Rural America was suffering from high unemployment and poverty rates prior to the COVID-19 pandemic — and now the situation is even more dire. In Appalachian Kentucky, for example, all 47 counties are in the bottom 10 percent of U.S. counties on quantitative measures that include income, poverty rate and unemployment. Dramatic shifts in the energy sector and the pandemic have exacerbated the staggeringly uneven economic recovery from the recession. These sequential blows have left many people in communities across the country feeling left behind by policymakers and leaders.
This includes some of our nation’s philanthropic leaders, who could be doing more to move rural people toward economic parity — lessening the rural-urban divide and helping to heal cultural divisions. They could start by supporting legislation that unleashes the true philanthropic power currently being warehoused because of outdated laws that protect money over communities.
When the pandemic hit in Hazard, Ky., the Foundation for Appalachian Kentucky released over $1 million in charitable giving to small businesses, family farmers and nonprofit partners taking the frontline blows of the pandemic’s economic and public health fallout. That infusion of charitable dollars helped to save more than 900 jobs, 150 small businesses, 130 small family farms, and supported more than 20 nonprofit organizations.
Simultaneously, the Telluride Foundation in Colorado raised and distributed $1.6 million in emergency COVID-19 aid over 12 months. Even while the foundation was responding to the crisis, it was advancing plans to build local teacher housing — 120 new homes in four rural towns — and financing new broadband access.
That’s how philanthropy should function: today’s dollars being used to confront today’s challenges.
But the sad truth is, it doesn’t always work that way. Today, because of loopholes in our tax code, donors can put money in charitable intermediaries — private foundations or charitable investment accounts called “donor-advised funds” — and claim the generous tax benefits of philanthropy without actually giving the money away. That’s a problem: Tax cuts are meant to encourage giving, not hoarding.
The impacts of this are real. Americans lose out on tax revenue that otherwise might go toward supporting public programs without any certainty that those dollars will get spent in a way that benefits them. Today in the U.S., there are significantly more funds sitting in charitable savings accounts than are being distributed to America’s charities. And the lion’s share of philanthropic work, especially during times of crisis, then falls to under-resourced and poor communities.
The charitable giving tax code is essentially a contract between the federal government and the individual taxpayer, i.e., “We’ll let you pay less in taxes if you make a charitable contribution that benefits others.” (And by the way, you can give your money to any cause you want.)
That contract is broken. According to a report by Boston College in May, charitable giving by individuals as a share of income has remained largely flat at around 2 percent over the past 40 years, while contributions to donor-advised funds and private foundations have grown nearly fivefold, from 5 percent in 1991 to 28 percent in 2019. Currently, more than $1 trillion sits idly in private foundations and donor-advised funds combined.
This is even more concerning in light of the many problems facing rural America, where many of our most important organizations already receive an inequitable amount of funding. Rural organizations, such as those our foundations serve, receive less than 7 percent of all private giving in this country. And yet, 78 percent of all U.S. high-poverty counties are rural. The lack of giving to some of our most marginalized and poor populations must be addressed. Closing loopholes that slow the distribution of charitable dollars is the right place to start.
The good news is that bipartisan legislation has been introduced in the U.S. Senate to implement overdue reforms and put charities back at the center of charitable giving laws. The Accelerating Charitable Efforts (ACE) Act introduced by Sens. Angus King (I-Maine) and Chuck Grassley (R-Iowa) would create a reasonable timeline for donor-advised funds to be distributed to working charities — 15 years to 50 years. Additionally, the ACE Act ensures that the payout requirement for private foundations cannot be met by paying the administrative expenses or through donations to donor-advised funds.
But, most importantly, the ACE Act recognizes the unique role of community foundations and includes protections that ultimately strengthen these pillars of our communities and ensure the highly localized, extremely critical missions of these organizations can continue without additional regulatory burden.
As we experienced in 2020, society’s problems are increasingly complex, urgent and intersecting. Racial justice, poverty, hunger, climate change, child care and education, the digital divide, and housing — among other issues — are systemic problems that communities face daily. The urgency of now is being felt across this country, and philanthropy must be encouraged to rise to the occasion.
Getting more money to working organizations faster is something all members of Congress and the philanthropic community should support. As leaders of community foundations representing rural communities, we know the ACE Act is a first step in the right direction.
Paul Major heads the Telluride Foundation in Colorado. Lora Smith is executive director of the Appalachian Impact Fund at the Foundation for Appalachian Kentucky in Hazard, Ky.