Smart Assets: The Philanthropy New York Blog

By Charles H. Hamilton
Senior Fellow, Philanthropy New York

In recent years, much has been made of payout rates. On the one hand, many writers have favored increasing the 5 percent minimum required of foundations because it “reaffirms some of the basic principles of effective grantmaking, such as mission clarity, focus and impact” (Beyond Five Percent: The New Foundation Payout Menu). But it does no such thing; payout does not determine mission or effectiveness. Calling for higher payout requirements seems more related to political agendas or the unquestioned conceit that giving now is always better than later. On the other hand, much of the statistical research clusters around 5 percent as the minimum that allows foundations to be enduring institutions: taking into consideration market cycles, expenses, excise taxes, and inflation. But the minimum has become the unquestioned ceiling for most foundations because foundation officials and boards are cautious (or lazy) and fail to align budget and mission. This may be a good time to revisit the payout question.
Continue reading…