Open Letter: A Call to Accelerate Resources to California’s Nonprofits
|Right now, California is at a crossroads as we face compounding issues: the COVID-19 pandemic, social injustice, climate change, and homelessness, among others. Standing on the frontlines and tackling these challenges head on are the thousands of nonprofits across California that are working tirelessly to support our communities.|
Doing this work requires an immense amount of resources – which is why we have federal charitable tax laws that were originally designed to incentivize getting resources to working charities. However, these tax laws no longer fulfill this purpose.
Right now, donors can get the full tax benefits of charitable giving by putting funds in donor-advised funds (DAFs) and private foundations. But under the status quo, there are no assurances that charitable funds sitting in these financial vehicles will go towards today’s charitable works. Specifically, DAFs have no timeframe on when to distribute these funds to working charities – even though tax deductions are taken immediately. Similarly, any private foundation can meet its payout requirements by donating to its own DAF, or paying the salary or travel expenses of family members.
The impact for California is real. According to the California Association of Nonprofits, California loses an estimated $340 million each year because of tax deductions given to DAF donations alone. Think about that amount of money and how it could help in our public school classrooms or providing affordable housing, but it’s lost and without any guarantees.
Nationwide, as DAF assets grew to nearly $160 billion in 2020 – a year of unprecedented challenges – approximately 82% of DAF assets sat in DAFs rather than being distributed to working charities, leaving America’s taxpayers to foot the bill. Additionally, an estimated $1.1 trillion sit in private foundations.
We understand first-hand the benefits and important roles of DAFs and private foundations in charitable giving. As the CEO of Homeboy Industries and philanthropic leaders passionate about giving back, we commend all who gave during these difficult times. However, we must also ensure these tax deducted dollars are distributed to nonprofits in a timely manner, so the communities they serve can benefit today–when they need it most.
Through charitable reforms, we can increase and accelerate the flow of resources to nonprofits, and – just as importantly – recognize the significant and longstanding role of community foundations in philanthropy and meeting local community needs.
At the end of the day, this all means more resources for students and our schools, workforce development programs, housing initiatives, food banks, and helping the most marginalized members of our communities.
It is time to reform our charitable giving laws to ensure California’s nonprofits are front and center.
CEO of Homeboy Industries
Dr. Melanie Lundquist
Founding Director of TomKat Foundation