New data and information on DAF remittances from Michigan community foundations
Donor Advised Funds (DAF) provide the necessary resources to local communities, especially during critical times such as the current pandemic. However, these popular donation vehicles face strong criticism that they are not paying out quickly enough to nonprofits and Congress could impose new federal payment requirements on them. Sustainable public policy is based on strong evidence and supported by data. This study is a good start to building this body of evidence on the use and impact of AFD in communities across the country.
New research on CFOs housed in community foundations helps inform policy discussions and goes against underlying critiques of CFOs. Instead, research provides evidence that some CFOs send the dollars as quickly as they arrive while others are building up assets to meet community needs during current and future major crises.
Recently, the Council of Michigan Foundations (CMF), in partnership with the Dorothy A. Johnson Center for Philanthropy at Grand Valley State University, published the third installment in a series of research on foundation payout rates and investments. . This report ─ “Analysis of donor-advised funds from a community foundation perspective“ ─ explored disbursement rates among CFOs in community foundations nationwide and specifically in Michigan.
For this report, the researchers analyzed data from more than 2,600 individual CFOs from the years 2017-2020. They represent a significant proportion (approximately 85%) of all CFOs owned by Michigan community foundations in number and asset value. Here are some major trends in their research.
More Michigan CFOs gave a grant than they received an inbound donation
Research illustrates the important role CFOs play in the overall assets and distributions of community foundations. Most community foundations in the United States – around 90% – sponsor at least one CFO. Overall, the distributions of CFOs from community foundations have grown faster than contributions to these funds. In fact, in any given year of the study, more Michigan CFOs awarded a grant (60%) than an inbound donation (40%) was received. In addition, DAF balances represent about half of the endowments held by all community foundations. The importance of these endowments should not be underestimated. Particularly in rural areas, community foundation endowments serve those most in need in a sustainable and strategic way.
A significant proportion of Michigan community foundation CFOs provide regular grants
The study found that most CFOs (86%) awarded a grant for at least one of the four years of the study. They are truly generous vehicles. Even those who did not receive a grant in one of these years serve important charitable purposes. For example, these could be endowed CFOs established for long-term donation goals. According to the study, “in the four years of study, less than 10% of all Michigan CFOs were silent (inactive) each year,” and this very small proportion of the CFOs examined, the so-called ‘silent’ CFOs, “Hold less than 5% of total DAF assets in the state. This makes sense given that the CFOs who were active in each year studied received almost all contributions (96%). It is important to note, however, that CFOs classified as “silent” by the report (no grant or contribution to DAF in one year) are still valuable charitable giving accounts. Any funds that donors put into these accounts are irrevocably dedicated to charitable giving and appreciate over time for ultimately greater benefit to charities. Since about half of Michigan’s DAFs are staffed DAFs, established with the intention of long-term use, changes to the law that would ban long-term donation goals would likely hamper these vehicles.
Michigan DAF Holders Step Up Donations To Nonprofits In 2020
Michigan DAF donors increased their donations from a median distribution of $ 8,500 in 2019 to $ 9,750 in 2020. The increase made a significant difference between the DAFs studied that existed in the two years, with 13, An additional $ 6 million in DAF distributions in 2020 over 2019 at the same time as DAF contributions declined. This suggests that even though household budgets have tightened, those with charitable giving accounts were still able to help their communities in times of crisis. As for those “silent” DAFs we mentioned earlier, nearly one in five grant dollars in 2020 came from DAFs that did not make distributions the previous year. Far from the evidence of storage, it demonstrates the important role of CFOs as a rainy day charity fund.
Private foundations rarely use CFOs
Of the Michigan CFOs examined, only 2% were created by private foundations. Not surprisingly, the share of private foundations in total DAF balances, contributions and distributions was also extremely low, accounting for less than 10% of all DAFs surveyed. While we cannot generalize the study results to all DAFs in the United States, this indicates that there is a flaw in the proposals to over-regulate these donation vehicles. Where is the evidence that private foundations rely heavily on DAF donations to meet their payment requirements? The recent bill introduced by Senators Angus King (I-ME) and Charles Grassley (R-IA), S. 1981, would restrict the ability of private foundations to count their DAF donations into their required payment rate. Not only does this ignore the many valid reasons that a private foundation can give through a CFO, such as privacy concerns, but this study suggests that it is a finding solution. problem.
Obviously, the assets of community foundation CFOs are not simply amassed, but are distributed to charities, as they best meet the needs of the community and the donor’s donation goals. This may be a state’s experience, but one that highlights why policymakers should not rush to adopt uniform federal payment requirements.
To learn more about this topic, join the Council on Michigan Foundations event on July 22, 2021. register here.