A Major Setback for Grantmaker Accountability

posted on: June 16, 2010

On 27 May 2010, Florida Governor Charlie Crist signed into law new provisions that not only are misguided, but will have serious long-term negative consequences for philanthropy.

The Florida Philanthropic Network, a statewide association of grantmakers, claims that the new law will “help private foundations to honor donor intent and will prevent state or local governments from placing reporting requirements on grantmakers and charities that many consider onerous.” As noted in the Chronicle of Philanthropy, the resolutions and the new law were drafted by the Alliance for Charitable Reform, a project of the Philanthropy Roundtable, an association of foundations, many of them politically conservative.

Codified as part of a larger trust administration law, the new provisions prevent state and local governments and oversight agencies from requiring of any grantmaking institution disclosure of demographic information about their staff, trustees or grantees. It also prohibits regulation of board composition.

This law takes institutional philanthropy in the wrong direction. There are three reasons why Florida’s deregulation of foundations is problematic:

A. The law wrongly suggests that any mandated disclosure is a violation of philanthropic freedom. Mandated disclosure, when crafted properly, allows people to make better decisions and choices and has broad benefits to society. The government requires disclosure of nutritional information on food products, for example, allowing consumers to make informed decisions about what they choose to eat. Does the government regulate what those choices are? Absolutely not, nor should it – it’s up to each individual to assess the information and make that choice.

Applying a similar lens to philanthropy, requiring disclosure of relevant information simply allows funders and grantees to make more informed decisions. This is hardly a threat to philanthropic freedom. In a debate with Heather Higgins at Philanthropy Roundtable’s annual conference in 2008, I explained NCRP’s thinking on disclosure more thoroughly.

B. This type of action by Florida’s foundations raises question and suspicions about what it is that foundations are trying to hide. Writing in the Chronicle of Philanthropy on June 11, Emmett Carson, President and CEO of the Silicon Valley Community Foundation, succinctly stated: “Such a law simply raises the question for all to ask, which is what are these powerful and influential institutions hiding? Are they so out of touch with the direction of society that they believe the public is requiring less rather than more disclosure?”

Carson also noted that: “Part of the problem is an unwillingness by some private foundations to recognize that a foundation’s assets are not private but instead money for the benefit of society. It is not unreasonable to assume that, in exchange for receiving a tax benefit, individuals accept responsibility to direct charitable funds to broadly benefit all of us.”

Finally, Carson commented that: “Voters—and, more important, their elected representatives—are unlikely to continue to provide charitable tax deductions to institutions that have little commitment to transparency and accountability.”

Carson’s central argument is that the Florida law makes it more likely, not less, that Congress will impose new regulations on our nation’s grantmakers.

C. This law and efforts to pass it demonstrate that foundation priorities are misguided and myopic. There are high resource and opportunity costs associated with the law’s passage – time, money and human capital that could have been spent in better ways was instead squandered to promote this irrelevant legislative effort. Grantmakers who funded this effort could, for example, have boosted grantees’ operational reserves or expanded programs to serve those most disadvantaged in our communities. Funder associations could have spent their time educating their members about how to better meet community needs, lobbying for better financial regulation to protect foundation assets from future threats or building member capacity. This is particularly relevant because foundation assets have taken a serious hit and continue to feel the effects of the recession. Protecting philanthropic assets would seem to be a significantly higher priority than preemptively blocking sunshine legislation.

As noted in the Foundation Center’s 2010 analysis of Foundation Growth and Giving Estimates, foundation assets declined by over 20 percent among independent foundations while 2009 saw a record decline in philanthropic giving. At a time when the public and private sectors are considering seriously appropriate regulation of their institutions, philanthropy’s response in Florida is the diametric opposite. With states and charitable institutions scaling back funds across the board, foundation leaders and their trade associations spending time on this kind of legislation is absurd. But at least, we know now their answer to the question: What is a greater threat to philanthropy: economic collapse or the simple sharing of information?

The Florida law is particularly disturbing because it appears that several other states could well follow suit, pursuing similar deregulation legislation related to grantmaking institutions. In fact, Adam Meyerson, President of The Philanthropy Roundtable, is actively encouraging other states to follow Florida’s lead. This would be a terrible mistake.

As NCRP’s principles state, we believe that exemplary philanthropy responds to the needs of those with the least wealth, opportunity and power; is held accountable to the highest standards of openness and integrity; and employs grantmaking practices that strengthen nonprofit partners and the communities they serve, thereby bolstering justice and fairness in our democracy. The new Florida law is antithetical to each of these. Moreover, it is inconsistent with our vision of a more equitable society in which the voiceless are given agency through philanthropic work.

The American people want more accountability from our nation’s institutions, not less. And you can’t have accountability without transparency.

Aaron Dorfman is executive director of NCRP.

Niki Jagpal is research and policy director at NCRP.