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Jens 'n' Frens |
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A brief discussion of a Congressional effort to change the 5% distribution requirement on charities.For their part, foundations argue that what outsiders may view as administrative costs — conducting research, assisting grantees, finding new beneficiaries, soliciting new grants — are an essential component of the charitable work.Okay, that's what I was thinking, too; that makes sense to me. But the paragraph continues,In light of the recent and significant economic decline, the historic return of 7.62 percent may be difficult to replicate. Interest rates on government bonds yield significantly less than 5 percent, and the stock market has declined recently. The Council of Foundations argues that when you consider investment management costs and inflation, "a foundation must earn an average return of 9.5 percent return on its investments to sustain the purchasing power of its corpus, pay its investment management costs, and distribute 5 percent of its assets annually for charitable purposes."This is a point made in the book "Irrational Exuberance" (in the context of advice for foundations, not legal requirement), but without any apparent awareness thatAt root, the bill exposes the conflict over whether foundations exist to make an impact quickly and divest themselves of assets, or whether they exist to perpetuate themselves....Presumably some the former and some the latter, and I certainly have no problem with someone who wants to set up a fund to provide scholarships into the distant future, but any big organization receiving regular donations and continuing to build its endowment has to ask itself under what conditions that money would ever be spent, and why it's amassing it. Keeping money on hand to manage irregularies in the receipt of donations seems prudent, especially for those organizations whose missions are explicitly counter-cyclical, e.g. helping people who are in poverty whose numbers may grow when the economy weakens and donations decrease. A college or university, especially a small one, may have irregular expenses, e.g. an occasional need to build a new building, with time spent between such events. The way most schools hoard their endowments, though, reminds me of a Dilbert strip in which Dogbert, as a banker, offers his best rates on "perpetual CDs" — they earn a lot of interest, but you can never take your money out. |
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