That’s because the organizations on the receiving end of Page’s donations were not working charities — such as the American Red Cross or the United Way — but donor-advised funds, a controversial and booming form of philanthropy attracting increasing scrutiny and criticism amid the coronavirus pandemic, as charities face a historic crisis. Page did not reply to a request for comment for this story. Spokesmen at the organizations that received his donations in 2017 — Schwab Charitable and the National Philanthropic Trust — declined to comment, citing privacy rules.
Known in the industry as DAFs (rhymes with calves) — and criticized by some insiders as “zombie philanthropy” — the money and assets in donor-advised funds are intended to go to charity some day, but there are no payout requirements, and money can sit in a donor-advised fund for decades.
DAFs are the fastest growing form of charitable spending in America, with more than $120 billion in DAF accounts across the country in 2018, according to the most recent industry estimates, up from $45 billion just six years earlier. While some executives who oversee these funds say critics exaggerate potential abuses, the coronavirus pandemic has prompted a few wealthy DAF users to express concern about the way these funds are managed.
“Charities are slammed for work, needing to do more than ever before … and yet this $120 billion is still sitting there. … It’s kind of crazy,” said David Risher, a former Microsoft and Amazon executive who — with his wife, Jennifer — launched the #HalfMyDaf campaign in May to try to inspire donors to pay out at least half the money in these accounts to charities this year.
“The money is sitting there because people often have a plan for their philanthropy,” said Jennifer Risher, a former manager at Microsoft and author. “Well, the world is not on plan right now. Now is the moment.”
The Rishers’ echoed concerns raised by Kat Taylor — philanthropist, banking executive and wife to hedge fund manager and former presidential candidate Tom Steyer — who is a vocal critic of the DAF system and has supported draft legislation in California this year that would require more oversight and impose transparency obligations on these funds.
“They were created without, I think, as much oversight and foresight as we should have given them,” Taylor said. “These are the piggy banks of charity. We should be breaking our piggy banks right now.”
The rise of what some critics denounce as “a perversion of the tax code” traces its roots to 1969, when Congress rewrote the tax code to favor public charities over private foundations, imposing more taxes on private foundations and requiring more public information on their finances.
To Norman Sugarman, a former IRS attorney in Cleveland, this created both concern and opportunity. Sugarman represented community foundations fearful the new law would scare off donors.
“For him, it was important that, no questions asked, these [community foundations] were public charities,” said Lila Corwin Berman, a history professor at Temple University who has written about Sugarman’s role in the popularization of DAFs. “He believed most social problems could be better solved by charity than government, and that individuals should have more control over what their wealth could do for society.”
After successfully convincing the IRS that community foundations deserved public charity status, Sugarman won an important concession: “Philanthropic funds,” an innovative way his clients raised money, would also have all the tax benefits of giving directly to a working charity.
For donors, these philanthropic funds offered tremendous appeal to reduce income tax bills and allow them to retain some control over their money. Toward the end of every year, donors could estimate how much they expected to owe in taxes, and then transfer an amount into a philanthropic fund to help offset what they owed the government. Community foundations across the country began offering philanthropic funds, and by the 1980s, some referred to them as donor-advised funds.
In 1991, billionaire investor Ned Johnson, chairman of Fidelity, had what seemed like a radical idea — why couldn’t his investment firm launch a community foundation and then offer donor-advised funds as a tax-reducing service to its clients?
After getting IRS approval, Johnson created Fidelity Charitable in 1991. Schwab, Goldman Sachs, Vanguard and other investment firms followed suit. By 2015, four of America’s 10 wealthiest charities were donor-advised funds, and the next year, Fidelity surpassed the United Way to become America’s largest charity.
In the philanthropic world, the financial services industry’s ability to convert a once-obscure fundraising technique for small community foundations into another product to offer their clients has raised concerns for years.
“There’s $120 billion or so sitting there that has been subsidized heavily by the federal government that is not going to feed people, house people, educate people or save the planet,” said Alan Cantor, a nonprofit consultant who has worked in the industry since the early 1980s.
Because Fidelity and other donor-advised fund operators can charge management fees and invest the money and assets in these funds, Cantor believes they’re not as motivated as working charities to see these resources put to use. Fidelity Charitable, for example, paid its parent company Fidelity more than $46 million in 2017 to manage its more than $21 billion in assets, tax records show.
“There’s a perverse incentive for the money not to go out the door, because people are making money off of it just sitting there,” Cantor said. “It just seems wrong. It seems like bad public policy.”
Pam Norley, president of Fidelity Charitable, disputed in a phone interview the notion her organization is motivated to see money sit in accounts rather than get to working charities.
“I’ve heard this zombie charity reference, but I’m confused by it,” said Norley, who noted Fidelity Charitable yearly pays out more than 20 percent of its assets — $7.3 billion last year — a significantly higher proportion than the 5 percent or so paid out by many private foundations.
“We’re the leading grantmaker in the country if not the world, and we are encouraging and enforcing active grantmaking,” she said.
As donor-advised funds became popular among America’s tech titans a few years ago, critics began calling out what they believed were abuses of the system.
In 2014, the mobile camera company GoPro went public, and Nicholas Woodman, the company’s founder and chief executive, was suddenly worth about $3 billion. Later that year, Woodman and his wife, Jill, announced they were establishing a foundation with about $500 million worth of GoPro stock.
The foundation, however, was a donor-advised fund. A 2018 New York Times story noted that, four years later, Woodman’s foundation had no website and hadn’t appeared to have funded any significant charitable operations.
In an emailed statement, Woodman’s foundation said it has sponsored some significant charitable operations — including $4 million last year to help build a community center in Montana, and $2.85 million in 2015 to help a child abuse prevention center in San Francisco — but declined to disclose how much money, in total, it has paid to charities over the years.
“Since its inception, the foundation has regularly made grants to help those in need and has most recently made gifts to local Montana communities to aid families impacted by the current pandemic,” the statement said.
Google co-founder Page’s use of DAFs has also raised concerns. Last December, an analysis by Recode found Page had stocked more than $400 million in DAFs from 2015 to 2017.
Eileen Heisman, chief executive of the National Philanthropic Trust — one of the nation’s larger servicers of donor-advised funds, with $6.2 billion in assets — said she believes abuses of the DAF system are rare.
“People aren’t parking money at donor-advised funds,” said Heisman, whose group publishes an annual analysis of DAFs that claims the funds pay out 20 percent of their assets to charities each year. “The money is moving.”
Sometimes, however, the money is just moving from one donor-advised fund to another donor-advised fund. A 2017 analysis by the Economist magazine of data from three of the largest donor-advised funds found two of the three largest recipients of their charitable spending were other donor-advised funds. (Account holders can move money and assets from one fund to another in search of better fees.)
Chuck Brown, who worked as a development officer for the Silicon Valley Community Foundation from 2016 through 2018, published an op-ed after he left saying his work raising money through DAFs did “a terrible disservice to society.”
“Almost every conversation I had came down to mitigating income taxes,” Brown said. When he raised questions at meetings and social events with colleagues about whether donor-advised funds were being misused, Brown said, he was often met with puzzled stares.
“A lot of the folks who’ve built their careers in philanthropy depend on these systems existing,” Brown said.
In a phone interview, Alex Tenorio, executive vice president of development and donor engagement at the Silicon Valley Community Foundation, said the organization has had a leadership overhaul since Brown left.
Like his peers at other servicers of donor-advised funds, Tenorio said he believes they expand the amount of money flowing to charities in America, even if some of it remains in accounts for years at a time. Tenorio also credited his boss, foundation chief executive Nicole Taylor, with issuing an early call for their DAF holders to increase their planned giving this year by 1 to 5 percent, because of the pandemic.
Tenorio expects he and his colleagues will issue subsequent calls for more spending, he said.
“We know this also is a marathon and not a sprint,” he said.
But to David and Jennifer Risher, 5 percent more is far from enough.
The couple used DAFs for years to manage their giving and reduce their tax bills, they said in a phone interview. It wasn’t until David started a nonprofit — Worldreader, which works to expand literacy in the developing world — that they realized the problematic aspects of DAFs, they said.
“You start to kind of wonder … where is all the money?” David said. “And then you realize that you have these funds that have more than $120 billion parked in them … and when you look at a system like this, you start to realize that there are financial incentives at some organizations, where the status quo is working pretty well for them.”
In January, the Rishers co-wrote a short essay on LinkedIn urging DAF holders to release more of their money to working charities.
Then, as the pandemic hit, they realized the need was more urgent. In May, they launched the #HalfMyDaf challenge, with a website soliciting DAF users to spend at least half the money in their funds by September. The Rishers promised to match commitments, up to $1 million, which will come through their personal DAF (which they said they’ll spend entirely this year).
Through June 9, the Rishers had raised nearly $2.6 million and heard almost unanimous praise from people working in the charitable world, even some who operate donor-advised funds.
But the Rishers noticed one group of people they had yet to hear from, they said: anyone involved with major national donor-advised funds, like Fidelity, Schwab or Vanguard.
“Deafening silence,” said David Risher.
When asked about the #HalfMyDaf challenge, Fidelity Charitable President Norley said she and her colleagues had been encouraging their clients to give more since the beginning of the crisis.
“I don’t think you need to set a percentage on this. If somebody wants to donate their entire DAF, that’s great,” she said.
A reporter then presented Norley with a hypothetical: If she learned tomorrow that all of Fidelity’s fund-holders had decided to spend at least half of their DAFs this year, causing her charity’s assets to plummet from more than $21 billion to about $10 billion, would she be happy or dismayed?
“I have no comment on that,” she said.