Family Ties

Family Ties is published 3-4 times a year for our San Diego Grantmakers Family Foundation members. Starting with this issue, Family Ties will now be sent as an electronic publication. Our mission at SDG is to connect, educate, develop, and inspire a diverse group of foundations and corporations to stimulate effective philanthropy in the San Diego region. For more information, visit www.SDGrantmakers.org.

Dear SDG Family Foundation Member,

We are happy to send you the second Family Ties newsletter for 2006 -- the very first one sent in email/online format. We found through our member survey last year that email is the way to go these days. Please let us know what you think of this issue and what topics you would like to see addressed in future Family Ties. I also really hope to see you on September 13 at the Family Foundation Peer Learning Network and on October 4 at our SDG Annual Conference -- two fabulous opportunities to strengthen your giving. Thank you for everything you do for our community! -Nancy

The Great Payout Debate Continues... Sunset or Perpetuity?

Warren Buffett's gift to the Gates Foundation brought new life to some existing philanthropic debates--among them, the issue of whether philanthropists should give away money in their lifetimes, or have it move through generations of their families. Should foundations exist in perpetuity, or should their work come to an end at some point? The Wall Street Journal has published two related articles this summer. The first, called "The Great Giveaway," ran on the front page of its July 8-9, 2006 Weekend Edition: click here for The Chronicle of Philanthropy's summary and link to the article.

"The Great Giveaway" claims that Buffett and peers (including Herbert & Marion Sandler, Sanford Weill, Charles Bronfman, Eli Broad, Pierre Omidyar, and Gordon Moore) exemplify "the changing pattern of U.S. philanthropy." This includes "spending money faster, while retaining a high degree of control and demanding more accountability from the programs they fund."

The WSJ article of August 4, "Giving Back: Why Some Foundations Fold," by Robert J. Hughes, concerns a Foundation Center study of foundations and sunset dates. The Chronicle of Philanthropy reported on the article:

"A growing number of foundation donors are shunning the idea that their organizations should operate forever, notes The Wall Street Journal. Since the 1990s, donors have become more likely to set a time limit for spending all of their foundation’s assets, according to a study by the Foundation Center, a New York-based research center. That is a marked departure from the way donors used to operate, setting up institutions like the Ford and Rockefeller Foundations with the goal that they would give money away forever.

Even though the idea of setting a shut-down period is growing in popularity, only about 10 percent of the nation’s 68,000 foundations have such a policy, says Daniel M. Schley, of Foundation Source, a Fairfield, Conn., company that provides administrative service to private foundations. While some donors see short-term foundations as a good way to put a lot of money into specific causes and avoid building big bureaucratic grant-making institutions, some philanthropy experts say they hope donors will not lose sight of the value of foundations that operate in perpetuity.

Philanthropy experts say there are solid arguments for both perpetual and short-term foundations. Among the reasons for establishing a perpetual foundation: Some social problems, such as poverty and education, aren't going to go away anytime soon; a small amount of money given consistently over years can produce continuous change; it can be difficult to wisely spend a great deal of money in a short time; and a family may want to preserve its legacy through a foundation."

Click here for the Foundation Center report on the same article.

Click here for related Nonprofit Sector Research Fund resources, including the "Money, Mission, and the Payout Rule" (pdf) working paper.

Click here for the Future of Philanthropy study overview of payout research.

Click here for a COF Board Briefing on Payout: Preserving foundation endowment value over time vs. spending more on current needs.

Click here (pdf) for the 2004 update to the Council of Michigan Foundations' "Sustainable Payout for Foundations" research study results.

SDG Members Repond

SDG members, too, have a variety of views on this issue.

Chris Weil of the Patricia and Christopher Weil Family Foundation comments: "Mr Buffett is on record re his distaste for dynasties, a distaste that encompasses his family and his philanthropy. He is also a supreme realist and someone whose ego is well under control. His decision to allocate so much of his wealth to the Gates Foundation was the natural consequence of these various character "ingredients." In our case, aside from the obvious fact that quantitative differences in dollar amounts translate into qualitative differences in philanthropic activities, we are actually on the side of philanthropic dynasties, for so long as the following conditions obtain: l. family members are actively involved in all aspects of operations - and their commitment is based in passion not duty; 2. operating expenses are at the low end of the range when compared to comparable entities; 3. grants/support/involvement continue to be effective (and effective as measured by other than anecdotal or impressionistic criteria); 4. No one else is doing what we are doing in a way that is clearly superior to the way we are doing it. So for us the issue of "sunset vs. perpetuity" is (in theory at least) already answered. We are in business if the above conditions continue to be satisfied (or if we are making the changes necessary to satisfy them). We will leave the business to those more qualified, motivated, effective, etc. if they are not."

Valerie Jacobs of the Jacobs Family Foundation contributes: "I think the fact that our foundation is planning to sunset has allowed us to take more risks than if it were to continue in perpetuity. Although the idea of sunsetting is considered a conservative decision by most, we have been anything but conservative in our approach to philanthropy. We spend far more than the required 5% and have used our assets in very creative ways including: buying land to put in a land bank for the community; using the assets as a line of credit when no banks would give us a loan to build Market Creek Plaza; setting up a loan pool for local entrepreneurs; and using our assets for bonding of small local construction companies who worked on Market Creek Plaza but could not get bonded on such a big job. We worked for 5 years to get approval from the California Department of Corporations for the first-ever Community Development IPO, which will offer shares of Market Creek Plaza to residents who will earn at least 10% annually on their investment. We have put our faith and trust in the residents of the Diamond Neighborhoods who have participated in our philanthropy from the beginning. We are setting up structures now that will allow all of our assets (those that have been used for economic and community development) to be transferred to the community when we sunset, benefitting both individuals and the community as a whole. So, sunsetting has allowed us to be a kind of 'R&D' foundation which will, hopefully, benefit the field of philanthropy as a whole."

Tim McCarthy of the McCarthy Family Foundation writes: "Our foundation does not have any legal restriction requiring it to exist in perpetuity.  We do think about the number of generations now living, in our case four.  That suggests a minimum goal of a one hundred year time horizon for family philanthropy.  There are many reasons why that may prove difficult to achieve but it has been done by others.  Because of our very long time horizon and the similar long term nature of most of our program areas, we have generally budgeted grants at a level sufficiently above the 5% minimum calculation to incur the lower (1%) excise tax. Distributions have increased every year since inception (1988) except in 2003 (reflecting the decline in our assets during the bear market).  In the past five years, annual distributions have increased by 40% while assets increased 19% due both to investment performance and additional family contributions.  With only modest administrative expenses, almost all of our charitable disbursements are grants to public charities or, with expenditure control, to other private foundations (e.g. Alliance Healthcare Foundation for San Diego HIV Funders Collaborative).

Other thoughts and references on the topic:

Definition of 'perpetuity':  the state or character of being perpetual; endless or indefinitely long duration or existence; eternity (Random House Dictionary of English Language).  For foundations, I think we can leave it at 'a very long time.'  For family foundations, perhaps it suggests generations not now living?

Simplified formula to support common payout range for in perpetuity endowment (adjusting for inflation):
Estimated long term nominal investment return:  8-9%
Less long term inflation rate:  -3%
Less administrative/investment management:  -1%
Net available for charitable payout:  4-5%
 
Click here and here (pdf) for two related articles on investment return and endowment spending.

Other reasons foundations (including family foundations) may limit payout and/or strive for longer existence:
1.  Need to grow to effective size.  (some have argued that foundations smaller than $10-20 million in assets shouldn't provide charitable deductions to donors)
2.  Need time to learn practice of effective philanthropy and to instill a philanthropic culture in the family.  Desire to encourage such a culture in both living and future generations.
3.  Strategic alignment with funding for issues involving a very long time frame.

Other News and Resources

Click here for a Chronicle of Philanthropy article about family volunteering.

Click here for The National Center for Family Philanthropy's August issue of Family Giving News.

Click here for a list of Association of Small Foundations resources. (Note: we have the ASF resource "Foundation in a Box" available for borrowing.)

In the SDG Library
Tired of downloading long publications or spending money to buy papers and books? Don't forget that SDG has a sizable collection of print resources available for borrowing. Some publications that may be of interest to our family foundation members include:

Small Can Be Effective

Successful Small Grants Programs: When a Little Goes a Long Way

Principled Giving: An Introduction to Family Foundation Stewardship

Principled Planning: A Guide for Family Foundation Retreats

Built on Principle: A Guide to Family Foundation Stewardship

To borrow any of these texts, just drop us a line at 619/744-2180 or nancy@sdgrantmakers.org.

SDG Annual Conference: 
Grantmakers as Change Makers

October 4, 2006, 8am-3pm
Location: NTC Promenade, 2875 Dewey Road, San Diego
$100 for SDG members, $150 non-member grantmakers
Breakfast and Lunch

Watch your snail-mail for the Conference invitation! Keynote speakers include Kathleen Enright of GEO and Jan Masaoka, just named to The NonProfit Times Power & Influence Top 50 2006. In addition, the conference will feature sessions on leadership, collaboration, high-impact grants, and grantee/grantor relationships. DON'T MISS IT! Save your seat today by emailing programs@sdgrantmakers.org.

SDG Family Foundation Event

An Exploration: SDG Family Foundation Peer Learning Network
September 13, 4-6pm
Location: Home of Valerie Jacobs and Norm Hapke

Guest Speaker and Facilitator: Jan P. Kern, founder of the
Family Foundation Information Exchange, Southern California Grantmakers

Please join your fellow family foundation members to socialize and learn about a very intriguing and successful model in Los Angeles.  For the past three years, Southern California Grantmakers has hosted a Family Foundation Information Exchange where a group of sixteen family foundation members have met on a regular basis to share, discuss and problem solve.  This is a comfortable but structured setting where family foundations come together to connect and engage in deep dialogue and interactive learning about issues of shared interest.  Our objective is to find out more and then determine if there is a way to make it work here in San Diego.

Other Upcoming SDG Programs

Viva La Volunteer: Corporate Employee Engagement
September 7, 2006, 8:30-10:30am
Location:  AMN Healthcare, 12400 High Bluff Drive, San Diego
Sponsors:  Sempra, Washington Mutual
Breakfast hosted by AMN Healthcare


N2: Networking at Northern Trust
A FEW 4th WEDNESDAYS
September 27, 4 - 5:30pm Special Member Panel: Grants Review & Decisions
October 25, 12 - 1:30pm
Hosted by: Northern Trust, 4370 La Jolla Village Drive, 10th Floor, San Diego

Network with and learn from your SDG member colleagues! September 27 will have a special focus on reviewing grant applications with Tim McCarthy from the McCarthy Family Foundation, Ruth Riedel from the Alliance Healthcare Foundation and Cindy Olmstead, Chair of the San Diego Women's Foundation Grants Committee.

Redefining Public Safety: An Examination of Root Causes
October 19, 2006, 9:00 a.m. - 11:00 a.m.
Location: The California Endowment, 600 W. Broadway, Ste 1250, San Diego
Light Breakfast

Presenters: Julie Wartell, Crime Analyst Coordinator, San Diego District Attorney and Cynthia Burke, Division Director, Criminal Justice Research at San Diego Association of Governments. 

Distinguished Speaker Series: Mayor Jerry Sanders
A Philanthropic Lens for San Diego’s Future
November 1, 2006, 11:30am-1:00pm
Location: Aboard Holland America Lines ms Zaandam (in port), 1140 N. Harbor Drive, San Diego
Lunch
Fee

A Forum on Immigration: Implications for Funders
November 9, 2006, 8:30am - 10:30am  
Location:  TBD
Light Breakfast

Presenters:  Richard Kiy, President of the International Community Foundation and others to be announced.

All programs are free for SDG members except where indicated. To RSVP, please call (619) 744-2180 or email programs@sdgrantmakers.org.

Feel free to comment, suggest article ideas, or submit news items to nancy@SDGrantmakers.org -- We're always happy to hear from you. This online newsletter is a service to San Diego Grantmakers members. Copies of past editions are archived here: News You Can Use.

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