In early-June U.S. Senators Angus King (I-Maine) and Chuck Grassley (R-Iowa) introduced the ACE act. The purpose of ACE is to get money out of the hands of foundations and Donor Advised Funds (DAFs) and into the hands of nonprofits more quickly.
ACE stands for Accelerating Charitable Efforts.
This is the first serious bill charity reform proposal since 1969 (and if you don’t think the world of nonprofits and philanthropy has changed since then, I want whatever it is you’re inhaling).
This is BIG! Why?
Current law requires a foundation to make annual “eligible charitable expenditures that equal or exceed approximately 5 percent of the value of its endowment.” The kicker is that those expenses, by law, can include staff salaries, money for travel expenses, and other things that have nothing to do with making a direct charitable donation.
And believe me, that “exceed” clause rarely happens as the vast majority of foundations don’t give a penny more than they’re required to.
Foundation portfolios are BOOMING, while charities are struggling to provide critically important services on shoe-string budgets.
Right now, there is more than $1 trillion sitting in foundation coffers!
In fact, foundation portfolios have gotten soooooooooooooooo enormous, that instead of giving money to charities, many are giving money to Donor Advised Funds (DAFs) because they have NO PAYOUT REQUIREMENTS.
Yes, you read that correctly. If a person or a foundation puts money into a DAF, they get an immediate tax deduction, however, there is NO requirement to give the money away!
Ever.
Major private company DAF managers, like Fidelity and Schwab, make money through their DAF investment services.
That’s great for those companies, lovely for people who hold the DAF’s to see their money grow, and bad for nonprofits who are doing things like trying to help people survive during a pandemic, or get back on their feet after the pandemic, or work to protect the environment, or develop life-saving medicines, or produce art that soothes our souls, etc.
And we’re talking megabucks.
According to Senator King, “Donor-advised funds currently have more than $140 billion set aside for future charitable gifts – but under current tax laws, the funds have no requirement to ever distribute these resources to working charities.”
The ACE Act would put a stop to this nonsense by:
1. Requiring DAF’s to disburse their funds within 15 years in order to claim a full tax deduction.
2. NOT allowing private foundations to include expenses other that DIRECT GIFTS TO NONPROFITS as part of their 5% calculous.
Brilliant minds like Ray Madoff, a Boston College law professor, and John Arnold, a hedge fund manager and billionaire philanthropist, have taken the lead on shaping these ideas. Together they launched The Initiative to Accelerate Charitable Giving and brought many others on board.
Think this is a no-brainer? Think again. Foundations are lining up to fight the bill already. Their efforts are spearheaded by the powerful Council on Foundations.
The pandemic laid bare the fact that the U.S. has become an hour-glass of inequality. During the pandemic, the wealth of US billionaires increased 55% from $2.95 trillion to $4.56 trillion!
How does this relate to this discussion? Benjamin Soskis tell us that America’s richest families donated $1billion to charities during the pandemic. That was less than 0.1% of their combined wealth.
So, does what’s a person who cares about inequality do about all of this?
GET IN TOUCH WITH YOUR SENATORS AND CONGRESSPERSON AND TELL THEM TO VOTE TO PASS THE ACE ACT.
And tell everyone you know to do the same.
Enough is enough!
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Pat Libby is a nonprofit consultant and author of The Lobbying Strategy Handbook: 10 Steps to Advancing Any Cause Effectively, Oxford University Press. She has served as an academic, senior executive, board member, and consultant to innumerable nonprofit organizations and foundations for more than three decades.
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