| For Immediate Release 9/9/2003 |
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| HOUSE COMMITTEE WEAKENS FOUNDATION SPENDING REFORM MEASURE IN CHARITABLE GIVING ACT | |||
| Lawmakers Back Complex Substitute Likely to Decrease Grant Money to Charity, Hamper Foundation Accountability and Open More Loopholes Than It Closes, NCRP Says | |||
| WASHINGTON - In approving the Charitable Giving Act of 2003 (H.R. 7) this afternoon, the House Ways and Means Committee dropped the original version of a foundation spending reform measure (Sec. 105) that could have produced up to $3.2 billion annually in new grants for charities while simultaneously encouraging foundation efficiency by simply excluding foundations' overhead costs from what they count as charitable spending. Instead, the committee adopted a complicated substitute version of the measure, advanced by the foundation industry trade association, that opens more loopholes than it closes and may actually reduce the amount of foundation grant dollars that go to charity, according to the National Committee for Responsive Philanthropy (NCRP), a philanthropic watchdog organization that researched and supports the unadulterated original version of Sec. 105. "While the original version of Sec. 105 would have pumped more grant money into charities and simplified grantmaking procedures for foundations, the complicated substitute would do the exact opposite," said NCRP Executive Director Rick Cohen. "Unfortunately the new version of Sec. 105 is likely to open more loopholes for abuse than it closes; tempt foundations to disguise even more of their overhead as if it were charitable spending; and encourage foundations to spend more money on categorizing their expenses and less on charitable grants. The upshot will be less foundation accountability and less grant money for charity instead of more. What a bad idea." Under current law, private foundations are required to spend a minimum of 5 percent of their assets each year for charitable purposes - and they can, and often do, include many of their own administrative overhead expenses in that 5 percent. The original Sec. 105 of H.R.7, sponsored by Reps. Roy Blunt, R-Mo., and Harold Ford Jr., D-Tenn., would have excluded foundations' administrative costs - such as executive salaries, fees paid to trustees and board members, travel, office construction and rental costs - from their required annual charitable spending known as "qualifying distributions" or "payout." While freeing billions of dollars for charitable grants, the original version would have only modestly increased foundation expenses by an annual average of no more than 0.4 percent of assets. Unlike its predecessor, the altered version of Sec. 105 creates a laundry list of certain administrative expenses that foundations can count toward their minimum charitable spending requirement of 5 percent of their assets, and certain expenses that cannot count as charitable spending. The revised version therefore tempts foundations to define even more of their administrative expenses under the heading of charitable spending, while the IRS division that is supposed to keep tabs on charitable activities will continue to have few resources for enforcement. If the altered version of Sec. 105 is enacted, it would not be the first time Congress has tried to force foundations to make intricate distinctions between "good" and "bad" administrative expenses. In the 1980s, Congress imposed a similar requirement. The Treasury Department studied the impact of that attempt, and found that it was so problematic as to be "complex and burdensome to private foundations" and that the requirement was "not an effective method of discouraging foundations from incurring excessive amounts of these administrative expenses." The requirement was eventually repealed. In 2001, the bipartisan Joint Committee on Taxation also confirmed that simplifying - rather than complicating - provisions in the tax code, such as reducing and consolidating the foundation excise tax, would encourage effective philanthropy. |
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