A small but growing chorus of high-profile philanthropists and advocates for the poor is calling for foundations to increase the amount they give in grants each year, arguing that the huge gains in the stock market should be used to reduce the gap between the country's haves and have-nots.
In Maryland, managers of many large foundations say it is more important to preserve themselves for the community, something that even a small increase in payout would threaten over time.
The debate calls into question whether the purpose of foundations is to exist forever, as community resources, or tackle today's most pressing problems with all their financial might.
Since 1981, Congress has required foundations to spend about 5 percent of their assets each year on charitable work. That includes making grants and administrative overhead.
"It depends upon whether you want to be in the charity business or the philanthropy business," said Timothy D. Armbruster, president of the $97 million Morris Goldseker Foundation in Baltimore, which keeps its grant expenditures at close to 5 percent.
"Charities are in the business of alleviating pain and suffering now," he said. "What philanthropy tries to do is help create the knowledge, the institutions, and, you hope, sort of the civic will ... to make it less likely there will be misfortune in the future."
As a group, foundations have been clinging to the minimum, almost exactly 5 percent.
Over the years, foundations have come to see that floor for giving as a ceiling, said Teresa Odendahl, executive director of the National Network of Grantmakers, which has launched a campaign for foundations to give 6 percent. That campaign might soon become a push to change the legal requirement.
"We think the philanthropy field in general is too set in its ways," Odendahl said. "There's no necessary reason why all of these institutions have to last forever. Our argument is that the problems of today are so pressing that we should address them today."
Odendahl's campaign has some high-profile backers, including George Soros, a billionaire financier-turned-philanthropist who wants his charitable spending - which totaled $570 million last year - to end when he dies.
Other benefactors are giving their foundations an expiration date, guaranteeing that at some point they will spend well beyond 5 percent. The newly formed $600 million Virginia G. Piper Charitable Trust in Scottsdale, Ariz. - to be headed by Judith Jolley Mohraz, who is resigning the presidency of Goucher College for the job - is designed to give itself away within 50 years.
"We're seeing some acceleration in that," said Dot Ridings, president of the Council on Foundations. "But the reason most large foundations are established in perpetuity is on the basis that societal problems will always be with us, like death and taxes."
5 percent vs. 6 percent
Another reason for that is evidence that foundations paying out 5 percent eventually contribute more to charity than do those that consistently give 6 percent.
A recent study by the Council of Michigan Foundations found that foundations that gave 6 percent annually over a 30-year period would pay out less because their overall portfolios would be shrinking.
A study by the chairman of Barnard College's economics department, commissioned by Odendahl's group, came to different conclusions, finding that foundations could give as much as 8 percent without eroding their endowments, especially taking into consideration the flood of new gifts that high-technology wealth is expected to bring to foundations in the decades to come.
Other ways to help
At Baltimore's $270 million Abell Foundation, contributions have hovered around 5.5 percent of assets for the past several years. President Robert C. Embry Jr. said that's because board members believe studies such as the Michigan council's.
Abell supplements its giving in other ways, such as investing in companies such as a glass manufacturer in South Baltimore, which fulfill its aims of job retention and economic development while making money for the foundation.
Robert W. Schaefer, executive director of the $240 million France-Merrick Foundation in Towson, said that foundation gives close to 5 percent on the assumption that the stock market's recent boom won't continue and that it will be important to be around when the boom ends.
Good times, bad times
"When the economy isn't good, and people don't have jobs, and they aren't getting big bonuses, the first thing they're going to cut is their charitable giving," he said. "Hopefully, foundations will be there when times are bad."
Some local foundations have been giving 6 percent and more. The Annie E. Casey Foundation has hovered near 7 percent during the past few years, even before its holdings soared as high as $3 billion on paper this year because of the initial public offering of UPS stock.
To the south, the Gaithersburg-based Eugene B. Casey Foundation - named for the late Montgomery County real estate developer, who was no relation to the Casey of the Baltimore group - has been spending about 6 percent of its $177 million in assets on contributions. The $362 million Sherman-Fairchild Foundation of Chevy Chase has averaged about 5.7 percent, according to its 1998 tax returns, the most recent available.
Seeing the need
Betty B. Casey, widow of Eugene B. Casey and a trustee of his foundation, said, "It isn't so much what we have to spend, or what the government wants you to spend, but what you see as a need in the community."
Casey left it up to the leaders of his foundation whether to continue it. His wife said that decisions about that are being made and that she is uncertain what the foundation will do.
One reason foundations stay close to the 5 percent minimum is that the tax laws for foundations encourage it.
If a foundation gives at or above its average level of grant-making for the previous five years, it must pay a 1 percent federal excise tax. If it dips below that level, the tax rate rises to 2 percent.
The more an organization gives, the more it must keep giving if it wants to keep its assets for philanthropy instead of for the government.
Some foundations pay the higher tax rate rather than alter their giving strategies.
Foundations that decide to spend themselves out of existence face hard questions about how to do it right. Mohraz, for example, will have to spend about $30 million in her first year at the Piper trust just to meet the 5 percent rule.
Meanwhile, she and the trustees will still be learning about community needs and how to best serve them.
In years ahead, the trust will have to spend much more to go out of business. At the same time, its leaders will try to increase what they have so that there's more to give away.
"For a foundation like this, obviously at some point there will be large expenditures," Mohraz said. "We need to roll up our sleeves and think carefully."