In the past few years, donor advised funds have received increased attention from the charitable sector, due to their growing popularity – and their lack of regulation.
Unlike private foundations, which must pay out at least five percent of their endowment each year, contributions to DAFs do not have a payout requirement, or a mandate to share how dollars are distributed.
Some advocates have called for federal reforms requiring time-bound payouts and increased transparency, like last year's proposed Accelerating Charitable Efforts Act. Others have opposed any reform, arguing that new requirements would have a chilling effect on giving, and limit philanthropy's flexibility to respond to community needs.
Gerry Roll, founding executive director of the Foundation for Appalachian Kentucky, has been an exception to this either-or dynamic, calling for regulation that would ensure that DAFs better consider the unique needs of rural and other marginalized communities.
In April, Roll penned an op-ed in the Chronicle of Philanthropy titled DAF Sponsors Aren’t All Created Equal. New Legislation Should Reflect That. She proposed that community foundations should be regulated differently than commercial DAF sponsors, including a national certification for community foundations to exempt them from time limits for distributing DAF contributions.
She cites the structures governing community development financial institutions (CDFIs) and community housing development organizations (CHDOs) as a framework for how such a certification could incentivize localized giving and increase government grants to foundations with strong community ties. Her past work leading the creation of a CHDO informed her perspective on how regulation can create conditions that support increased investment in rural communities.
We caught up with Roll to hear what the response to her article has been so far, and what she thinks is the way forward.
To summarize what you proposed in your article – how would DAFs sponsored by community foundations differ in regulation from those regulated by commercial and national sponsors, and how do you think that these regulations would shift the behavior of DAF sponsors and donors?
Everybody wants to talk about DAFs as universally good or bad. But the reality is more complex.
With my article I wanted to make the case that when community foundations sponsor DAFs, that’s a good thing for local communities. Meanwhile, when commercial gift funds like Fidelity and Schwab sponsor DAFs, local communities suffer. These corporate funds have zero connection to communities. They get all the benefits of holding dollars, with none of the requirements of community connection. So let’s regulate them differently.
I’m proposing an additional accreditation that community foundations can voluntarily opt in to, which would allow them to run DAFs in a less-regulated manner than their corporate counterparts. We need to make community foundations more attractive as DAF sponsors, so those dollars will be spent in communities that need it most.
I see this as an alternative to the kind of DAF reform some are proposing. If we make a bunch of new rules that say, “Fidelity can't have donor advised funds,” or, “All DAFs have to spend down within five years,” then that money is going to go to large universities, hospitals, and other large philanthropic efforts that people already know and trust… All that's fine, but what we really need is a way to address issues in marginalized communities, in rural America, and in places that are desperately in need of opportunities to rebuild their neighborhoods.
Like we’ve seen with CDFIs and CHDOs, incentivizing philanthropic investment builds the kind of local capacity and infrastructure required to access government funding and support longer-term projects.
My goal in writing this was to start a bigger conversation. I don't care if it's pro or con – let's just have a more proactive conversation about what kinds of policies we do want – rather than just being against all potential reform.
What has the response to your article been like so far? If there has been pushback, what are the main points of disagreement?
I got a lot of affirmation from community foundations, both those that know me and some that don’t. I still have emails from folks who responded, “Yes, finally, somebody said it!” Including some people from rural communities.
One pushback I’ve heard is that the federal government won't put into statute requirements that rely on a non-governmental entity to implement federal policy. The federal government won’t like that the National Council on Foundations, or some other non-governmental entity, could change those rules anytime, without federal oversight. That's apparently the party line on why what I’m suggesting is not possible. But I’m not sure I buy that; I'm not sure that’s true.
My goal in writing this was to start a bigger conversation. I don't care if it's pro or con – let's just have a more proactive conversation about what kinds of policies we do want – rather than just being against all potential reform.
Jeff Hammond, who is the lobbyist in charge of the Community Foundation Public Awareness Initiative (CFPAI), [was upset by the article]. He reached out and said, “Why did you do that? It's not good for us to call each other out. I’m representing you, and you're so much better off now than you were 10 years ago.”
CFPAI says they represent community foundations, but my frustration is that they’re not collaborative in putting forth policy proposals that could help community foundations. They’re only against stuff.
And they’re only representing community foundations that can afford to pay to have a voice in Congress. There are 800 community foundations across the nation that are in little communities just like mine, but… they don't have the time, the resources or the money to participate in these national conversations.
What about philanthropy-serving organizations (PSOs?) Are they speaking up?
I don't find that PSOs, at least the ones that we are able to participate in, are taking a stand on donor advised funds either.
But there is a huge contingent of smaller and rural community foundations that are priced out from participating in PSOs. We need a PSO that is financially accessible to foundations of all sizes, who are willing to proactively talk about and test new policy ideas, rather than solely fight against what we don't want, which is anything that rocks our boat.
I do hold PSOs responsible to reach out to people beyond their status quo. Right now the sector is very fragmented, and it only serves to maintain the status quo.
Do you think the resistance has been in part due to a resistance against any regulation?
Yes. I think people, especially people at commercial gift funds, don't want any of the rules to change. These national groups are just sitting on money. And quite frankly, a lot of the richest people in the world are using the rules to not give faster… so why would anybody but those of us at the very bottom want these rules to change?
If I had the power to convene a workgroup on this topic, I would start first with a facilitator who can help formulate the right questions. Because I think all of us are really just afraid of change. We’re thinking, “What am I going to have to give up? What am I going to lose?"... If we open this door, we might not like what comes out on the other side.
The article references CDFI’s and CHDO’s as an analog to the role you see community foundations playing. Can you share more about that?
Looking at CDFIs and CHDOs, we can see the difference that those organizations are making.
For instance, CHDOs are changing the homeowner landscape; they are starting to fill the appraisal gap and the income gap on homeownership. CDFIs are building small businesses that wouldn't have been built otherwise.
Similarly, community foundations – already a conduit between donors and communities – could be a perfect conduit between private philanthropy and public funding. You have that even-handed facilitator in the middle, which is what a community foundation ought to be. Their only motivation is that they live and operate in these communities, and they want those communities to thrive. They’re on the ground, they’re the connector whose only job to make sure those funds are used effectively and appropriately. They bring the community into these bigger conversations.
If accredited community foundations are doing all these things, and the philanthropic side can see it, I think we should still support the use of donor advised funds. I have a handful of donor advised funds. I take stuff to those donors; they count on me to tell them what projects or needs are present in the community. I think that's a perfect scenario.
In terms of further exploring this idea of creating an accreditation structure, what kind of information gathering or organizing do you think still needs to happen?
Part of what needs to happen is narrative change – we need to focus on rebranding community foundations.
For a long time, community foundations have been looked upon as primarily serving donors, and as a bank for donor advised funds. We need to flip that narrative to affirm that community foundations serve communities.
I think we need to convene as community foundations to figure out what we want in terms of policy, to do community-building, capacity-building, and talk about how we can be good stewards of both philanthropic and public resources. But somebody has to be willing to set the table and host the conversation.
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