Pandemics and Perpetuity

As I write, Congress seems likely to approve a two-trillion dollar economic stimulus bill in response to COVID-19. Entire states are being ordered to shelter in place. The U.S. is closing its borders. After four months of being ravaged by COVID-19, March 19th was the first day that China reported no new locally transmitted infections. We are, as a country, both reeling from, and responding to, a pandemic.

Truly, we are in unprecedented times.

Much has been written about how philanthropy can and should respond to this crisis. And many have responded, pledging more flexible funding for grantees. Several regional groups have come together to create response funds for their communities. For example, in Seattle, where I am located, several local funders created the COVID-19 response fund to rapidly deploy resources to community-based organizations on the frontlines of the coronavirus outbreak in the greater Puget Sound region. The Tufts Health Plan Foundation announced an additional $1 million to efforts supporting older people affected by the outbreak in Massachusetts, Rhode Island, New Hampshire, and Connecticut. Community foundations are leaning-in to support nonprofits in their communities.

As we head into what many economists predict will be a long recession, many funders are likely planning to reduce their grantmaking budgets, similar to the way in which philanthropy responded to the Great Recession of 2008. When NCRP looked at Candid’s foundation data of domestic giving behavior from 2007-17, they found that funding dipped as much as 10.5% at the height of the Great Recession, and that funding levels did not stabilize until 2013.

I think it would be a mistake for philanthropy to repeat that contraction in grantmaking. In response to the pandemic, Phil Buchanan wisely called for funders to not just maintain funding levels, but increase their support. Mark Kramer encouraged funders to consider using an often-overlooked resource in the form of the collateral in foundation endowments.

But that is still operating within the traditional swim lanes. And it might not be enough. What if we need more foundations to open up their endowments entirely, and put a time stamp on their payout? To do that, many foundations will need to have tough conversations about whether or not they exist into perpetuity.

Many have already raised sharp critiques of perpetual foundations. Todd Cohen raised the issue of perpetuity in 2008, in the midst of the Great Recession, pointing out the tax benefits accrued by private foundations and noting that this benefit ultimately belongs to the taxpayers. “Instead of pitching fits about the plunge in value of the endowments they count on to perpetuate their power, foundations should be digging deeper and paying out more to begin to give back what they and their donors have received from taxpayers in the form of tax breaks and tax-exempt benefits.”

In 2010, Ray Madoff wrote an opinion article in the Chronicle of Philanthropy questioning the benefit of foundations existing in perpetuity, writing: “Perhaps it is time that we abandon the idea that foundations can live forever and require them to spend all their assets within a certain time after their founder’s death.”

In an interview with Chronicle of Philanthropy in November 2019, Maya Winkelstein, executive director of the Open Road Alliance, an organization that makes grants and low-interest loans to charities facing unexpected challenges, reminded foundations to focus on their goals, not perpetuity, saying: “If you’re a foundation whose goal is to reduce hunger in America, that’s your goal. … It’s not to exist in perpetuity or to grow assets over time.”

A 2009 study by the Foundation Center—now Candid—found that most family foundations exist in perpetuity. But there are outliers. The Bill & Melinda Gates Foundation is structured to spend down the endowment 50 years after the founders’ deaths. The Perigee Fund, a relatively new philanthropic endeavor in Washington State, committed significant resources over the next two decades to advance its goals.

What will it take to relinquish perpetuity? Go to your charter. In the same Foundation Center study, they found that over half of the family foundations they surveyed had neither a perpetuity clause nor a spend down clause. It wasn’t mandated either way. In other cases, the charter did contain a perpetuity clause that would need to be changed by the board of trustees.

We are in a moment. A moment that might last for some time to come. A moment that is characterized by rapidly changing contexts and a plethora of unknowns. It’s also a moment for the philanthropic sector to reflect on what is its fundamental role in society. Many of our country’s first foundations were chartered right around the time of the Spanish influenza pandemic in the early 1900s. And though we find ourselves again fighting a pandemic, the American context has changed dramatically. For those who have the privilege of working with, leading, or sitting on the boards of our private and family foundations—the moment points to a choice—between using all that you have to fight this pandemic and support your communities through the economic fallout in the near term, or to exist in another 100 years, for the next one.

Learn more about FSG’s work with foundations >

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