The False Allure of Charitable Endowments

In her recent Inside Philanthropy guest blog post defending donor-advised funds, Council on Foundations CEO Vikki Spruill asserts that those of us who are critics of donor-advised funds and perpetual foundations undervalue the role played by charitable endowments. Spruill writes, “The compulsion to ‘pay it out now’ in order to address immediate needs is woefully shortsighted.” In a comment to Spruill’s piece, Inside Philanthropy blogger Frank Monti agrees, writing, “…the value of the endowment is that resources are available in perpetuity. Jesus said ‘the poor you will always have with you.’”

I’m neither a theologian nor an economist, but I challenge the sacred place held by endowments in American philanthropy. And while I will reluctantly agree that there are always likely to be some poor people, I suggest that our addiction to endowments makes poverty worse, now and in the future.

I admit that speaking disparagingly about endowments is philanthropic heresy, but bear with me as I explain. I agree that there is value in building endowments for certain purposes, such as to support the maintenance of a museum or historic home. In those cases, the time frame of the endowmentperpetualis the same as the mission, which is to preserve the building and its treasures forever. There are other examples for which a permanent endowment makes sense, such as endowments that pay for the perpetual stewardship of conserved wilderness. But in most cases, endowments are far from ideal for solving pressing societal problems.

Let’s forget for a moment our ingrained preconceptions about how philanthropy is supposed to work. Instead, let’s analyze how philanthropic dollars actually flow and have impact.

Instead of throwing in the towel and declaring that the poor will always be with us, we need to recognize that there are policies that, if enacted, would ameliorate poverty. For example, we could lessen intergenerational poverty by providing comprehensive prenatal and neonatal medical care for all, ensuring proper nutrition for infants, toddlers, preschoolers, and school-age children, and investing in developmentally appropriate and universally accessible childcare and early education. If we as a society were to ensure that these services were provided to all American families, funded at generous levels, we would help improve the physical, intellectual, and emotional outcomes of children born to families with low incomes. That generation would grow to be better educated, more employable, more likely to be law-abiding and tax-paying, and more capable of being good parents. They, and their children and grandchildren, would be far less likely to be poor.

Wouldn’t investing in these services now reduce the need to have money to combat poverty later?

And we could also invest in advocacy work that would make these kinds of investments more likely. Wouldn’t lobbying today for proper government funding for these servicesuniversal preschool, medical care, and nutrition programsbe a good use of charitable funds? The Children's Defense Fund recently issued a report showing how reallocating and devoting 2 percent of the national budget to these and related issues would reduce childhood poverty by 60 percent. Wouldn’t it be a good philanthropic investment to support efforts of the Children’s Defense Fund and similar organizations to push for these policies?

Or take the widening wealth gap, which, in the opinion of many, is shredding the fabric of our society and limiting opportunity. Wouldn’t it be a good use of charitable resources if, instead of wringing our hands, we underwrote advocacy efforts to support higher minimum wages, better funding for education at all levels, and an end to a tax system that overburdens the poor and working class while providing elaborate tax breaks for corporations and the wealthy? Wouldn’t those efforts now reduce poverty later?

We can, as a society, put charitable money to work to make the critical investments that would lessen poverty now and in the future. Or we can keep the funds bottled up in charitable warehouses for a future moment when, if we don’t make these investments now, we will indeed surely need the money.

Money sitting in foundations and donor-advised funds is just that: money. But those same funds invested in people today would result in improved lives and futures for those individuals and for the nation.

Vikki Spruill describes those of us who are critics of endowments as “woefully shortsighted.” I’ve heard that criticism before. But it’s clear to me that endowments are grossly overvalued in the philanthropic world. Yes, the poor will always be with us, but there would be vastly fewer of them if we were not so intent on keeping charitable dollars locked up in perpetuity.

And, since Mr. Monti cited the Bible to justify his point of view, may I offer the extended quote from Mark 14:7? "The poor you will always have with you, and you can help them any time you want." To do so, now, is not only right, but smart.

Alan M. Cantor is principal of Alan Cantor Consulting, LLC, a firm that works with nonprofit organizations on issues of governance and development.