IMAGE: VIACHESLAY LOPATIN/SHUTTERSTOCK
IMAGE: VIACHESLAY LOPATIN/SHUTTERSTOCK

Community foundations were an early and important part of philanthropy’s response to the COVID-19 pandemic, supporting local front-line nonprofits that serve many of society’s most vulnerable members in the face of the novel dangers and difficulties presented by the pandemic. A key pillar of support for community foundations are donor-advised funds (DAFs)—and grantmaking through DAFs at those locally focused foundations rose sharply in response to COVID, according to a survey by the Community Foundation Public Awareness Initiative (CFPAI), an association of community foundations around the country.

CFPAI’s survey found that donor-advised funds at 84 community foundations around the U.S. granted more than $6.7 billion to local nonprofits during 2020—an increase of nearly $2 billion over the $4.75 billion granted from the same funds the year before.

That $6.7 billion is also a half-billion more than donors put into their DAFs at community foundations in 2019. As such, CFPAI says these totals are an example of DAFs doing exactly what they’re supposed to do: serving as a convenient mechanism for Americans to tee up assets for charitable causes, and then to nimbly grant funds out of those assets as interests or needs—such as global pandemics—arise.

“The takeaway is that DAFs are a tool growing in popularity, and people are actively giving out of them, not warehousing the money,” said Jeff Hammond, who coordinates activities at CFPAI.

The growing importance of DAFs in philanthropy became only too clear when Fidelity Charitable, the largest sponsor of these funds, released its latest giving report. Inside Philanthropy recently wrote about some key takeaways from Fidelity’s numbers. Interestingly, the report—which represents a much larger cross-section of DAFs—presents a picture of only moderate changes to DAF giving during a year of overlapping crises. Inside Philanthropy’s Philip Rojc wrote:

“Overall giving from Fidelity DAFs actually increased a lot more in 2019 than in 2020—39% versus 24%. And even though the average grant size did rise in 2020 from $4,358 to $4,614, that’s an increase of only 6%. The average number of grants per giving account also rose, albeit modestly, from 10.8 in 2019 to 12.8 in 2020.

“The report acknowledges that the overall picture didn’t change that much, framing that fact as a positive: ‘Rather than redistributing dollars to human services charities from other nonprofits, donors simply increased their overall support so they could address pandemic-related needs. Education is the only sector that experienced a slight decrease in total grant dollars from the previous year.’”

Of course, the debate about DAFs in philanthropy and policy circles continues to swirl as this funding mechanism commands an increasing portion of philanthropic dollars. DAF critics have been calling for reforms to DAF regulations on issues like payout requirements—perhaps requiring payout of DAF assets within 10 or 15 years—and for greater transparency regarding grantees.

As critics often point out, DAFs currently don’t have minimum annual payout requirements. Assets in the funds may be warehoused for years before being used for charitable purposes, even as the people who contributed the money enjoy immediate and significant tax savings. Critics have also been calling attention to potential problems with arguments that the vehicles are “democratizing” philanthropy by streamlining giving for a more modest sort of donor.

Nevertheless, it remains the case that DAF donors at community foundations upped their grantmaking quite significantly last year in terms of total dollars. That is no big surprise: 2020 was a year in extremis, one in which you’d expect philanthropic individuals and organizations to step up to help more vulnerable members of their communities—as, admirably, they did.

CFPAI points out that its survey only included responses from its own 84 members. With nearly 800 community foundations in the U.S., the total granted through DAFs at community foundations is presumably much larger than the $6.7 billion from among those who responded to the survey.

“DAFs are an important tool for many community foundations,” said Hammond, as well as for individuals seeking to enter philanthropy for the first time, or to increase their charitable giving. “The funds make it easier and faster for people to give, especially to smaller charities.”

Hammond says the basic structure of DAFs allows individual givers and funders to commit assets to philanthropy when it makes the most sense financially, while retaining the flexibility to address emergent needs. “If there are actual abuses,” said Hammond, “let’s find them and close them.”

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