MacArthur will raise our baseline payout to six percent for the next two years, at a minimum, and where we can, use trust-based practices to reduce burdens on grantees.
The social sector in the United States is in a time of crisis. The cliff of funding from federal programs has sent budgets underwater in field after field, and people and communities in the United States and abroad will suffer. At risk is decades of work and investment in arts and culture that enrich rural and urban communities, environmental protections that ensure healthy air and water, public safety programs that advance justice, local media that informs people about news that matters, and scientific research that expands our understanding of the world and our ability to live in it.
The need for a surge in funding is plain. Philanthropy needs to step up. We at MacArthur believe it is time to tap our reserves to get more money flowing.
We at MacArthur believe it is time to tap our reserves to get more money flowing.
We will immediately commit to increase our charitable payout to at least 6 percent for 2025 and 2026, and where possible, use flexible, trust-based models for our charitable gifts. We will set it at six—as a floor, not a ceiling, for the next two years. Many of our peers, we appreciate, have done and will do even more, which we applaud.
Our mission and values have not changed. We are committed to continue our support for organizations that address substantial problems with bold solutions and foster inclusive communities. And in this moment, that means increasing our baseline spending rate.
Support Grantee Health
Philanthropies should be countercyclical in our giving where possible, driven by need in the world not by market valuations. I wrote in 2020 in the Stanford Social Innovation Review, that “there are in fact times when we—those of us with the power and resources that legacy foundations have—should do more, not less.” At that time, we were facing an unprecedented crisis. This is another such moment of need. Artificial scarcity will create a crisis, but only if we let it.
According to Candid, the government provides more than 100,000 nonprofits with $303 billion a year, a number that had risen under COVID-era government grant programs and has already been heading back to earth. On average, our grantees get 12 percent of their funding from government grants. A concentrated number are highly vulnerable—roughly 100 of our grantees get 25 percent or more of their funding from government sources. This funding is essential for them to provide services and support their communities.
Artificial scarcity will create a crisis, but only if we let it.
Beyond giving more, philanthropists can also do our work to reduce the administrative burdens on grantees. In our journey to better support grantee health, we have seen what makes for healthy organizations. Nonprofits are more resilient when they have more flexible support, when indirect costs are covered, and they have less onerous applications and reporting requirements from each and every funder.
This is why in 2020 we instituted our Indirect Cost Policy, that recognizes 29 percent is the true overhead costs organizations have and supports better organizational health and resiliency, which in turn supports strong, healthy, resilient communities. We have never looked back and urge others to take a fresh look at raising their indirect cost rates.
Join Us
We are inviting other philanthropies to join us: set it at six. We hope others in a position to do so will consider voluntarily raising their baseline payout rate to 6 percent, from the 5 percent as mandated by law, for the coming two years, at a minimum. We know some will urge foundations to do more and we recognize that the freedom of each foundation to decide is part of the strength of our field. Regardless, we can all commit to the trust-based practices of general operating support and to reducing application and reporting requirements where we can and consistent with our stewardship responsibilities. And we can support grantee health with an indirect cost rate that recognizes the true cost of operating.
For philanthropic boards concerned about where the money will come from, we know there are creative ways to enable more support for the communities who need it. In 2020, we used two strategies to increase our giving: first, we drew more from our investment portfolio, allowing our charitable payout to float above the IRS minimum and second, we issued “social bonds” to unlock additional capital to invest in people, organizations, and communities.
We hope, too, that people who use Donor Advised Funds, or DAFs, will also commit to distributing their investments and putting their funds to work. DAFs can voluntarily commit to spend at least 6 percent or more of the funds in the DAF over the next two years, alongside foundations and others who give charitably.
Collaborate to Support Stronger Communities
Philanthropies are well positioned to respond during periods of crisis. Many stepped up during COVID-19 and put out more funds when the social sector needed it. Today is a time when severe budget shortages again call for an infusion of additional capital.
MacArthur has a strong history of collaborating with public institutions and with good reason. Government funding enables access to basic needs and rights: transportation infrastructure, free and fair elections, quality education, access to nutritious food, and healthcare services. Public funding is essential for Americans. A shortfall for our communities will be devastating.
Now is the time for us to come together at scale once again and support our communities when they need it most.
Of course, private dollars cannot replace public funding. But in this moment, we can and must do more to help organizations. Now is the time for us to come together at scale once again and support our communities when they need it most. Set it at six is a starting point, not an end point, for how we in philanthropy can respond right now.
Let’s do more for others where we can; let’s ease unnecessary burdens on our grantee partners where we can; and let’s advance our missions together with new urgency.
