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DONOR CONNECT
NOVEMBER 8, 2007
OMAHA COMMUNITY FOUNDATION RANKS AMONG NATION’S TOP CHARITABLE ORGANIZATIONS
DONORS BID MILLIONS NOT TO RENAME SCHOOL
DONORS HARVEST TAX BENEFITS OF HOT STOCKS
Market's Rise Spurs Many to Give Shares to Charities
INNOVATIVE JEWISH NONPROFITS SELECTED
THE PHILANTHROPIST’S DILEMMA: WHEN DO I TELL MY CHILDREN?
MAJOR TAX BILL INCLUDES KEY CHARITY MEASURES
PORTFOLIO PHILANTHROPY
How Philanthropists Can Apply Portfolio Theory to Make Wiser Social Investments
OMAHA COMMUNITY FOUNDATION RANKS AMONG NATION’S TOP CHARITABLE ORGANIZATIONS
Omaha continues to strengthen its reputation as one of the nation’s most philanthropic cities. In an annual survey of 631 community foundations conducted by The Columbus Foundation in Columbus, Ohio, the Omaha Community Foundation ranks in the top 5 percent in three major categories for the fourth straight year. The OCF was 25th (top 4 percent) in grants distributed to charitable programs, 26th (top 4 percent) in gifts received and 33rd (top 5 percent) in market value size.
Besides being ranked in the top 5 percent of community foundations, OCF has also been honored in the annual Philanthropy 400. The Chronicle of Philanthropy ranks the Omaha Community Foundation No. 337 in its Philanthropy 400, a ranking of the nation’s most successful charitable organizations. This is the sixth year the Philanthropy 400 has included OCF.
“The Omaha Community Foundation’s mission is to help people improve their communities through charitable giving,” said Mike Leighton, President and CEO of the Omaha Community Foundation. “This recognition is a reflection of our donors and the difference they’re making in the greater Omaha and southwest Iowa areas everyday.”
DONORS BID MILLIONS NOT TO RENAME SCHOOL
(An excerpt from The Washington Post, November 4, 2007)
After years of conversations, 13 alumni announced last month that they were giving $85 million in exchange for assurances that the business school would not be named for any donor for at least 20 years.
It's the biggest donation in university history, and it comes at a time when stadiums, buildings and whole colleges elsewhere are being named for the highest bidder.
"It is an unprecedented act of selfless philanthropy. I don't know of another case where anything remotely like this has taken place and I hope it is the start of a trend," said Terry Hartle, senior vice president for the American Council on Education. "It's the most interesting development in philanthropy I've seen in the last year."
Click here for the full article.
DONORS HARVEST TAX BENEFITS OF HOT STOCKS
Market's Rise Spurs Many to Give Shares to Charities
(An excerpt from The Wall Street Journal, November 7, 2007)
Gerry Golub, a survivor of non-Hodgkin's lymphoma, plans to contribute "tens of thousands of dollars" this year to charities including Leukemia & Lymphoma Society and Research for the Cure Foundation. But instead of giving cash, Mr. Golub says he plans to contribute appreciated stock in Research In Motion Ltd., maker of the popular BlackBerry devices.
The charitable gift will allow Mr. Golub, a 68-year-old retiree in Chappaqua, N.Y., to claim a deduction against his federal income taxes for the current market value of the shares. What's more, he and the charities won't owe any capital-gains tax on the profit from the shares. That represents a huge savings, since Mr. Golub, a former managing partner of an accounting firm, paid on average less than $5 a share on a split-adjusted basis years ago. Research In Motion shares closed yesterday at $131.04.
"It's an opportunity for people who have done well in the stock market to count their blessings" and "help them give back" to worthy causes, Mr. Golub says.
With stock markets up strongly -- the Dow Jones Industrial Average has gained more than 9% this year -- gifts of stock, mutual-fund shares and other investments have jumped, several charity officials say. But in donating securities, as with most tax strategies, there can be pitfalls.
"Contributions of appreciated securities follow very closely" general trends in stock prices, says Kim Wright-Violich, president of Schwab Charitable Fund, a donor-advised fund, where such gifts are up 76% to $350 million in the first 10 months of this year from a year earlier. Another fund, Vanguard Charitable Endowment Program, says appreciated securities represent 69% of all donations so far this year, up from 46% last year.
James A. Beck, a first vice president with investment-management firm Hefren-Tillotson Inc. in Butler, Pa., says he donated stock earlier this year to his local community college through its foundation and plans to give additional shares later this year to Leukemia & Lymphoma Society and other charities. "If you're going to give, give in the most effective way possible," which often means parting with appreciated stock, not cash, he says.
In deciding which shares to donate, focus on those with unrealized long-term gains. ("Long term" refers to those you've owned for more than one year. Gains on shares you've held for one year or less are considered short-term gains.) That way, you typically can deduct the full market value of those shares. Generally, if you donate securities with unrealized short-term gains, your deduction would be limited to just your cost in those securities, says Mark Nash, a partner at PricewaterhouseCoopers, though there are exceptions to this rule.
…Gifts of corporate stock long have been a popular way to cut taxes. Corporate stock donations represented the largest category among non-cash donations for the 2004 tax year, with $15.1 billion on more than 170,800 individual returns, according to Internal Revenue Service data. Gifts of mutual funds and other investments totaled an additional $1.5 billion.
Even more people should consider donating securities, according to a recent analysis by Fidelity Investments. The firm estimated that 10 million to 20 million American households could potentially save between $2.2 billion and $4.5 billion a year in taxes by donating appreciated securities, instead of giving cash directly to charities.
Don't make the mistake of donating securities that now are worth less than you paid for them. Instead, consider selling your losers, using your losses to offset gains for tax purposes and donating the proceeds to charity. Also, pay attention to annual charitable-giving limits. For details, see IRS Publication 17 or 526. If you're thinking of giving away interests in partnerships or other complex investments, check with a tax expert, such as an accountant or enrolled agent. You can't deduct charitable gifts at all if you claim what's known as the standard deduction, rather than itemizing.
Click here for the full article.
INNOVATIVE JEWISH NONPROFITS SELECTED
(Excerpts from www.slingshotfund.org, October 30, 2007)
Fifty of the most innovative Jewish nonprofits in North America have been named in the 2007-2008 edition of the Slingshot guidebook. Compiled and published by 21/64, a division of The Andrea and Charles Bronfman Philanthropies, the annual guidebook celebrates programs, organizations and leaders that take innovative approaches to addressing age-old concerns of identity and community in Jewish life today.
The idea for Slingshot originated in Grand Street, a network for 18 to 28 year-olds who are or will soon be involved in their families’ philanthropy. Unable to navigate the complex map of Jewish institutions offering involvement, Grand Street members proposed developing a Zagat-style resource guide to highlight “Slingshot organizations.” The term has come to signify an agile and innovative attempt to engage young and largely unaffiliated Jews looking for identity, community and meaning.
To meet that need, non-profit professionals and funders came together in an open and transparent process to nominate progressive organizations serving the North American Jewish community. Each year, twenty-five funding colleagues evaluate the nominees against four criteria: innovation, impact, leadership, and organizational effectiveness, and the resulting Slingshot guide highlights 50 finalists. The practical and candid approach to surveying and funding Jewish non-profits proved original and popular, and has become an annual resource.
Click here for the full Slingshot Guide.
THE PHILANTHROPIST’S DILEMMA: WHEN DO I TELL MY CHILDREN?
(An excerpt from www.philanthromedia.org, November 8, 2007)
You want to make a major gift to your favorite charity, but what will your children think? Do you really want them to know you have enough money that you can make such a large gift? What if they feel that money should be going to them?
These questions lead logically to others, which wealthy individuals find vexing. When do I give money to my children? Will it spoil them? Or, will they learn at a younger age to handle it responsibly? What if it kills their drive to succeed?
If there were one right answer to these questions, I could make millions writing the definitive book. Unfortunately, no single right answer exists. The right answers are as varied as our personalities, our children's personalities and the fortune or misfortune of those who come to influence their lives.
Click here for the full article.
MAJOR TAX BILL INCLUDES KEY CHARITY MEASURES
(An excerpt from www.philanthropy.com, October 25, 2007)
Congress is expected to soon consider sweeping tax legislation that would extend incentives for those who contribute money to charity from their individual retirement accounts and would remove tax restrictions on large nonprofit groups that invest in hedge funds.
Those measures are part of a tax-overhaul bill introduced today by Rep. Charles B. Rangel, a New York Democrat and the chairman of the powerful Ways and Means Committee, which sets federal tax policy.
The bill is aimed at repealing the controversial alternative minimum tax and at changing the tax structure for investment-fund managers. But it also includes several significant measures that would affect nonprofit organizations.
If approved, the bill would extend for one year a provision that allows those 70 1/2 and older to contribute up to $100,000 annually to charity from their IRA accounts without having to pay income taxes on the IRA distributions.
That incentive, which was part of the 2006 Pension Protection Act, is scheduled to expire at the end of the year. Organizations such as the Council on Foundations, the National Committee on Planned Giving, and Independent Sector have been pushing for its extension, saying it provides a major incentive for donors.
The Rangel bill would also allow tax-exempt organizations to invest directly in hedge funds and other investment funds without being subject to unrelated business income tax.
By eliminating the tax, nonprofit organizations would no longer have to invest hedge funds and other investment funds in offshore accounts to skirt the unrelated business income tax, Mr. Rangel said.
That move — which many universities and other large nonprofit organizations have requested — would cost the federal government about $1.34-billion over the next 10 years.
The Rangel bill would also extend for one year tax incentives that:
- Allows businesses to get an enhanced tax deduction for donating food to charities.
- Encourages businesses to contribute computer equipment to educational institutions.
Mr. Rangel said in a statement that the measures will help make the U.S. tax system fairer.
“The provisions in this bill would reform the tax code to provide a greater sense of equity and fairness that is so critical to our voluntary tax system,” Mr. Rangel said. “It has been more than 21 years since Congress and the administration rolled up their sleeves to discuss tax reform, and during that time the tax code has become a jumbled mess of outdated and inequitable provisions that cry out for simplification.”
The bill is likely to face opposition from House Republicans, who say it would increase taxes.
Rep. Phil English, a Pennsylvania Republican and a member of the Ways and Means Committee, for example, has already criticized the bill as “the mother of all tax hikes.”
“The Rangel proposal should illustrate for everyone the challenge of building a tax policy around a budget that demands a tax increase,” Mr. English said in a statement.
PORTFOLIO PHILANTHROPY
How Philanthropists Can Apply Portfolio Theory to Make Wiser Social Investments
(An excerpt from www.ssireview.org, Fall 2007)
In 2003, after a career in business, I began searching for the best ways to apply my time, money, and talents for the benefit of others. I quickly realized that I was not alone. Millions of baby boomers are poised to transfer trillions of dollars from their estates to their families and society. With the coaching of Christine Letts, an associate dean at Harvard’s Kennedy School of Government, I began to interview a broad array of affluent people to find out how they manage their wealth and philanthropic activities.
I observed that for many people, philanthropy is quite random. They connect with a cause because someone asks them to be on the board, or invites them to a fundraiser, or takes them to visit a nonprofit organization. Rarely do they think strategically about how to invest in social causes.
I began to worry that the transfer of baby boomers’ wealth might not only fall short of its potential, but also further fragment the nonprofit sector. If history is a guide, the influx of trillions of dollars is likely to lead to the creation of many more nonprofits. With so many new nonprofits from which to choose, donors are likely to make even less focused, less strategic social investments.
There had to be a better way. As a businessperson, I find analogies between finance and philanthropy to be especially appealing and useful. I became interested in applying one of the most powerful concepts in finance – portfolio theory – to investing in the nonprofit sector.
Harry M. Markowitz received a Nobel Prize in 1990 for his formulation of modern portfolio theory, which he originally presented in 1952 in the Journal of Finance. According to the theory, investors should select securities on the basis of overall risks and rewards of the entire group of investments, rather than choosing securities that individually have attractive risks and rewards. Investors who manage some of the largest endowments in the world, such as those of Yale, Harvard, Stanford, and Princeton universities, indeed demonstrate that the greatest predictor of financial returns for an endowment is not any single investment, but the overall portfolio of investments and how they work together to create value over time.
In contrast, most philanthropists track and support individual nonprofit organizations. Although tracking and supporting individual nonprofits is important, constructing a balanced portfolio of programs that attack the many different fronts of social problems is also wise. Grants made to a carefully selected collection of nonprofit organizations that are encouraged to work together will have more impact than investments in nonprofits working on their own.
Philanthropy has successfully borrowed other concepts from finance, such as venture philanthropy’s borrowings from venture capital. So too should foundations adopt portfolio practices.
A Different Approach
The cornerstones of portfolio theory are asset allocation, which defines where to invest; correlation, which describes how major asset classes perform relative to each other; and pooling, which means collecting investments from a variety of sources. The objective of the portfolio approach is to build a collection of investments in asset classes that complement each other by performing differently during various economic climates.
The Prostate Cancer Foundation (PCF) is one of the best examples of a foundation that applies portfolio theory to social investing. Founded by Michael Milken, the famous junk bond financier, the PCF allocates its charitable grants only after careful research of the entire issue area; ensures that its investments work together to fill gaps in the field; and pools donor assets for scale and leverage in the area of prostate cancer.
Asset allocation. Universities such as Harvard and Yale take great pains to research the investment landscape before selecting individual investments. The PCF likewise first researched the area of prostate cancer before choosing its grantmaking strategy. From its research on stakeholders and the flow of funds into prostate cancer, the foundation learned that of the $100 billion spent on cancer in the United States in 1993; only about $2 billion went to finding a cure. The rest was spent on treatment for those who had developed the disease. Milken asked: “Is there an example, anywhere in private industry, where a company would spend 50 times as much to deal with the consequences of a problem as it would to solve the problem? It doesn’t make sense.” Accordingly, the PCF decided to allocate more donor funds to research.2
Correlation. Portfolio theory recognizes that individual investments can complement each other by performing differently over time within a portfolio. In philanthropy, social investments can complement each other by filling gaps. The PCF does this in two ways.
First, the foundation appoints top researchers to decide where the money goes so that there is an unbiased allocation of grant money to the highest and best uses, minimizing duplication and helping ensure that grants complement other investments in the larger prostate cancer portfolio. Second, the PCF requires that its grantees publish and speak about their findings in annual prostate cancer conferences and forums that the PCF sponsors. These conferences convene major prostate cancer industry players and raise the knowledge base of the entire industry. The sharing of information and convening of stakeholders help to advance the field.
Pooling donor assets. Major endowments do not manage assets from just one university endowment fund, but instead aggregate funds from thousands of individual schools, departments, and university program areas. In a similar fashion, the PCF as a public foundation aggregates funding from many individual donors and allocates these pooled funds to selected grantees. By pooling grant money, the PCF has a larger voice, is able to exert greater leverage over the distribution of those dollars, and can encourage government funding.
Trillion-Dollar Social Impact
During the PCF’s 10 years of involvement in prostate cancer research, there was a 24 percent drop in per capita death rates. This dramatic decline outpaced drops in other forms of cancer. Although the PCF cannot claim all the credit for the drop, the foundation definitely contributed to advances in treatment. From 1993 to 2003, the PCF raised more than $230 million in private donations for prostate cancer research. Since 1996, total funding from the Department of Defense grew to $395 million and government research dollars increased by a factor of 20 to $500 million.
Today, portfolio philanthropy is in its early adopter phase. Already signs of portfolio philanthropy can be seen in some public-private partnerships and donor collaboratives, such as the PCF, the Tides Foundation, and Social Venture Partners. Yet only a few foundations implement this approach. Others can borrow a page from the PCF’s playbook by mapping the strategies and key stakeholders within the issue area they care about before investing, by allocating dollars strategically to fill gaps in the overall funding of an issue area, and by pooling donors through donor collaboratives or other methods.
With trillions of dollars likely to transfer to the civil sector over the coming decades, portfolio theory can play an important role in guiding philanthropists in making high impact issue area investments.
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