Warehousing tech elite’s wealth? New path urged for Silicon Valley charity – Tech News
The Silicon Valley Community Foundation grew into the largest philanthropy of its kind over the last decade by jumping on a trend: It offered technology’s nouveau riche an attractive charitable account that shields their wealth from taxes, but doesn’t require them to disburse it right away to charities.
Now, as the foundation seeks new leadership following a scandal that led to its top officials’ ouster, local charities are urging new direction, arguing that these so-called “donor advised funds” have shortchanged Silicon Valley’s needy.
“Many of our members expressed specific concerns around the foundation’s strategy with donor advised funds and the need to encourage donors to give locally into programs that address poverty, health, transportation, environment, and other basic needs,” Silicon Valley Council of Nonprofits wrote to the foundation’s board July 19.
A July report, Warehousing Wealth, by the Institute for Policy Studies, a Washington, D.C., group that studies inequality also criticises donor advised funds – now used by many of the nation’s charitable foundations – as tax shelters for the rich. It calls for more government regulation to ensure the charitable funds are paid out promptly to charities.
Greg Avis, the foundation’s interim chief executive, disputed the assertion that its donors just park their money in foundation charity accounts. The foundation is the largest grant-maker to Bay Area nonprofits, which received a third – US$436mil (RM1.77bil) – of US$1.3bil (RM5.29bil) in charitable grants last year.
“We assist donors in achieving their charitable goals, whether those goals involve supporting charities here in Silicon Valley, across the country or around the world,” the foundation said in statement Friday, adding that it is taking community feedback into account in its search for a new CEO.
In a typical donor advised fund, the foundation receives and invests money that a donor sets aside for charitable giving, then disburses the money at the donor’s direction. Avis said 71% of the foundation’s donor advised and committee-advised funds recommended charitable grants for distribution last year, including 93% of those holding funds with a balance of US$1mil (RM4.07mil) or more. And he said the foundation reaches out to donors whose funds are inactive for three years and “encourages them to take action through a grant”.
But criticism of the foundation’s efforts to steer Silicon Valley wealth to local needs, and the role of donor advised funds in those efforts, has been simmering for years.
Established in a 2007 charity merger, the Silicon Valley Community Foundation grew quickly, from US$1.7bil (RM6.92bil) in charitable assets at its start to US$13.5bil (RM55.02bil) by the end of 2017. That made it the country’s largest community foundation, in a league with venerable philanthropies like the Ford Foundation.
Silicon Valley wealth fuelled that growth: Mark Zuckerberg and wife Priscilla Chan gave the foundation its largest gift in 2013, donating Facebook stock worth nearly US$1bil (RM4.07bil). The following year GoPro founder Nicholas Woodman and Jill Woodman donated stock worth US$500mil (RM2.03bil) and WhatsApp co-founder Jan Koum donated stock worth US$566mil (RM2.30bil) to the foundation.
The foundation was “fortunate to have been in Silicon Valley when a lot of people became very wealthy – the right place at the right time”, said Erica Bleicher, who worked as a development officer at the foundation’s San Francisco office from November 2015 to October 2017.
Most of the wealth coming into the foundation went into donor advised funds, a type of charitable account that has been around for decades but has drawn growing interest and scrutiny recently.
The funds have proven very attractive to newly rich entrepreneurs for several reasons. For one, they let donors avoid big capital-gains tax hits from the appreciated value of donated stocks or real estate. A company executive expecting a big boost in stock value from an initial public offering can donate some shares to a donor advised fund before the sale, then deduct that value to offset millions of dollars in capital gains taxes from their stock gains outside the donor advised fund.
The donor advised funds also can be set up easily without the hassle, regulation and staffing needed to establish a private foundation. And unlike a private foundation, donor advised funds aren’t required to pay out at least 5% of their holdings each year to charities.
“We have a system that lets people get all the benefits of charitable giving without any requirement for those funds to be released,” said Ray D. Madoff, director of the Boston College Law School Forum on Philanthropy and the Public Good.
According to The Giving Code, a 2016 study of Silicon Valley nonprofits and philanthropy, Fidelity Charitable and Schwab Charitable – the largest national donor-advised fund sponsors – had more than 4,500 donor advised funds for Silicon Valley clients worth a total of US$2.2bil (RM8.97bil), a massive increase since 2005.
By 2016, the Silicon Valley Community Foundation had 1,273 donor advised funds – nearly two-thirds of its accounts – with a total value of US$6.2bil (RM25.27bil), up from 964 donor advised funds with a total value of US$759mil (RM3.09bil) in 2008, according to tax filings.
In Silicon Valley, many nonprofits felt too much of the money coming into donor advised funds was staying there, and too much that was paid out was going to national and international causes rather than local needs.
Emmett D. Carson, the foundation’s founding chief executive ousted in June over his top fundraiser’s unchecked abuse of her staff, was outspoken in defence of the foundation’s pursuit of donor advised funds. He argued the foundation needed to give donors what they wanted to compete for their charitable dollars and that on average the foundation’s donor advised funds paid out to charities at three times the required rate for private foundations.
Still, criticism mounted inside and outside the foundation that in his pursuit of account growth, Carson was losing sight of the foundation’s mission to serve Silicon Valley’s needy.
“It was just focused on fund growth,” said Bleicher, who accused Carson of “running a charitable foundation like a bank” and was among dozens of former foundation employees who signed a letter to its board in April calling for new leadership.
Patricia Gardner, chief executive of the Silicon Valley Council of Nonprofits, hopes the foundation’s leadership reboot will shift focus back to local giving.
“We believe they’re listening,” Gardner said. “But we’ll continue to ask, how about investing in the local community in a bigger, stronger way? We need them to be successful.” — The San Jose Mercury News/Tribune News Service