The Growing Problem of Top Heavy Philanthropy

And What to Do About It

cover of Gilded Giving report on philathropy's mirroring of escalating inequalityNew research from the Institute for Policy Studies and Inequality.org, finds that the philanthropic sector is increasingly dominated by the 1%, their own private foundations and donor advised funds. In the resulting report Gilded Giving: Top Heavy Philanthropy in an Age of Extreme Inequality, Class Action Board member Chuck Collins, Helen Flannery and Josh Hoxie reveal that this concentration of philanthropic giving “poses risks to both our independent sector and democracy.” 

 Nonprofit and nongovernmental organizations are heavily reliant on charitable donations to fund the arts, education, community based, social justice and/or advocacy work that they lead. The good news, according to Giving USA 2016: The Annual Report on Philanthropy for the Year 2015, is that national charitable donations surged in 2015, reaching a record high for the second year in a row. Total giving was an estimated $373.25 billion – up from $359.04 billion in 2014.

The bad news is that this charitable giving is increasingly from mega donors – high income, high wealth individuals, families and estates making very large donations. And, as income inequality escalates and financial insecurity grows among low income, working- and middle-class people, their donations have declined precipitously. It is a well-known fact that people with limited means give a higher percentage of their income to charity. And many give to charitable causes without any consideration of tax advantages and don’t itemize their deductions. However, even if the percentage remains the same, decreasing earning power means that the total dollar value of a donation decreases also.

Effect on Nonprofits

What does this mean for the nonprofit sector? Instead of supporting nonprofits directly, most mega-donations go to foundations and donor advised funds that have the infrastructure to manage cash gifts of enormous size as well as appreciated stock and high-value non-cash assets.

The increased reliance on funding from mega-donors and their foundations could divert organizations away from their original missions.”

When made directly to a nonprofit or NGO, mega-donations favor very large ones with the capacity to manage charitable gifts of enormous size. Smaller, more independent, community-based groups – ones that may be more innovative and nimble – are at a revenue disadvantage. We see this in 2014-2015 giving tends. While mid-range nonprofits remained flat and small nonprofits lost nearly 12% of their revenue during the time period, large nonprofits experienced an 11% growth rate.

Mega-donations also go disproportionately to the types of charities favored by the wealthy – private educational and arts institutions. Nonprofits involved in social change work, from human services to advocacy and from community-based initiatives to international development are rarely the recipients of these large-scale donations.

Mission Creep

For nonprofits receiving these enormous donations, there is the risk of mission creep. The increased reliance on funding from mega-donors and their foundations could divert organizations away from their original missions.  Whether it means acquiring a particular piece of art for a museum, conserving a particular piece of land, or funding a particular pet research project, it is easy to imagine nonprofits tweaking or adjusting the work they do, either consciously or unconsciously, to meet the wishes of a very large benefactor to secure essential funding.

On a large scale, this trend could shift the work of individual charities, or even that of the nonprofit sector, away from popular priorities and toward a more elite agenda. Most activities in the philanthropic and independent sector follow strong ethical guidelines.  But as “top-heavy philanthropy” grows, the lack of oversight and accountability in this area may contribute to distortions of philanthropic intent.

scale-illustrating-top-heavy-givingMission Distortion

And, of course, donors of all giving ranges, donate to charities that are aligned with their beliefs. However, mega-donors are able to give to a nonprofit at a level that advances their own very narrow public policy agenda. Nonprofits have to guard against what moves from mission creep to mission distortion.

What Nonprofits Can Do

To guard against the dangers of mega-donations, nonprofits can set up systems to manage large, episodic windfall gifts. With prudent investment and increased staff expertise, the benefits of these gifts can be spread wisely over several leaner years. They also may be used to endow the organization, to reduce risk in the future.

Additionally, educate the board and other stakeholders about the organization’s core mission.  Emphasize the importance of adhering to programmatic activities that further the organization’s mission, along with ensuring governance and fundraising practices that  further it as well. Educate the board and your major donors about the dangers of being  sidetracked by pet projects.

Give courageous direction to your major donors. Decline gifts that would inappropriately  shift the organization’s work—or propose creative alternate uses for those gifts that better fit  the purpose of the organization.

Bottom Line

Mega-donations reflect escalating wealth inequality in the United States and the favoring of certain kinds of charities over others. Concentrations of wealth flowing into philanthropy can be another form of concentrated and undemocratic power. And philanthropy is not a substitute for a fair tax system and an adequately funded public sector.

We all have an interest in the system being reformed to encourage the flow of money, protect the independence of our nonprofit sector, and discourage tax avoidance. For every dollar donated to a charity by a billionaire, 40 to 50 cents is contributed by the rest of us in the form of lost tax revenue. We should have confidence that the wider public interest is being protected.

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