After discussing some positive trends in philanthropy, the nonprofit-sector leader talks to Craig Kennedy and Michael E. Hartmann about several of its problems and areas for potential reform—including making a few specific suggestions.
Jan Masaoka co-founded the Philanthropy Project with Jon Pratt last year to highlight the beneficial roles that public accountability can and increased regulation could have on American philanthropy. Masaoka and Pratt are the group’s co-chairs.
From 2011 to last year, Masaoka was chief executive office of the California Association of Nonprofits. Pratt is executive director of the Minnesota Council of Nonprofits.
Earlier this year, the National Council for Responsive Philanthropy awarded Masaoka and Pratt its Pablo Eisenberg Memorial Prize for Philanthropy Criticism—which is very fitting, because Eisenberg was widely known and respected for his admirable willingness to offer critiques of philanthropy and suggest meaningful reforms of its legal and regulatory structure, as well as its management and operating practices. Masaoka and Pratt share that same admirable willingness.
In 2019, Masaoka and Pratt also co-founded Grant Advisor, an online platform modeled on TripAdvisor where nonprofits can anonymously review foundations and foundations can respond. For 15 years, Masaoka wrote about systemic problems in philanthropy for Blue Avocado, which she founded, and she is the author or co-author of three books on nonprofits.
Masaoka was kind enough to join us for a recorded conversation last month. The just less than 20-minute video below is the first part of our discussion; the second is here. During the first part, after talking about some positive trends in philanthropy, she discusses several of its problems and areas for potential reform—including making a few specific suggestions.
Masaoka tells us that positive trends in philanthropy include an increased awareness about poverty and need in society, leading more people to feel they should give more, though motivations and amounts may vary. She also notes a healthily growing culture of critique surrounding grantmaking management and practice, especially regarding some of the larger, establishment foundations’ and investment-management approaches to giving.
According to Masaoka, in general, there has been a lamentable shift in the meaning and use of “tax-deductible”—now invoked as a social signal of virtue rather than to describe tangible tax benefits, which are largely unaccrued by smaller donors.
In terms of policy reform, “We can start by sort of the low-hanging fruit,” she says.
It’s kind of like if you want to improve traffic safety, you can start with drunk driving, right?, and people running through red lights, without getting into a philosophical discussion about the role of driving regulations before you get into things like giving people tickets for not signaling a lane change.
In philanthropy—as examples of doable, incremental advances toward reform—Masaoka suggests changes in the law’s payout-requirement conditions on private foundations’ and donor-advised funds’ (DAFs’) tax-exemption, including what can count as meeting the payout, and other legal and regulatory conditions on the exempt status of DAFs.
In defending private foundations’ existing required payout of five percent of assets, they and those associations that speak for them “have gotten into this mode of, We’re in the business of helping foundations exist for perpetuity and any payout above five percent is going to damage those chances,” Masaoka says. “Why is perpetuity the purpose of policy? Isn’t it helping charities?”
She also mentions the ability of private foundations to meet the payout by giving to DAF accounts and then delaying (or never making) any charitable distribution out of them as a major loophole that needs to be closed. For DAF accounts themselves, she says, there should be a specific annual payout requirement in return for the tax benefit, and it should be indexed to inflation.
The timing of any charitable tax deduction for a contribution to a DAF account, moreover, should correspond with the distribution of the donation on which the deduction was based to a charity. “The private benefit of the tax deduction and the public benefit of an actual charity getting the money, bring those into alignment timewise,” according to Masaoka. There are “lots of different ways to do that, but some are politically, I think, more possible than others.”
As well, she cites the way in which DAF-account assets are allocated as a problem that should be addressed. “If you have a hundred million dollars in a donor-advised fund, not only did you get a tax deduction for that in the year that you made the donation, but you can also deploy the assets,” she says.
You can also say whether your assets are at a community foundation or Fidelity. You can say, I want $50 million invested in my best friend’s company, or a company that I want to have some influence with, or at that I want to have become a customer of mine, right? I think that idea of using assets for private gain and for private influence is not as well understood …. Now, I don’t know what to do about that. That’s where the smart guys come in.
Applying any new DAF regulations only to accounts or sponsors above a certain asset level, Masaoka notes, could address abuses without burdening small community-foundation funds. “If you have a $2,000 donor-advised fund at your local community foundation, that’s not who needs to be gone after,” she says.
At core, DAFs reflect a financialization of charity that too greatly prioritizes financialization over charity. “The fundraising industrial complex right now is telling everybody that” DAFs are “a new source of revenue,” she says. There are “all these webinars now on how to raise money from donor-advised funds, which is sort of to me like having a webinar on how to raise money from Wells Fargo checking accounts.”
In the conversation’s second part, Masaoka talks about the politics of policy reform in philanthropy, the pressures brought to bear on those either proposing or receptive to reform, and the importance of the nonprofit sector.
