Last week, the MacArthur Foundation received a lot of praise for committing to increase its payout rate for at least the next two years from the legal minimum of 5% to 6%, which will add to the foundation’s total giving by about $150M. Here’s an article on it (Content warning, the article immediately displays a picture of Agent Orange, Russia’s most valuable puppet, in case you are trying to regulate your stress level). Here’s a piece from MacArthur’s president, John Palfrey, encouraging other foundations to do the same:
“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 […] 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.”
Quick disclaimer: I like and appreciate the MacArthur Foundation, especially since it affirmed its commitment to racial justice work when there has been so much pressure to drop DEI. Also, the foundation brought me in to speak a couple of years ago, and I hung out with John and the team, and everyone I met was wonderful. MacArthur does important work. And it takes some guts to bring in someone who points out all the stuff you could be doing wrong, and who is known to steal dry erase markers and snacks from foundation offices (In my defense, the stealing is a result of decades of being conditioned by funders to keep overhead low).
In the spirit of collegial feedback, I have to say 6% is nowhere near enough for what the world is facing. As colleague Rahul Chandran says, “Mac had a return of 10.92% on its portfolio in 2023 and a compounded annual rate of return 2014-2023 of 8.52% […] Given that rate of growth, Mac could have given out about 10.11 percent of its assets annually = doubled its giving. Had it done so, it would have about 20% less in net assets (or…$6.4 billion!) today.”
And two years is also not enough. As I mentioned in a reel last week, conservative funders often fund for 20 years or 30 years or more.
Setting such low thresholds anchors these numbers in people’s minds, preventing them from thinking bigger and bolder. When everything is burning down all around us, foundations should be considering upping their payout rate significantly, and though I love alliteration as much as anyone, the call to “Set it at Six” is an incremental step that does not acknowledge the reality of the situation. Freedom Together Foundation goes further by deciding to double its payout rate from 5% to 10%. Its President, Deepak Bhargava, in a letter titled “Courage is Contagious” writes:
“We’re moving to provide rapid response grants to communities and organizations under attack. We’re backing groups that are defending democratic norms, as well as supporting safety and security initiatives for organizations under threat. And we’re doubling down on long-term strategies to get at the roots of the democracy crisis.”
10% is certainly a significant improvement from 6%. And if we’re going for alliterative mottos, “Take It To Ten” is a better rallying cry.
But even that is not enough. We’re debating whether foundations should stick to 5%, or increase to 6% or possibly 10%, but this discussion is symptomatic of a continued denial of reality. We’re treating this crisis as if it were like other crises we’ve dealt with before. People think if we can just weather the next two years, maybe Democrats will win back the house, and then we can stop the bleeding, and then in four years, maybe we’ll win back the presidency, and then we can start restoring Medicaid and trans rights and so on and everything will be back on track and all of us can finally have decent sleep without night terrors. And of course, we’re going to need money to get all of that done and address other societal problems, so funders need to save and shore up for the future.
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Read full article here.
