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Guest column – Payout-law top 10

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By Claudia Herrold, John Mullaney and Dean Schooler

If Congress mandates higher payout from private foundations and incidentally lowers the excise tax, then the good, the bad and the ugly that result, while not funny, do lend themselves to a top-10-list format, a la The Late Show.

No. 10: Most nonprofit organizations receive some increase in grant funding, but most dollars flow to large, established institutions with new, smaller nonprofits receiving little benefit.

No. 9: Private foundations change their structure to take advantage of options with lower payout rates, such as operating foundations, or commercial donor funds, with no mandated payout rate, or choose to spend down and close, resulting in a windfall to selected nonprofits.

No. 8: As a result of reducing and not earmarking the excise tax on private foundations, significantly less funding is available for IRS use in auditing tax-exempt entities, simplifying their returns, streamlining their reporting and making returns more useful to the public.

No. 7: Wealthier donors make additional gifts to private foundations to compensate for increased payout but foundations whose donors have died see their endowments’ philanthropic purchasing power erode over time.

No. 6: An unpredictable climate where charitable giving is neither robustly encouraged nor sufficiently supported by a stable federal policy and regulatory environment leads new donors and their advisors to avoid private foundations and charitable giving.

No. 5: Foundations guarantee that their grantmaking and charitable activities continue through grants to other tax-exempt, charitable organizations.

No. 4: Foundations will be pushed to incur higher investment risk — with unpredictable, potentially devastating consequences — in order to achieve a higher return to meet the cost of increased grants and administrative expenses and account for inflation.

No. 3: With increased regulatory requirements and unrealistic investment expectations — especially as estate taxes decline and eventually end — wealthy donors are less likely to establish and fund private foundations.

No. 2: Congress next sets its sights on requiring 5 percent payout from endowments managed and invested by commercial donor funds, community foundations, operating foundations, college and health care-related foundations, and nonprofit agencies.

And the number one outcome resulting from efforts to increase payout……

No. 1: Charitable-use endowment held in foundations in communities, states and the nation declines at unpredictable rates over time.


Claudia Herrold is director of private and family foundation services and external relations at the Ohio Grantmakers Forum in Columbus. John Mullaney is executive director of the Nord Family Foundation in Elyria, Ohio. Dean Schooler is president of the Schooler Family Foundation in Coshocton, Ohio, and Boulder, Colo.

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