As more and more money has flowed into donor-advised funds — allowing organizations like Fidelity Charitable to have more giving power than the Gates Foundation — questions have intensified over whether they are hoarding assets meant for working charities.
Now that question is leading to a feud between scholars who are each connected with different camps in the debate about whether donor-advised funds need greater regulation.
The debate was touched off when Ray Madoff, a Boston College law professor, and James Andreoni, a professor of economics at University of California at San Diego, released a study showing that charities that provide direct programs and services had lost $300 billion over five years because of giving patterns at donor-advised funds and foundations.
Madoff, who specializes in tax law, has long been studying ways in which federal tax policy works to benefit the wealthy and created the Forum on Philanthropy and the Public Good in 2015 to explore how tax regulations on charities and philanthropy can do more to benefit society.
For more than a year, she has worked with the philanthropist John Arnold to press Congress to take action to send more money from donor-advised funds and foundations to charities. Their proposal, which they call the Initiative to Accelerate Charitable Giving, has attracted endorsements by major donors, foundation leaders, charities, and scholars like Andreoni. On Wednedsay, two key Senators announced that they were introducing legislation that essentially adopts the ideas advanced by the Initiative to Accelerate Charitable Giving.
Andreoni has a scholarly record studying philanthropy from an economic perspective. His work has focused on modeling behavioral economics behind foundational philanthropic questions, such as why people give to charity. A 2015 paper from Andreoni suggested ways donor-advised funds could encourage account holders to grant more money. A 2017 paper by Andreoni argued giving from donor-advised funds was unlikely to offset lost tax revenue.
To better understand how much money is at stake for charities as donor-advised funds have grown in popularity, Madoff and Andreoni attempted to compare the amount of donations received by “working charities” in two time periods, 1987 through 1991 — an era before the rise of commercially affiliated donor-advised funds — and 2014 through 2018 — when the value of assets in donor-advised funds grew from $77.2 billion to $122.2 billion, an increase of 58 percent, propelled largely by the rise of commercial funds.
Madoff and Andreoni say one of the problems in the debate over regulation of DAFs is a lack of data showing the real impact of donor-advised funds. They have been working over the years to gather a strong analysis that would help charities, donors, and policy makers better understand what has changed as donor-advised fund and foundation assets grew in value in recent years. Madoff has also criticized the lack of a federal payout requirement for donor-advised funds. Private foundations have a 5 percent payout requirement, but they are allowed to meet this by giving to the advised funds.
Now two scholars writing on behalf of Philanthropy Roundtable, an organization critical of the Madoff-Arnold plan, said the methodology that developed the $300 billion estimate was sloppy and led to misleading conclusions. They say that the research far overstates the amount of money lost to working charities.
Leslie Lenkowsky, a professor emeritus at the Indiana University Lilly School of Philanthropy, and Howard Husock, a senior executive fellow at the Philanthropy Roundtable, said Madoff and Andreoni used data that omitted too many working charities — mainly small nonprofits and religious congregations. If they had been included in the analysis, they say, the study would have showed that more money from donor-advised funds and foundations went to charities. What’s more, Husock and Lenkowsky said that the research includes apples-to-oranges comparisons.
Lenkowsky said that while the letter came out under the letterhead of the Philanthropy Roundtable, he has no affiliation with the organization and that he wrote a critique to focus attention on his data concerns, not on the politics of the issue of DAF legislation. He is also a former CEO of the Corporation for National and Community Service. His academic work has focused on volunteering, civic engagement, and the impact of philanthropy and charities on public-policy issues.
Husock is also an adjunct fellow at the American Enterprise Institute and a former director of case studies in public policy at Harvard University’s Kennedy School of Government. In 2016, he wrote a paper for the Manhattan Institute arguing that donor-advised funds are “a legitimate vehicle for growing charitable giving, not a ruse to avoid taxes.”
“One does not have to be an economist or law professor to see that giving to all three entities — charities, DAFs, and foundations — has been rising almost steadily during the past three decades,” Husock and Lenkowsky argued in a letter to the Chronicle of Philanthropy. “One might believe that if DAFs and foundations had received less, ‘working charities’ would have obtained more. But there is no factual basis for thinking so.”
Madoff rejected this reasoning, saying Husock and Lenkowsky “provide no data that shows the extraordinary diversion of assets into donor-advised funds and private foundations has flowed to the benefit of charities.”
Lenkowsky said when he first saw the report, he turned to a statistician at the Lilly School to better understand the data. Around the same time, Husock asked Lenkowsky to review a letter outlining a critique of Madoff and Andreoni’s research that he planned to send to the Chronicle. The Lilly School produces “Giving USA,” which Madoff and Andreoni relied on for part of their research findings.
The statistician, Jon Bergdoll, disagreed with the methodology leading to Madoff and Andreoni’s central conclusion that working charities received 94.1 percent of what individual gave from 1987 to 1991 while receiving only 74 percent of what individuals gave from 2014 to 2018.
Bergdoll said the comparison is distorted largely because the 2014 to 2018 analysis drew on data that excluded most religious groups, which are not required to file full informational returns, and compared the result with figures derived from earlier data that included estimates of giving to religious groups.
Nonetheless, Bergdoll said that it is a “simple truth” that “a larger share of overall giving is going to foundations and DAFs now than in 1991.”
Andreoni and Madoff acknowledged the discrepancy in the comparisons, noting their analysis relied only on informational tax returns. Short of comprehensive surveying, there’s no other way to get the data on groups that don’t file, like religious organizations. But they suggested if those groups could be added into the data, it would only increase the amount of money they assert working charities lost out on from 2014 to 2018.
Andreoni wrote that Lenkowsky and Bergdoll “may be right that many religious organizations do not file 990 forms with the government, but this would only mean that if we could somehow find and include these 300,000 religious organizations that our finding that DAFs now account for $1 of every $8 given by individuals is too conservative.”
Andreoni said critics overstated the amount of giving to religious charities that don’t file 990s. What’s more, he said, many religious groups do voluntarily file 990s.
“For this criticism to really matter, it has to be that the propensity for a religious organization like a church or synagogue to file a 990 has to be not comparable across those two periods,” said Andreoni in an interview. He asserted there was no reason to believe that share had changed from the early 1990s to the late 2010s.
Madoff also rejected the assertion about religious organizations. “Two things we know about religious organizations is that they are receiving significantly fewer contributions than they were 30 years ago,” she said. “In addition, many religious organizations are now DAF sponsors. Both of these make outright religious giving a much less significant factor than it was in 1990.”
Andreoni also said his report with Madoff needed to make at least one assumption, namely what individual giving would look like if donor-advised funds had never existed. He acknowledged the final figure — $300 billion lost to working charities between 2014 and 2018 — may not be on the nose, but he argued even a fraction of that amount was holding the charitable world back.
“We agree that this means our claims of $300 billion of missing contributions to charity could be too low or too high,” said Andreoni in an email. “But we believe that if the true number is only a 10th of what we calculated, most reasonable people would find that it would be too high.”
To Husock, it’s that kind of speculation that is the problem. He said it’s wrong to assume “that absent the availability of DAFs and their advantages, the volume of charitable giving would have stood at the same level and that funds would instead have been disbursed directly to operating charities.”
He added: “Not impossible — but not inevitable.”
That criticism doesn’t hold up to scrutiny, said Chuck Collins, a director of the Charity Reform Initiative at the Institute for Policy Studies, a progressive think thank that has called for Congress to overhaul regulations on private foundations and donor-advised funds to increase payout rates. Collins recently wrote a column for Inside Philanthropy endorsing Madoff and Andreoni’s findings.
Collins argued Husock’s criticism contradicts itself, noting it argues the share of money going to charities has remained constant while also acknowledging that a greater share of money is going to private foundations and donor-advised funds.
“You can’t say both things,” said Collins. “You can’t say DAFs are getting more and the money [to charities] is growing or staying constant.”
“They need to show $x billion flowing into charities last year and $x billion flowing out to direct recipients,” said Collins, arguing Lenkowsky and Husock need to show their math. “You don’t get to just say, sorry, you’re making up facts.”
