Philanthropy Watch 

Pablo Eisenberg keeps tabs on nonprofits, foundations

We often think of nonprofits as the Robin Hoods of society, providing aid to those that government and business have neglected, while at the same time prodding those entities to do more.

But who is needling the nonprofits (and the foundations that fund them) to be more open and responsive? One such person is Pablo Eisenberg.

Eisenberg, 75, was the executive director of the Center for Community Change for 23 years, and is now a senior fellow with Georgetown University's Public Policy Institute. He is known for his biting commentaries about the need for nonprofits and foundations to focus more on America's most disadvantaged citizens, and to provide more transparency about their finances and governance.

Eisenberg is the keynote speaker for the Idaho Nonprofit Development Center's annual conference on Friday, but he took time to speak to Boise Weekly by phone last week.

Boise Weekly: How do you see the role of nonprofits in our society?

Pablo Eisenberg: I think that the nonprofit sector in previous times was probably much more of a watchdog than it is now. To a certain extent much of it has become a lapdog. Partly I think it's because the balance has been tilted. Corporate power has increased without many checks and balances, and many nonprofits also have now gotten a lot more federal money than they ever have before, which means they haven't been able to be as activist oriented as they might have been.

It seems the definition of "nonprofit" is rather broad.

Health and educational institutions are really 75 percent of the wealth and income of nonprofits. Many nonprofit hospitals are being examined by the Senate Finance Committee, and its investigators found that they're turning out to be not so "nonprofit-y." There are lots of nonprofit hospitals who have huge operating surpluses. Should they be allowed to do that? Should universities be allowed to accumulate these huge endowments, or should portions of that be targeted to meeting the needs of needy students? These are some of the open questions.

You've written about what you see as the problem of nonprofits such as public universities selling their "nonprofit-ness." What do you mean?

You have colleges and universities in typical American fashion who feel they always have to grow. They've got to get bigger and better residential halls. They've got to get bigger and better labs. And therefore they're always out seeking money. And fundraisers have that tendency of trying to get the money wherever it comes from. So you have the pressure to sell out to a Taco Bell or to finance a Georgia football stadium with Coca Cola paying $5 million a year. So the whole thing has gone commercial. You have the blurring of the lines between what is a nonprofit and for-profit. And the IRS and the Congress have done very little to really define where the line is or to draw the line.

We have seen the growth of huge family foundations recently like the Bill and Melinda Gates Foundation. You have some concerns with that.

You have basically a board of directors of two people, now three—Bill and Melinda and now Buffett—who admittedly doesn't know much about philanthropy. So basically it's going to be two people governing the use of $3 billion a year of tax-deductible funds.

If there are going to be 50 more of these mega-foundations coming up in the next 30 years, which some people predict will happen, what's that's going to mean for American democracy and its democratic institutions? You're going to have this enormous amount of money doled out without any public process, without any political process and without very much public accountability.

Has their giving, though, encouraged other people to do the same?

I do think that their giving is probably going to inspire some other very wealthy people to not wait until they die, but to give in their lifetimes. I think that's a good thing. The question that I raise is how to democratize philanthropy? How do you put checks on the creation of a new oligarchy that is being created with essentially public funds?

Do you follow a type of antitrust pattern and do you limit the size of future foundations? Do you require that a certain proportion of the boards of directors—half, maybe more—be public members, non-family members? There are ways that you could do that.

Currently, foundations are required to spend at least 5 percent of their assets each year to qualify for nonprofit status. You would like to see that spending floor raised.

The asset base of foundations is probably around $600 billion. And it's growing all the time, while the required payout has remained the same. For big foundations it's basically 3.5 to 4.2 percent, when you take away administrative costs, legal costs, rental or purchase of office space, etc. And taxpayers are getting cheated. Very little of the money that is taken away from federal taxes because of these tax deductions goes into programs. These foundations are accumulating assets almost for the sake of accumulating assets. They're acting more like bankers than grantors.

The argument that's been put forward ... is that, "Oh, foundations must live in perpetuity." And the question is, "why?" There's going to be more money in philanthropy than we ever dared dream of. Even if several major foundations went out of business, which is unlikely, there will be more than enough to replace that amount. So 6 or 7 percent in grants as a minimum requirement would certainly not hurt.

Some people became discouraged with nonprofits when there were a number of scandals surrounding them, for instance with the United Way and Red Cross. Do you think the groups have learned their lesson and are more transparent about where their money is going?

The reaction unfortunately has been, "Oh, well, it's a matter of a few rotten apples in the barrel." That's a crock. There are a huge number of rotten barrels in the world of philanthropy and nonprofits. And everyday reporters are uncovering more and more inappropriate behavior.

It's almost like a siege mentality. The nonprofits ... are saying is "Oh, gee, there's a real problem. What we need is self reform." Well, I've been around 40 years doing nonprofit work and I've never seen, or rarely seen self-reform work.

The only thing that's going to make it happen is better government regulations and enforcement. They seem to forget that it's the taxpayers' money and that there's an obligation to make sure that that money is well spent.

You also believe that foundation and individual giving is inappropriately skewed.

If you look at where foundation money is going, where that $40-some billion a year is allocated, you'll find that only a tiny portion goes to those most in need—poor people, people of color, AIDS victims, marginalized constituencies, youth and children, environmental groups, you name it.

And that's been a huge movement from what used to be, particularly at a time when in fact the social needs of the society are not being met by the federal government or by state government.

Certainly individual philanthropy is totally skewed. I wrote an article about where the top millionaires ... gave their money. And it was extraordinary. With a very few exceptions, all that money went to higher education, medical schools, museums and a few cultural institutions. Almost nothing went to grassroots, to poor people's institutions, to social service institutions, not even to the local United Ways.

You have also encouraged nonprofits to be more activist, reminding them that they can so some lobbying without losing their nonprofit status.

Congress recognized by legislation the right of nonprofits to do a limited amount of direct lobbying. So they permitted a portion of budgets to go to that cause.

The interesting thing is that such a very little amount of lobbying takes place. There's enormous potential for legislative activity on the part of nonprofits, but probably not more than 1 to 1.5 percent of all nonprofits than can lobby do so.

You believe that it's essential that nonprofits band together.

It's crucial for nonprofits to collaborate. One of the reasons that one could argue that despite their exponential growth in numbers, the nonprofit sector is probably weaker today than it was 30 years ago is the fragmentation of the field is so enormous. You have the rise of the 'one-issue group' that has prevented folks from getting together and collaborating. It's unfortunate.

You've been concerned for a long time that the nonprofit sector does not have a lot of young leaders coming up through the ranks. You believe some sort of subsidy would help.

A lot of these kids in college, particularly in grad school, are coming out $75,0000-100,000 in debt. So they're looking at that, and they're saying "Gee, I can't afford to take a $25,000 salary and no benefits from some grassroots group."

It would be nice to have some measure that says if in fact you serve three or four years in public service, whether it's for a nonprofit or for a government agency or for the Peace Corps, or whatever it is, we will in fact waive your debts.

What is your message to Idaho nonprofits?

To build as many strong nonprofit organizations, be it large or small, as you can. And to have an association that provides the support that these nonprofits need.

Also, to encourage the fact that poverty is still an unsolved issue, that emphasis still needs to be given to that, and that advocacy—working on state issues, on national issues—is a crucial part of bringing about change in this country.

I think Idaho as well as other state nonprofits have to reclaim the historic role of nonprofit advocacy. And that's a major challenge.

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