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Recent Entries

• The Stars Align
• Traveling Light
• Solly the Seal
• The Greatest Walk On Earth: New Zealand’s Milford Track
• Bobby’s Blog — Don’t Worry.  Be Happy!

Recent Comments

• By Bob Hicks from the entry 'Vantage Point'
• By Nikki from the entry 'Vantage Point'
• By Susan W. McMakin from the entry 'Vantage Point'
• By Nancy Trego from the entry 'Vantage Point'
• By Jay Black from the entry 'Vantage Point'
• By Richard Anderson from the entry 'American Pride'
• By Carlos Catillo from the entry 'How Much Is Enough?'
• By Brendaveggie from the entry 'How Much Is Enough?'
• By ginger allen from the entry 'How Much Is Enough?'
• By caar from the entry 'Up Periscope'

A number of people have asked me to comment on my blog about President Obama’s tax proposal to increase marginal tax rates from 36% to 39%, while reducing the deductibility of charitable gifts to a level of 28%. Let me begin by making a couple of analogies, after which I will draw the relevance.

We are driving a boat on the river, and we have one gallon of gas. We travel upstream to see how far we can go, and we measure that. The next day we start downstream with a gallon of gas, and we measure how far we go. On the second day we will have gone much farther than the first day, because the current is working with us and not against us.

Or, let’s say we are playing football and our quarterback completes a pass for 25 yards. If the receiver commits a foul after the play, the 15-yard penalty will reduce our net gain to 10 yards net. Not bad, but the net gain is less than what it could have been.

Now for the relevance. The government and nonprofits are on the same team. Both are working to solve social ills. Government and philanthropy make decisions in different ways, but both are trying to reduce poverty, improve health and education, environmental conservation, the arts and so on.

If the government raises its revenues by increasing the maximum tax bracket from 36% to 39%, then it should be able to increase the amount of money it spends on fixing the economy, improving health care and other primary objectives of the Obama administration. This increase in the marginal tax rate should have little negative impact on charitable giving. While higher tax rates reduce the discretionary income of wealthier people, it simultaneously increases the value of the charitable deduction.

The rub comes when the President proposes raising even more revenues by reducing the deductibility of charitable gifts to a maximum of 28%. This reduction now amounts to an 11% penalty against charitable giving. While the President may be correct that an improved economy will help everyone including charities, he has effectively created an 11 mph current going against us, or to use the football analogy he has reduced the gain by an 11-yard penalty.

Okay, that sounds interesting but how much will giving actually be penalized? According to a March 2009 white paper by the Center on Philanthropy at Indiana University, high income tax payers annually declare about $81 billion in tax deductions for their charitable gifts. The study projects that the President’s proposal to raise marginal tax rates and to lower simultaneously the charitable deduction will cause about a $4 billion reduction in charitable giving – roughly a 5% decline.

In my opinion, the government should raise revenue in a manner that does no harm to charitable giving. Neither government alone nor philanthropy alone is capable of solving society’s ills. Indeed, together government and philanthropy have not succeeded in solving all of our social problems. Our country needs all the horsepower we can get to address the increased needs of the poor, the uninsured and the laid-off.

I personally have no problem with higher marginal tax rates at the present time. The fact is that the Bush administration accumulated huge deficits and left us with a devil of an economic crisis. In the interest of maintaining political neutrality, I will leave it to others to argue whether the government should additionally be undertaking new initiatives such as health care, energy independence and the environment. 

What I object to is raising tax revenues in a manner that simultaneously hurts the government’s team member, the philanthropic sector. There are other ways to accomplish the government’s revenue goal that do not penalize the home team.

Bobby,

The government is actually siphoning money from the non-profit sector to fund public programs.  There is an interesting bias contained within this move that believes government is somehow better at dealing with the social ills than the non-profits.  Having worked in both public and non-profit human service agencies I can tell you the opposite is true: the private sector produces more service for the buck than the government.

Somewhere I’ve seen the research that measures the value of a tax dollar translated into a “public” service, and it represents something like 40 cents on the dollar.  The non-profit sector, using volunteers, pay scales that typically fall below the market (especially the public sector labor market), in-kind gifts of material and labor, etc. produces more than a dollar’s worth of service for every dollar of funding.

Think about the real loss here when you add the value of monehy being siphoned by the new tax and the public sector’s astronomical cost per service unit.

I, too, will leave to others to put the proper name on this move.

Mark Hierholzer
CEO ChildSavers

Bobby’s Blog – We’re Getting Warmer

A couple of weeks ago I attended the Commonfund (www.commonfund.org) investment conference in Hollywood, Florida. For three days we heard from top experts in their fields like Martin Feldstein (president emeritus, National Bureau of Economic Research), Jack Meyer (former CEO of Harvard Management Company) and Charles R. Morris (author of “The Trillion Dollar Meltdown,” published prior to the current economic crisis). Insightful panels were moderated by familiar faces from CNBC and Bloomberg. You get the point. This was a top quality conference.

[Parenthetically, all of the economists and prognosticators were convinced that the economy will remain weak for at least three years. For those of you who are contrarians, this may be a time of opportunity.]

One of the most thoughtful presentations was by Strobe Talbott, president of the Brookings Institution, formerly Deputy Secretary of State and founder of the Yale Center for the Study of Globalization, knows a thing or two about global cooperation. He observed that typically global cooperation only occurs after a crisis makes a threat to all nations ubiquitous. The need for nuclear nonproliferation is a case in point, once the United States deployed the atomic bomb to end World War II. Today’s financial crisis is another, prompting a high degree (although not a perfect one) of coordination among governments to stimulate their economies.

The challenge of global warming, however, requires global cooperation before the crisis hits. Mr. Talbott presented statistics showing that if the climate warms by 4.5 degrees it reaches a tipping point, where a chain of calamitous environmental events will unfold. Whatever your perspective on the causes of the present warming trend, we are on a path to reach the tipping point sometime between 2050 and 2060, and if we get there it will be too late to argue the point. If there is anything we can do to reverse this trend, we must do it. Clearly, we must act together to be effective.

Do the math. It is our children who will face this moment of crisis if our leaders do not take action. The tipping point is not even so far away as our grandchildren.

What can we do as individuals and as philanthropists to address global warming and to encourage world leaders to work together? Please share your thoughts by clicking on “Comment” below, and let’s begin a community conversation. 

Joel Levine, Senior Research Scientist, Science Directorate at NASA Langley offers the following lecture for those who are interested in learning facts about global warming. You may listen in on Thursday, April 9, 2009, from 11:00 AM to 12:30 PM, on the NASA Digital Learning Network (NDLN) at http://dln.nasa.gov.

Joel is a former Trustee of the Science Museum of Virginia and is one of the nation’s foremost atmospheric scientists. Since 2002, Joel has served as principal investigator of the ARES mission to Mars.
 
Lecture 4. April 09, 2009, 11:00 AM - 12:30 PM: Dr. Joel S. Levine, Science Directorate, NASA Langley Research Center, Hampton, VA:  Global Warming: Causes and Consequences - The temperature of the surface of the Earth and the other planets is controlled by incoming solar radiation and the outgoing thermal or infrared radiation generated at the surface by the absorption of the incoming solar radiation.  As the surface-emitted thermal radiation travels upward through the atmosphere, it is absorbed and then re-emitted by certain atmospheric gases, resulting in an additional warming of the surface. This additional warming is called the “greenhouse effect.”  Gases that absorb and then re-emit thermal radiation are called “greenhouse gases.”  Carbon dioxide, while only a very minor gas in the atmosphere, is an important greenhouse gas.  Measurements indicate that atmospheric concentrations of carbon dioxide are increasing, most likely as a result of certain human activities, like the combustion of fossil fuels for transportation and energy generation and the burning of vegetation for deforestation and other land-clearing activities.  The causes and consequences of global warming will be discussed.

Global warming caused by Human activity has been proven to be a fiction.  Increases in CO2 follow observed temperature increases, not the other way around.  Why does everyone want to buy into this hoax?  Isn’t the government doing enough to destroy the economy and liberty without the false issue of global warming?

I won’t argue the science with my friend, Grice Galleher. I will leave the science to the scientists to hash out.

I will, however, share an analogy that illustrates how I view the global warming issue. I have steadily put on about 3 or 4 pounds over the past year. This rise in weight follows a less impressive annual advance over several years. Additional evidence of body change is that my last suit pants were an inch larger around the waist. Ouch!

There are many variables that might be causing these observed changes. I have no proof whatsoever that any one of them may be the cause. It may simply be that aging is the overriding factor, and I don’t care to reverse that process.

So, for the next month I will cut back on 1/2-the-normal-fat ice cream (my favorite dessert) in perhaps a hopeless effort to fool my doctor when I have my physical in May. Of the many variables, at least it is one I can control. It may help, or it may not. But I am going to give it a try.

(Then again, if Dr. Daniel is reading this comment I am sunk anyway.)

Let us assume for the moment that the other large number of experts who believe that mankind has little or nothing to do with global warming or cooling are correct.  One might tend to think they are correct based on the absence of the ice age, the Mastodons and the Dinosaurs.  If that is the case then many of the programs now underway or proposed to reduce man’s influence, if there is any, may actually do our national and global economy more harm that good.  Perhaps we should do a very serious short and long term cost/benefit analysis of such things as making ethanol from corn before we implement such programs.

Visit Christopher Newport University’s website for data on 2009 Virginia Environmental Attitudes Assessment: A Focus on Climate Change—http://cpp.cnu.edu/.

I am pleased to welcome my first guest blogger, Jim Doherty. Jim is a published author and a great thinker on philanthropy, values and freedom among other things. Two of Jim’s most recent publishing achievements include “In Praise of Givers” and a piece on interviews with Holocaust survivors where he examines the deep roots of their optimism about America. Jim won the marathon in his age group (I’m polite enough not to mention which age group) and he puts a lot of effort into teaching his grandchildren about the values that are important to him, which by the way are the same values that have made this country great. It is a pleasure of my life to consider Jim and his wife, Mary Lou, great friends and I am indebted to Jim for allowing me to post his first entry to the blogosphere. Take three deep breaths, open your mind and focus!

——-

The Richmond Times Dispatch devoted its 23rd Public Square to the volunteer. The subject contains important philosophical and spiritual implications. Alexis de Toqueville addressed the extent to which free associations permeated this country in his work Democracy in America published in Paris in 1835.

Toqueville entitled one chapter, “Of the use which Americans make of public associations in civil life.”  The following statements are excerpted from that chapter:

    Nothing, in my opinion, is more deserving of our attention than the
    intellectual and moral associations of America.

    As soon as several of the inhabitants of the United States have taken up
    an opinion or a feeling which they wish to promote in the world, they
    look for mutual assistance; and as soon as they have found one another
    out, they combine.

    I met with several kinds of associations in America of which I confess I
    had no previous notion; and I have often admired the extreme skill with
    which the inhabitants of the United States succeed in proposing a
    common object for the exertions of a great many men and inducing
    them voluntarily to pursue it.

In Toqueville’s native land the country pledges itself to liberte and egalite; in America,  freedom and justice.

After completing their 11 volume series covering six millennia in the Story of Civilization, Will and Ariel Durant wrote The Lessons of History in a 102 page book to outline their conclusions. The Durants claimed:

    Nature smiles at the union of freedom and equality in our utopias. For
    freedom and equality are sworn and everlasting enemies, and when one
    prevails the other dies.

Years ago the Economist published an article covering the results of a poll in which Americans and Europeans were sampled as to their preference for freedom or equality. The Americans gave a slight edge to freedom; the Europeans opted for equality. Those who favor equality look to government to tend to the common good.

The March 14-20, 2009 issue of the Economist reported that the government of Toqueville’s France accounted for 52% of gross domestic product for public expenditure in 2007. The budget proposed by President Barrack Obama for 2010 anticipates 39.9% of GDP – up from 34.3% a decade ago. Thus the Economist poll still holds in the behavior of the French and Americans. The same issue notes that the gap in the GDP relationship between the euro zone and America has lessened from fourteen points to eight over a 10 year span.

Freedom connotes choice. A turn to government favors monopoly.

Yes, the free associations Toqueville celebrated enable the man and woman to pour his and her will, energy, and financial assets into the cause. And in the cause together they share their spirit – right here in Richmond.

The volunteer fulfills the first essential in the United States pledge of allegiance in the pursuit of the common good.

Since the Richmond Times-Dispatch put a nice promo about my blog on its editorial page, at least four or five people have said to me, “I don’t know how you do all the things that you do.” I have thought about that observation, and if I am truthful I really don’t do all the things that I do! Not anywhere close.

My many colleagues at work effort tirelessly to achieve accomplishments for which others give me credit. My wife, my kids and my extended family and I work together in the same way. Sometimes I am fortunate to provide leadership, but rarely have I done the heavy lifting. And, if I really want to be honest, a great deal of what I know is thanks to my dad and to my mom, who as I write is quite ill. Daily, when I visit Mom she provides me a mental list of things I should be thinking about! All of these people are my heroes.

Paul Galanti is a hero to many of us, thanks to his long-term survival as a POW in Viet Nam. His wife, Phyllis, is equally a hero for her extensive, tireless efforts, along with other POW wives, to rally the nation in support. These women were instrumental in saving our heroes, including Paul and John McCain. Paul never forgets it, and in fact gives a magnificent talk called, “Who Packs Your Parachute?” The point is that the person who packs your parachute is the most important person in the whole world.

I suppose there are three kinds of people in this world – those that don’t do very much, those who try to do everything by themselves (and often make a lot of fuss about it), and those who are team players (and probably don’t make a lot of fuss). I hope I am one of the latter people most of the time, and I thank all of you who give me credit for the work of a great and very large team. Let me take this opportunity to pass your kudos along to my family, my colleagues and my friends, because they are the ones who deserve it.

I am a big fan of gift agreements. It is amazing to me how many gifts donors make without laying out the parameters of what is expected from the recipient charity. For example, a charity begins a capital campaign for a building. The campaign falls short, and the charity decides not to build the building. What happens to the donor’s gift?

A gift agreement would solve that problem. The major universities often use gift agreements that give them the right to redirect the funds to other projects. While this provision may be in the fine print, at least the contingency plan is disclosed.

Smaller nonprofits generally don’t use gift agreements, and in my view it is the donor who is most exposed. I remember from my banking days a saying that “possession is nine tenths of the law,” which normally turns out to be true because litigating can cost more than the value of the gift!

Thanks in part to the recession, in part to a lack of clarity and in part to some charities’ disregard for a donor’s intent, we are seeing some tragedies around long term gifts today. Witness Princeton University’s recent settlement ($100 million price tag) with the Robertson family, who complained that the University is misspending their parents’ gift that was intended to train college graduates to enter government service. The family observed that only one or two Princeton graduates each year in fact enter government service, and they alleged that certain expenditures from the endowment were used for other purposes. Other controversies include Randolph College’s sale of donated artwork and the decision of Brandeis University to close its museum and sell its 6,000-piece collection. These donors, some living and others not, are most certainly unhappy.

Sometimes nonprofits do the right thing on their own. Recently a local nonprofit returned a gift to a donor. Some years ago the donor had made a naming contribution (in memory of a loved one) for a new facility, which was never constructed because the balance of the money needed was never raised.

Sometimes nonprofits resist doing the right thing. The Community Foundation has a donor who made a direct gift to small nonprofit, which admits that it is not going to follow through on the intended purpose. Nevertheless, they are resisting the donor’s request to transfer the funds to another nonprofit. Wouldn’t it have been simple to have a gift agreement saying what would happen if the purpose of the gift could not be fulfilled?

An alternative solution is to use a third party, like The Community Foundation, which can receive the gift under its own gift agreement (which we call a fund agreement) and release the proceeds to the nonprofit when certain benchmarks are met. I personally used the foundation in this way in 1992 (seven years before I began working there) to set up a charitable remainder trust benefiting a local nonprofit. Since I planned to live a long time (and so far have), I figured there was some chance the nonprofit may no longer be in existence and The Community Foundation could redirect the funds if necessary.

The lesson here is that when givers make endowment gifts or other long term gifts to nonprofits, they need to think critically about how their gift will be used and whether they have ensured that the nonprofit will follow through. Let’s face it, over eternity (the expected life span of endowments) the probability of any idea becoming irrelevant or impractical increases significantly. Once you have forked over the dough, it is too late to place restrictions on it.

Hurray for Bobby and the Community Foundation for shedding light on a difficult problem. Not all charities are living up to the obligations of managing and putting to work their funds.  There is no adequate remedy except the vigilance of donors and bring abuses to light to protect future donors from mistake and misappropriation of funds.

Bobby,

Typically, we require documentation on each gift or pledge (capital or other) that clearly states the purpose of the gift.  This may take the form of a written pledge form or signed letter.  How does a “gift agreement” differ from this and do you have examples to share?

Many thanks for your informative blog and all the other good things you do for NPO’s and this community.

Mark Hierholzer

Mark, thank you for your comment. I am going to see if I can get a copy of the UVA gift agreement. They do the best job I have seen.

Basically, a gift agreement deals with the “what ifs.” So, if a donor makes a pledge for a wing to your building that never gets built, then what happens? Or, if you have an endowment to do counseling to children in certain circumstances that you no longer are going to serve, then what can you do with that money?

Our fund letters contain the following variance language:

It is understood and agreed that all funds held in the XYZ Family Charitable Fund shall be subject to the variance power and other provisions of the governing documents of The Community Foundation, including, without limitation, the power contained therein for the Board of Governors to modify any restrictions or conditions on the distribution of the funds for any specified charitable purpose or to specified organizations, if in their sole judgment, such restriction or condition becomes incapable of fulfillment.

While this is a special situation, similar language can give you the right to re-allocate the funds to a similar purpose or to another purpose that supports ChildSavers.

You also have to deal with naming opportunity questions. What if a company changes its name? Who pays for the new sign? How long is the naming opportunity for? Buildings don’t last forever.

I think you get the point!

—-

Eppa, thank you for your wise comments. Your donor perspective is a helpful one.

Bobby

Here is a sample gift agreement you may find useful. It is modeled after one used by one of Virginia’s most outstanding universities.

[Donor] GIFT AGREEMENT
Non Profit Organization

This Gift Agreement (the “Agreement”) is made this ____ day of _______ by and among ______________________ (“the Donor”), and the NPO hereinafter referred to as “the NPO”).

The Donor and the NPO agree as follows: 

1.  Donor Commitment.  The Donor hereby pledges to the NPO the sum of _____________________ Dollars ($______________), which as provided for herein is designated for the benefit of ____________________ [specify program]. 

2.  Donor Purpose.

a.  Purpose.  It is understood and agreed that the gift will be used for the following purpose or purposes:  [Description of the use or eventual use of the gift/pledge, the use of the income from the fund, and any additional or stipulated purposes for the gift.  If the donor wishes to designate a portion of his/her gift for an annual contribution or other on-going annual commitment, language should appear in this section regarding the distribution of the annual portion.  Gifts including proposed namings would specify names in this section (noting also that permanent building or space namings are subject to Board of Directors approval). 

3.  Payment.  It is further understood and agreed that the gift will be paid in full on or before__________ or as may be further described hereafter in the event of an agreed payment schedule: [state payment schedule, including months, years, and amounts]. It is also understood and agreed that the gift funds as received may be invested by the NPO as it shall best determine pending distribution to the purpose or purposes described herein. 

4.  Naming/Approvals:  The proposed naming of any program, center, physical structure, or part thereof must be mutually acceptable to the Donor and the Board of Directors and must be approved in writing by both the Donor and NPO.  Any naming is and shall be subject to the naming policies and procedures of the NPO in effect.  It is understood that the undertaking of any facility construction or development must be approved by the Board of Directors.  Nothing herein shall be interpreted as requiring the NPO to undertake construction or commence any capital project without all required approvals.

5.  Intent.  It is the agreement of the parties and the intention and wish of the Donor that this gift and any unpaid promised installment under this Agreement shall constitute the Donor’s binding obligation and shall be enforceable at law and equity including, without limitation, against the Donor and the Donor’s estate, heirs and personal representatives, and their successors and assigns. The Donor acknowledges that the NPO is relying, and shall continue to rely, on the Donor’s gift being fully satisfied as set forth herein.

6.  Recognition by the NPO. To honor the Donor, and to express the appreciation of the NPO publicity in the form of news announcements, both internal and external, will be made with the permission of the Donor. [Additional information as appropriate, including specification regarding the donor’s name and how the donor should be recognized.]

7.  Reporting and Stewardship.  For capital and current use gifts, once the gift has been fully paid and/or employed by the NPO for the purpose specified in this Agreement, the NPO will normally report at least one time (except as the Donor and the NPO may otherwise mutually agree in writing) on the outcome of the gift. 

8.  Future Changed Circumstances.  [Note that this provision is not necessary for unrestricted gifts, but should be used for all others.]  If, in the opinion of the Board of Directors, all or part of this gift cannot at some time in the future be usefully or practically applied to the above purposes or if the purpose can not be achieved because of a future change in law or unforeseeable circumstances, it may be used for any related purpose which in the opinion of the Board of Directors will most nearly accomplish the Donor’s wishes.

14.  Amendment.  By mutual consent of the NPO and the Donor, the Donor’s legally or duly appointed agent or attorney-in-fact, or the personal representative of the Donor’s estate , any provision of this Agreement may be amended, modified, or deleted.  Any such changes, deletions or additions shall be recorded in written signed addenda, which shall form part of this Agreement.

15.  Entire Agreement.  This Agreement contains the entire understanding of the parties with respect to the subject matter of the Agreement and is subject to the laws of the Commonwealth of Virginia.  This Agreement also supersedes all other agreements and understandings, both oral and written, between the parties relating to the subject matter of the Agreement.

         
In witness whereof, the parties to this Agreement have affixed their signatures:

SIGNATURES