Slimier than a banana slug and not nearly as cute: How Donor-Advised Funds threaten our democracy

[Image description: A bright yellow banana slug, on the forest floor, surrounded by shamrocks and leaves. Image by Max Gotts on Unsplash]

Hi everyone, if you’re in or near Seattle, we are having a PEEP (Party to Enhance Equity in Philanthropy) event on Thursday June 15th 3pm to 5pm, sponsored by Nonprofit AF, Satterberg Foundation, United Way of King County, Philanthropy Northwest, and Progress Alliance of Washington. If you Sign up here, I’ll send you the location and other details. If you’re hosting an event in your geographic area, let people know in the comment section.

I said a few months ago that it’s been hard to get people in our sector to pay attention to Donor-Advised Funds (DAFs) and proposed legislation around them because “people care about this topic as much as they care about the mating habits of banana slugs.” Well, that was one of my worst analogies. Many of you pointed out that banana slugs’ mating habits are quite interesting, and I went down a rabbit hole (or rather a banana slug hole) to learn more about their reproductive behaviors. Did you know, for example, that banana slugs are hermaphroditic and can, under rare circumstances, make themselves pregnant?

As delightful as banana slugs are, we need to focus and divert our attention toward DAFs, as they have become a major force over the past few decades. And not a force for good. Briefly, DAFs are a mechanism for people to set aside money for charity, grab an immediate tax break, and yet have no legal obligation whatsoever to ever give out that money to an active nonprofit. That money could just stay there, growing, making money in fees for the people and institutions that manage them or advise wealthy people on them, for eternity, or a thousand generations of banana slugs.

Then, there’s also the issue of foundations using DAFs to avoid giving out money they are required to give out by law. Foundations in the US are required to spend out a pathetic 5% of their endowments each year. (A lot of this 5% goes to nonprofits as grants, but legally foundations can count their rent, staff salaries, office snacks, and other expenses as part of that 5%, so they technically don’t even have to give out grants at all, but that’s for another angry blog post). However, they can count any money to put into DAFs, and that would count toward the 5%. And, again, since DAFs have no requirement to disburse funds ever, the money can just sit there until the heat death of the universe

Truly gross. Here is a great 2.5-minute video and article from our friends at Institute for Policy Studies that summarizes the main problem with DAFs. Please share it widely. (And if you have the time, here’s a 90-minute recording of me, Susannah Morgan, Ray Madoff, and Chuck Collins discussing DAFs on a webinar, where I said, “philanthropy has often become a hobby for the rich,” a statement that caused several dozen people on LinkedIn to clutch their pearls and pass out on their fainting couches).

As horrible as having money set aside for nonprofit never actually reaching nonprofits, we have another serious issue: DAFs being used to fund hate groups, undermine democracy, advance injustice, and generally undoing many of the things we are working to achieve. Here’s an article that goes deeper on this topic. An excerpt:

“Donors Trust, Fidelity Charitable Gift Fund, Schwab Charitable Fund, and Vanguard Charitable […] from mid-2014 through 2017, these four donor-advised funds combined to give nearly $11 million to 34 groups that the Southern Poverty Law Center (SPLC) considers to be hate groups, according to its 2017 hate map. These hate groups include 12 anti-LGBT groups, 12 anti-Muslim groups, eight anti-immigrant groups, one white nationalist group, and one radical traditional Catholic group.”

Our colleague Dan Petegorsky has an article about how Leonard Leo, a powerful right-wing judicial activist, has been using DAFs as part of his $1.6 billion dark money machine to pack courts, including the Supreme Court, with extreme conservative judges, leading to the ending of abortion rights, and to who knows what other horrible things. Because of the lack of regulations around DAFs, they are often opaque and mysterious, which makes them perfect vehicles for funding horrific causes and movements without any scrutiny or pushback.

We as a sector can’t keep ignoring Donor-Advised Funds. Or point out a few good apples to gloss over how corrupt and destructive the whole system is. DAFs are being weaponized to further the very injustice and inequity many of us are fighting. We burn ourselves out trying to contain myriad fires every day, while the people setting the fires use vehicles like DAFs to purchase gasoline and matches.

If you’re tired of the ridiculousness and inequity around DAFs, here are some actions to take:

Sign this petition to encourage Congress to support President Biden’s 2023 Budget proposal, which proposes changes to prevent foundations from being allowed to count the money they put into DAFs as part of their 5% payout requirement.

Call your representatives in the House and Senate: Use the following links to find the contact information for your elected officials in the House and the Senate, then call them up. If you sign the petition above, will email you a great script you can use when calling your reps.

Put pressure on your local community foundation to have a formal policy against using DAFs to fund hate groups. When opportunities arise, ask the community foundation how they are guaranteeing that they are not using DAFs to fund hate groups. If they waffle something like “well, you know, we respect the autonomy of our donors and their freedom of expression…” cut them off and say “So you’re OK with being a vehicle to advance hate?”

I know DAFs are not the most exciting things to talk about. They are a bit wonky, and all of us have so many things to worry about. But we need to take time to understand DAFs and support efforts to bring accountability and transparency to them.

At least do it for the banana slugs, as DAFs are used to fund climate change denial efforts, which will affect our little yellow friends, who just want to mate in peace.

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