Time to Put Up and Spend Down

[Note: A version of this post was published in The Chronicle of Philanthropy on April 14, 2020.]

The coronavirus pandemic has made us realize – very suddenly – how utterly ill-prepared we are as a nation to handle a major health crisis.

If this had been a military attack by a foreign adversary, my guess is that we would have responded with force and focus. But a mysterious fatal virus? The federal government’s lack of preparation was stunningly negligent, and its confused, contradictory, and belated response to the pandemic could be described as comic, were it not for the tragic consequences. Our governors, meanwhile, have reacted in vastly different ways, some forcefully, others casually, and only occasionally in concert with one another. Our body politic is in fibrillation.

In the process, we are grimly realizing some truths about America – and about the fragility of the charitable sector.

We are now realizing that 40 years of methodical disinvestment in government has eroded our national capacity. Since Ronald Reagan’s presidency, we have heard time and time again that tax dollars are inherently wasteful, and that government is by nature inefficient and incompetent. This has become a self-fulfilling prophecy. For decades we have dismissed and underfunded basic government services from schools to public health – really, everything other than the military. We have belittled government employees, and, by contrast, venerated corporate leaders and financial titans. We have manipulated the tax code so the rich have gotten ever richer, while basic services to the masses have been neglected. We have replaced career officials (who have expertise) with political lackeys (who have none). And now, when we need our leaders to take strong, authoritative, and concerted action, the federal government has indeed proven to be inefficient and incompetent – not inherently, but by design and neglect.

We are now realizing that having a president with an open contempt for expertise and a predilection for surrounding himself with sycophants has left us without qualified and informed decision-makers as we face a public health emergency. Mr. Trump has willfully flushed those with expertise and independence out of policy discussions. Two years ago, the president disbanded the National Security Council’s pandemic preparedness office, helping to disarm the nation in the fight against a public health emergency. Elections, as they say, have consequences, and the consequences from 2016 are dire.

We are now realizing that having a healthcare system that fails to cover tens of millions of Americans, and that has created fewer hospital beds per capita than other developed nations, leaves us terribly vulnerable in a pandemic. People without health insurance are reluctant to get medical care. Beyond the dire medical and economic consequences that places on those individuals, from a public health perspective having a swath of uninsured residents serves to accelerate the spread of disease. Reducing the number of hospital beds and emphasizing out-patient care may help hospitals’ bottom line in good times but do nothing to help us at the time of a pandemic.

We are now realizing that some of the ballyhooed efficiencies in the way we do business, such as just-in-time delivery, don’t take into account possible disruptions in the supply chain, interruptions in foreign trade, or crisis-driven spikes in demand. Would it have made sense to build up a supply of face masks and ventilators at our hospitals? If our primary concern were public health then, yes, of course. But that’s not the world in which our cost- and income-driven healthcare administrators have been living.

We’re about to realize that the safety net to support those in need is badly shredded. How will unemployment insurance support the millions of freelancers and Uber drivers living by their wits in the gig economy, let alone employees laid off from more traditional companies? How will the tens of thousands of small businesses stay afloat through the virtual shut-down of their commerce? How will we fund critical support for most Americans after we’ve already blasted a hole in the budget to slash taxes for the super-wealthy and corporations? How will we support workers and families on an ongoing basis if the unemployment rate hits, say, 20%? Many people will fall very hard and, I worry, not have much help in getting back up.

We’re starting to realize that basing what passes as the American retirement system on the stock market may not turn out to have been the wisest of ideas. Individual Retirement Accounts and 401(k)s were created to supplement, not replace, traditional pensions. But at this point how many of us have fixed pensions? Almost overnight, a huge percentage of those retirement assets have vaporized, creating huge stress and downright panic among retirees and near-retirees.

And we’re about to realize how utterly vulnerable our nonprofits are. Charitable organizations have long been living on the financial edge, but nonprofits’ annual flirtation with an operating deficit seems downright nostalgic now that the bottom has dropped out of the economy. The COVID-19 pandemic is an existential crisis that is likely to destroy many of the charitable institutions that knit together services and culture in our communities.

We need to recognize that COVID-19 is affecting nonprofits in the same way the pandemic is affecting nearly all businesses: by drastically altering the way they carry out their work — if they can provide the service at all. Schools and colleges are closed; Boys & Girls Clubs and YMCAs can’t open; nonprofit theaters have cancelled their performances; groups that counsel people with substance abuse issues, or victims of domestic violence, or children in abusive homes — well, they can’t meet, or they’ve shifted to ZOOM meetings, which frankly isn’t the same thing.

In the process, earned income for many nonprofits is down drastically (consider, for example, the situation of a performing arts center unable to sell tickets because there are no shows). Nonprofits have been forced to cancel all of their fundraising events. Meanwhile, gifts from donors are sure to plummet as millions of us try to come to grips with the human and economic toll of this disaster. Our individual financial challenges translate to a colossal overall drop-off in charitable giving.

Ironically, and tragically, many of these nonprofits are the very organizations that provide the services that are most needed at a time of national emergency.

There is no simple fix for the chaos and calamity that is about to consume the nonprofit world. But there is one action that would help significantly: foundations and donor-advised funds should spend down their assets considerably in an effort to save the charitable sector.

I’m not the only one to preach this sermon. A few days ago, nonprofit observer Vu Le urged foundations to spend down more than the required five percent in the face of this emergency, noting that “this is the rainy day you have been saving up for.” Later, Aaron Dorfman and Ellen Dorsey echoed that theme in The Chronicle of Philanthropy. I agree. Not despite, but because of the downturn in the stock market, foundations should not only spend more than five percent, but significantly more – 20 or 30 percent, or higher. If not now, then when?

Dorfman and Dorsey mention donor-advised funds in passing. Terry Mazany, a longtime community foundation executive, mentions them explicitly in a March 16 opinion piece. Mazany claims that DAFs will rise to the occasion and be a major source of funding to the nonprofit world during the COVID-19 crisis. But will they?

I know that virtually every DAF sponsor is sending its donors encouragement to give to organizations that have been particularly hard-hit by COVID-19, or that are providing critical health- and relief-related services. That’s both commendable, and expected. But are any of these DAF sponsors encouraging their donors to spend down their accounts? Is there a DAF sponsor that is saying, “This is the year to grant out 50%, or 75%, or 100% of your donor-advised fund assets!” In the face of the pandemic, they should. But will they? I’ve yet to see evidence.

Why isn’t this happening? Inertia, tradition, and lack of imagination, perhaps. Certainly, we’re all struggling to absorb the shock of what has hit us, and it may take a while for DAF sponsors and their donors to come to grips with the new normal. But there’s also a conscious or sub-conscious understanding that the business model for DAF sponsors depends on assets remaining invested for the long term. No doubt, too, DAF sponsors are fretful about the plunge in asset values, which further threatens their income and business model. They may talk about generosity, but at some level they are leery of a frenzy of grantmaking that will leave them with a fraction of their previous assets.

Here’s my Forbes “explainer” video, “Donor-Advised Funds Defined.”  

In the attached video, which went on-line at the Forbes website on March 12, and which was filmed in simpler, pre-pandemic times, I speak about the power imbalance between the nonprofit organizations and their donors/funders. Nonprofit organizations cannot say what they’re thinking – that the $120 billion or so residing in donor-advised funds needs to be spent down, now, for good purposes. If donors are saving their funds for a rainy day, then I’d argue that this is the rainiest day in the United States since December 7, 1941. Let’s mobilize. Let’s spend down our donor-advised funds. Let’s save lives and save critical organizations. Now.

Copyright Alan Cantor 2020. All rights reserved.

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27 Comments. Leave new

  • Thanks for continuing to fight this fight, Al. As the executive director of a small non-profit that helps refugees establish themselves as residents of New Hampshire (Building Community in New Hampshire), we’re seeing demand for our services skyrocket and anticipate great challenges raising donations.

    Reply
    • Thanks, Rick. Best to you and everyone else in the trenches. Be safe, and know that I appreciate your kind words.

      Reply
  • Gayle Gifford
    March 23, 2020 1:46 pm

    Alan, You said what I’ve been saying as well. If there was ever a time for DAFs to spend out, it is now, whether those DAFS are the big Fidelity’s of the world or the ones at the large community foundations. I’d make the message even stronger… We are giving all of our donors the option to make voluntary recommendations for us to disperse funds now to the community based nonprofits that are desperately in need of funds right now… from food pantries to child care centers to performing arts companies. We recognize that there will never be a better or more important time to save the organizations so critical to our lives and our communities. Please make your recommendations in the next 30 days. After that, we’ll be exercising our powers to distribute these funds because society depends on it.

    Reply
  • Joseph Rogers
    March 23, 2020 2:01 pm

    Well said Al. Let’s hope DAF sponsors and their account owners, start acting to get high percentages of their money flowing to where its needed most.

    Reply
  • Michele L Tremblay
    March 23, 2020 2:39 pm

    It is inexcusable that we are where we are right now. It is tragic that people will die. It is wrong that businesses will shutter and that jobs are lost. It’s a shame that short memories will not enable us to learn from this tragedy and act appropriately and responsibly.

    Reply
    • You’re right to be angry, Michele. Let’s hope that, once we get through this, it will prove to be a turning point. in the meantime, stay safe!

      Reply
  • Right on, Alan! Thank you.

    Reply
  • Peter Labombarde, CFSC
    March 23, 2020 2:54 pm

    Fantastic and insightful article, Alan – I am sharing internally and with a number of donors.
    Stay home and stay healthy – hope we can get together when things calm down.
    All the best. Peter

    Reply
    • Thank you for spreading it around, Peter. I hope in some small way this moves people to act effectively and generously. Stay safe!

      Reply
  • Doreen Baker
    March 23, 2020 3:35 pm

    We always can rely on you in good and stressful times for words of wisdom and thoughtful advice. Thank you.

    Yes. This is the rainiest of days. I hope foundations and DAF managers heed your cry before many non-profits close doors and people die–not only from Covid-19 but from domestic violence, suicide, overdose, food insecurity, homelessness and all the other ways the fabric of our communities will be shred without the safety nets provided by non-profits. In the end I hope we are awakened to where investment really is needed in our society.

    Reply
  • Peter St. Louis, MD
    March 23, 2020 4:00 pm

    Terrific piece, Al. I hope it has a real impact.

    Reply
    • You’re kind to weigh in, Peter. That means a lot to me. Please do share this with friends, and be safe, as you are on the front lines of providing care!

      Reply
  • Hi Alan, You should send this to the newspapers around the state requesting that it be published as an op-ed piece.

    Reply
    • Thanks, Ken. I appreciate your idea — and, well, I should have time to do just that. Best to you — and be well!

      Reply
  • Bethany Tarbell
    March 23, 2020 5:46 pm

    I agree completely, Al. To save nonprofits for the long term, DAFs and foundations need to spend now. We will get through this.

    Reply
    • Thanks, Bethany! I like your optimism — and will try to borrow some for the next few weeks. Be well, now!

      Reply
      • Bethany Tarbell
        March 23, 2020 11:18 pm

        Well, we will get through this if the funders stand arm-in-arm with the nonprofits… Otherwise. Potential carnage out there.

        Reply
  • Brilliant as always. Thanks for your wisdom and insights.

    Reply
  • Judi Moskowitz
    March 26, 2020 12:32 am

    This was an excellent article. It should be further published in other media.

    Reply
    • Thank you, Judi! Be safe, now — hope to see you in West Hartford this fall, under happier circomstances!

      Reply
  • Brilliant, as usual, Al. Gerri and I just read it together, and agree with others who suggest sending it (or some version of it) to the Washington Post, NYT, and other news organizations. It might be the catalyst that starts a movement!

    Reply

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