Charities across the country are grappling with rising demand for services stemming from the pandemic, rising inflation rates, and natural disasters such as Hurricane Ian. They are also striving to maintain service levels despite high prices of food, goods, and gas that raise operating costs.
The good news is that philanthropic dollars are flexible enough to meet both immediate and long-term needs, but that flexibility will disappear if donors are forced by Congress to accelerate the disbursement of their gifts through donor-advised funds, a popular giving vehicle.
Giving vehicles such as DAFs provide donors with an avenue to give on short- and long-term horizons. DAFs are tax-advantaged giving accounts. After the initial gift is made to a sponsoring entity, from community foundations to financial institutions, donors can set aside funds to be given to charity at any time. DAFs are akin to small foundations, minus the staff and overhead. Perhaps that’s why they have exploded in popularity, especially among the middle class.
Congress’s intent to regulate DAFs places charities and the people they serve in vulnerable positions as new crises emerge, especially as economic conditions continue to deteriorate. Just this past year, the consumer price index rose at a pace of 8.2%, with grocery prices rising even faster at 13%. Inflation is a hidden tax on every household, business, and charity. It exacts the harshest burden on those with the fewest means, such as the poor and those on fixed budgets, and increases the difficulty for charities to serve the needs of those people.
That burden is seen in the downswing of charitable giving as well. Americans remained strong givers through 2021. People even increased their giving to a near record-high $484.85 billion, according to Giving USA. Unfortunately, inflation reversed 2021’s 4% increase in gifts from the year prior, sending it into negative territory.
From the offering plate to strategic giving plans, people donate to charity to meet immediate needs or to provide sustained, long-term support for programs. Following a natural disaster, for example, people need food, water, transportation, and shelter. Rebuilding and regaining financial stability may take years, perhaps decades.
The response to Ian in Florida illustrates how both short–term spending and long-term planning by charities have provided Floridians with much-needed relief.
Donors nationwide sprang to action after Ian touched down in September. The Florida Disaster Fund raised $50 million to date, foundations and companies committed millions, and dozens of relief funds across southern Florida are raising support. As families piece their lives back together, many, especially retirees, realize that the storm took not only their homes but their life savings.
Inflation compounds Ian’s economic hardship. According to an analysis by Congress’s Joint Economic Committee, average monthly household inflation costs in Florida rose 13.8% in August compared to January 2021. Charities serving Floridians do not escape these cost increases.
Philanthropy will be a key aspect of rebuilding in Florida, which is where DAFs come in. Currently, DAFs outnumber private foundations by 11 to 1 despite overseeing less than 15% of the charitable assets that foundations maintain. The grant payout rate of the nation’s over a million donor-advised funds exceeded 20% in every year on record, surpassing foundations. Giving $47.85 billion in 2020, DAFs contributed 10.1% of total giving that year.
If DAFs are serving as effective tools to raise and disburse gifts for causes, including disaster relief, why would Congress consider tampering with them? The Accelerating Charitable Efforts Act, sponsored by Sen. Angus King (I-ME) and Sen. Chuck Grassley (R-IA) and its companion bill in the House would modify existing rules for donor-advised funds to require faster payouts, among other things. The intention might be to get more resources to charities at a faster pace, but this bill could lead to counterproductive outcomes.
Proposed payout timelines would discourage donors from making long-term investments and engaging in strategic giving. Increasing regulatory complexity will raise costs for donors, leading to fewer dollars available for nonprofit organizations. For nonprofit organizations, sustained, long-term support can be a safeguard against inflation and difficult economic conditions.
As Ian, the pandemic, and 40-year-high inflation demonstrate, philanthropy must be ready to respond to future crises. By aiming to speed up giving, the ACE Act would slow down philanthropic preparedness for the future.
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Patrice Onwuka is an adjunct senior fellow at the Philanthropy Roundtable.
