s for a different post). One out of five foundations has a payout rate of 10% of more. That means that 80% of foundations are only spending out five percent.

Foundations giving out the bare minimum 5% payout, please stop saving for some future rainy day when there is currently a monsoon of death and injustice drenching our communities. You need to at least double your annual payout rate. Have your staff and trustees tour the sites where domestic terrorists gun down innocent people, the detention centers where immigrant children are held in cages, the streets where individuals experiencing homelessness freeze to death, the neighborhoods where Native women are murdered, the communities where children starve over the summer because they only had reliable meals at school—visit these places, and tell me if you still feel comfortable hoarding away 95% of your net investment assets.

In the past few years, we have seen an unprecedented rise in white nationalist terrorism, goaded on by the racist president of the US, who has been calling immigrants “invaders” and spreading other dehumanizing thoughts. Meanwhile, our communities face thousands of other problems rooted in white supremacy, toxic masculinity, and wealth disparity. Things are grimmer by the minute. We have only 11 years before climate change is irreversible.

But we have a chance to do something. We can solve many of these problems. To do that effectively, we can no longer be guided by the same ineffective philosophies and practices that are complicit in allowing these issues to proliferate. We cannot sacrifice the present to protect the future, because there might not be a future to protect. Foundations spending the bare minimum, double your payout rate, (and stop counting your operations as part of your payout) or else these “important pillars of civil society” you care about may not even exist anymore to worry about.

By the way, before you respond with “And that’s why we need to focus on individual donors, they make up 80% of total revenues, blah blah,” please read this. I’ll have a follow-up post later.

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