Let’s stop for a moment to savor this thought. How tough can it be? There’s no shortage of worthy causes. And writing checks could hardly be called taxing. But spending this kind of money is harder than it looks because large foundations–which control two thirds of the more than $300 billion in charitable assets–take themselves as seriously as General Electric and Microsoft. They study needy nonprofits. They carefully tailor gifts to comply with their founders’ wishes. And they demand “returns” on their investments. A boatload of new cash to hand out means that workload grows, even if the staff to handle it hasn’t. “The big foundations are just swamped,” says Leslie Lenkowsky, a professor of philanthropic studies at Indiana University’s Center on Philanthropy.
It’s hard to fathom this crush of money unless you look at the numbers. Lilly Endowment’s portfolio holds almost nothing but Eli Lilly stock. The stock price has zoomed 577 percent over the last five years, largely fueled by Prozac, Lilly’s top-selling anti-depressant. The Prozac effect added $12 billion to assets in just four years, bringing the total to $15 billion last year. That meant it had to give away more than $8 million a week in 1998. Mutual-fund managers would kill for investment performance like that–or for returns at other foundations. Atlanta’s Robert W. Woodruff Foundation earned an average of 37.4 percent for the three years ending in 1997, while the Standard & Poor’s 500 returned 31.3 percent.
What are foundations doing with all the dough? One solution is simple: give bigger handouts. The Robert Wood Johnson Foundation, in Princeton, N.J., is lavishing more than $100 million on elder-care programs and $47 million on helping the states implement a federal health-insurance plan for kids. Past grants for similar programs have typically been about $13 million. Lilly Endowment points most of its bucks toward its home state, Indiana, but last year made a $42 million grant to the United Negro College Fund. Its largest prior gift to UNCF: $3.4 million. The Ford Foundation’s $52 million grant to the Center for Community Self-Help, in Durham, N.C., is more than twice as big as Ford’s entire annual budget for such grants in years past.
The new money is also buying some serious frills. The Pew Charitable Trusts in Philadelphia is restoring the Star-Spangled Banner. It’s building new cases for the Constitution and the Bill of Rights. And it’s rejuvenating Independence Mall, a three-block stretch that includes the Liberty Bell. “We’ve been able to invest in projects we wouldn’t have otherwise,” says Rebecca Rimel at Pew. Packard is sharing expertise with executives at other nonprofits and training Chinese-government officials in energy-resource management.
But foundations’ new largesse doesn’t impress everyone. “Here they have these vast returns on investment and they’re still paying out 5 percent,” gripes Pablo Eisenberg, a senior fellow at Georgetown Public Policy Institute. A truly bold stroke would be to hike gifts to 10 or 15 percent of assets. Better yet, says philanthropy professor Lenkowsky, foundations should consider putting themselves out of business by giving everything away over 20 years or so. That way, at least, they wouldn’t have this problem in the next bull market.
