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Future of Philanthropy Pt. 2: The Advisor

by Adam Sobsey

In April 2020, the Center for an Urban Future published a report called “Art in the Time of Coronavirus: NYC’s small arts organizations fighting for survival.” The report, based on the Center’s interviews with leaders from more than two dozen arts organizations, concluded that the one of the hardest hit was the Lower East Side’s Tenement Museum.

The Tenement Museum, in its own words, “tells the stories of working-class tenement residents [who] helped build the city and nation, and their stories help us understand our history. The Tenement Museum celebrates the enduring stories that define and strengthen what it means to be American.”

Within weeks of the shutdown, the museum was “facing a dire situation,” according to the Center for an Urban Future’s report. Revenue from ticket and merchandise sales accounted for 75 percent of the organization’s income. But that fiscal self-sufficiency, normally a strength, was suddenly a weakness when all revenue was suddenly halted. Like many nonprofits, the museum was not sitting on a large endowment to cover its mortgage (actually a city-issued bond) through the crisis. It might be a matter of just a few months before the bank put the museum out of business by repossessing its building — which not only housed the Tenement Museum but was the physical home of all the stories the museum was created in order to tell.

Shortly after the Center for Urban Future published its report, the New York Times used it as the basis for an article that caught the eye of a reader who was in a position to help. He held an account with FJC, a donor-advised philanthropic fund that focuses on what it calls “creative philanthropy.” And creativity was essential to saving the Tenement Museum.

The donor could have taken the conventional step of making a one-time grant to the Tenement Museum. That would have provided a short-term fix, but the museum needed money to cover more than urgent expenses. It needed to buy time, and there was no way of guessing how much.

FJC worked with the donor (who chose to remain anonymous) to create a more imaginative solution. The donor purchased the Tenement Museum’s city-issued bond from the bondholder and restructured it in such a way that will save the nonprofit $2.5M over five years. At the end of that term, the donor can resell the bond back into the market, recoup the earnings he has voluntarily reduced during the five-year term, and use the resulting cash to activate other charitable efforts through his FJC account. 

This ingenuity is precisely in line with FJC’s innovation-driven values and vision of a smarter, more nimble approach that, in FJC’s words, “makes philanthropy work harder.” In that way, FJC is somewhat unusual: donor-advised funds tend toward passive, often sluggish — some would even say uncharitable — giving practices.

A smarter, more nimble approach makes philanthropy work harder.

A very basic definition of donor advised funds (DAF): A DAF sponsor is a nonprofit foundation that offers accounts to individuals who want to engage in a range of philanthropic giving interests without having to set up private foundations of their own. The sponsor functions, effectively, as an umbrella for hundreds (or even thousands) of de facto mini-foundations, each one managed with an eye to its account holder’s specific giving priorities. While the account holder’s assets are legally under the DAF sponsor’s control, in practice donations are nearly always made to donor-recommend charities. The individual donors, meanwhile, benefit from the sponsor’s organizational efficiencies and scaled platforms for giving. 

But not all donors are active in making donations. There has in fact been longstanding criticism of how little of their assets DAFs are required to give away, and of how little oversight the funds are subject to administratively. In practice, many donors use — some would say abuse — their accounts as convenient places to stash tax-exempt and tax-deductible money.

But this may soon change, thanks to new legislation introduced in 2021 by a pair of US Senators, a Republican and a left-leaning Independent. The Accelerating Charitable Efforts (ACE) Act, if passed, would require a greater portion of DAF funds to be spent, and in more transparent and scrupulous ways. The notion to reform DAFs isn’t new, but the exigencies of the COVID-19 pandemic, such as what befell the Tenement Museum, are likely what spurred the introduction of the ACE Act — yet another way in which the global health crisis sparked efforts not only toward basic recovery but also to enact true and lasting reform.

For DAF sponsors like FJC, the cost benefit analysis of the potential ramifications of the ACE Act is complicated. On one hand, the ACE Act would enable  in fact, require — sponsors to do more of what they exist to do in their mission as philanthropists: give money to deserving charities; at base, the Act is for the improvement of the entire field of DAFs. On the other hand, it would also likely force DAF sponsors to increase their administrative capacities in order to meet the Act’s new requirements (which go well above and beyond merely accelerating giving). That could result in higher costs, as well. Each DAF sponsor will have to run its own math in working out its position on the ACE Act.

Individual DAF account holders will be affected as well, of course. Those of the more conservative type who are disinclined to give more than minimally might require some persuasion to embrace the Act’s mandated changes. And although ethical cases might seem the most straightforward to make — money that’s theoretically meant to be charitably given actually should be given in practice; hoarding wealth is fundamentally unjust — it might not be the most effective.

The limitation that philanthropy has is the imagination of the decision makers.

“The limitation that philanthropy has is the imagination of the decision makers,” says Sam Marks, the CEO of FJC. The more people you can inspire and get into a generative, imaginative frame, the more quickly you can move, and with limited bureaucracy, to address urgent issues. You can move at the speed of money to make things happen.”

That’s not to say that all philanthropy should be reserved for crises. Far from it. The guiding purpose of philanthropy is ultimately to help prevent emergencies, of course, not to fund them. Nonprofits need sustained operating support to stay solvent even in ordinary times (as the donors in Part One of this series recognized); and imaginative longer-term investments, like the one made in the Tenement Museum, can serve both to rescue organizations in immediate need and also help provide for their future health.

The more people you can inspire and get into a generative, imaginative frame, the more quickly you can move, and with limited bureaucracy, to address urgent issues.

“Yes to putting money out urgently,” Marks says. “But if we’re going to require more activity [under the ACE Act], let’s also figure out ways to expand the capacity to do multiple things with this money. Let’s allow for loans, impact investments, and revolving funds, and let’s let those count, too. Let’s use money in a strategic way. Let’s use all of the tools at our disposal.”

The Tenement Museum’s case shows those strategies and tools in action: the donor serves the charity in the short term by purchasing a physical asset rather than by simply giving away money; he will be able to recoup a longer-term return on the asset, and recycle and redirect that return to another entrepreneurial solution, using DAF tools — and using DAF funds that are designated for tax-deductible activity to begin with. In a sense, it’s already someone else’s money. There are ways to give it so that it helps them more, and in turn catalyzes even more giving.

But why give money away at all, other than the ethical reasons? Why, in this case, did the donor who came to the Tenement Museum’s aid not only make the choice to help, but choose to help this particular organization, out of the innumerable nonprofits desperate for help in the spring of 2020?

The answer Sam Marks gives to that question is simple. “The donor loves the Tenement Museum.” 

If necessity is the mother of invention, then perhaps the father is love. And together they yield a second type of invention. The Tenement Museum donor is not only an account holder at FJC. He’s also committed to the evolution of the philanthropic field, and he wanted his inventive solution to serve as an example for other philanthropists. But the clinical word “example” isn’t the one Marks chooses.

“The donor wanted to give FJC a story to tell,” he says. Story, not example. Stories are not only what a cultural repository like the Tenement Museum preserves (and which the donor’s ingenuity rescued from oblivion). They are more than mere static objects we keep on display. In the words of Adapt’s founder, stories are nothing more or less than “change over time.” They are active, mutable, alive. And that is where stories begin to intersect with the overarching project of philanthropy, which is also to enact change over time: specifically change aimed at benefiting society rather than putting money in the service of simply accruing more money to itself — a valuable reminder that the word philanthropy means “love of humanity.”

And by at least one essential definition, the love of humanity is a love of storytelling. As the late Joan Didion’s famous dictum insists: “We tell ourselves stories in order to live.” Eating, sheltering, and propagating are meaningless unless they nourish the act of storytelling — it’s the act that distinguishes us as a species. By funding those whose mission is to perform that act, philanthropy is the highest form of giving. And the more creative the giving, the better the story.

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