As More Foundations Choose to Spend Down, Charities Worry About Future Funding

In the short run, foundations that boost their grantmaking in order to spend down their endowments before closing their doors are proving to be a boon to charities. But the growing number of foundations that are choosing to do so is making many charities nervous about their future fundraising, the New York Times reports.
Some 9 percent to 12 percent of foundations are in spend-down mode, while roughly a quarter are considering the idea, according to separate surveys by the Urban Institute and the Foundation Center. While small foundations tend to be most likely to spend down, several large foundations are among those planning to sunset, most notably Atlantic Philanthropies, which is down to about $2.2 billion in assets and plans to close in eight years.
To spend down an endowment and its investment income in a decade, a foundation must more than double the amount of its grantmaking. Although such increases are a blessing in hard times for charities that rely on foundation grants, organizations must also look ahead and begin to develop new sources of revenue to replace funds that will disappear once a foundation has completed the spend-down process. That task can be especially troubling for nonprofits that rely on a few major donors or focus on a particular area such as LGBTQ rights for which there are relatively few sources of foundation support.
The spend-and-close trend has revived questions in the philanthropic world about whether foundation trustees and staff focus too much of their attention on their own concerns rather than those of the charities they support. Both the Council on Foundations and Philanthropy New York, a regional association of funders, have sponsored meetings for trustees and staff on how to spend down that do not include the perspective of grantees.
"Spending down can be a great way for a foundation to increase its impact," said National Committee for Responsive Philanthropy executive director Aaron Dorfman, "but it is also important to discuss with grantees their concerns and their needs, because the purpose of foundations is to support grantees and make a difference in the world. We do think it important that in their final years, foundations that are spending down devote some of their resources to cultivating new sources of support for their grantees."
Reference: Johnston, David. “As Foundations Close, Anxiety for Charities.” New York Times 11/11/09