Proponents argue that individuals who accumulate wealth and who want to benefit society long-term ought to be able to do so by creating perpetual endowments. The Rockefeller Foundation, Kresge Foundation and Mott Foundation are larger examples of perpetual endowments that provide important support to nonprofits and whose expertise advances the ability of “the third sector” to make essential contributions to the betterment of society. This country was founded on principles that empower individuals and that limit government to those functions that the market will not provide on its own. Permanent endowments are an important expression of individual freedom. Further, they represent important social capital and well managed foundations provide a source of continuing knowledge as well as financing to ensure that the nonprofit sector is well funded and efficiently managed.

I agree with the latter arguments favoring permanent endowments. Yes, there are some poorly managed foundations. There are also some poorly managed companies and there are individuals who are irresponsible with their personal finances; but, we do not outlaw either of them. Rather, we create regulations and perform audits to encourage responsibility, and I think this is the right approach for permanent endowments as well. Transparency is the key issue.

I find it is curious that Congress is focusing more on donor advised funds and supporting organizations, which when managed by responsible host public charities are highly transparent. Private foundations, on the other hand, have received little attention and rarely are transparent at all. I won’t speculate on the reason for this disparity in attention by Congress, leaving it for others to argue, but will simply state that Congress’ emphasis on where permanent endowments most need scrutiny seems misplaced. Private foundations are widely known to provide “salaries” to family members of the major donors. These and other questionable expenses from the standpoint of social value are allowed in the calculation of the 5% minimum distribution requirement.

What can we do to protect the ability of generous, civic-minded Americans to provide in perpetuity for the charitable organizations and causes they champion? We need to develop relationships with our Congressional representatives, as foundations from across America did on February 27 and 28 during Foundations on the Hill, sponsored by the Council on Foundations and the Forum for Regional Grantmakers. We need to ask grantees to contact our Congressmen and Congresswomen to let them know from their perspective why permanent foundations form important long-term sources of capital. We need to be vigilant in making the arguments of why perpetual endowments are important and why they are consistent with democracy and free markets.