What's Wrong With Charitable Giving - And How To Fix It (Post #1)

In the November 9th issue of the Wall Street Journal, Pablo Eisenberg, a senior fellow in the Center for Public and Nonprofit Leadership at Georgetown Public Policy Institute in Washington, D.C., wrote an article entitled “What's Wrong With Charitable Giving—And How To Fix It.” This is the FIRST in a series of posts about that article.

The foundation world is being asked to take a hard look at its grant making policies and practices. Are we giving nonprofits enough, and are we funding the most critical needs of the region? In this recent WSJ article, Eisenberg answers both questions with a resounding NO. Caught in the squeeze between reduced funding and increased demand for services, nonprofits are being forced to cut essential health and social services.

Eisenberg therefore lists 9 changes donors and foundations could do to fix this problem.  Here are the first three.

1. Increase the Distribution Percentage

Even when foundation endowments were increasingover the last 20 years, the minimum required payout rate for foundation net assets stayed at 5%. Eisenberg advocates an increase in the payout rate to 6%. He estimates that one additional percentage point would add approximately $10 billion to total annual nonprofit grant making.

2. Increase General Operating Support

Like Rick Cohen, Eisenberg advocates flexible capital for nonprofits, recommending that at least 50% of our grants be unrestricted. Give nonprofits the “lifeblood” they needs to hire and maintain staff so they can build internal capacity and improve community impact.

3. Increase Multiyear Funding

As any nonprofit executive will tell you, planning is virtually impossible without multiyear commitments from funders. Fund the best nonprofits out there, and let them achieve long term success that only multiyear funding can promote.