Do you remember Julius Rosenwald?

Although his name is not as common on the tongue as Rockefeller or Carnegie, he stands among them as a philanthropic peer. Rosenwald, who grew Sears into America 's largest retail store, was a bit of a revolutionary—he was the first major philanthropist to insist that his foundation spend down after his death.

In a 1913 address to the American Academy of Political and Social Science, Rosenwald said, “Permanent endowment tends to lessen the amount available for immediate needs; and our immediate needs are too plain and too urgent to allow us to do the work of future generations.”

Julius Rosenwald gave away over $700 million (today's value). He made a long list of gifts, often as challenge grants that created the Rosenwald schools in the rural south, as well as YMs and YWCAs. His foundation fellowship program granted gifts to the black intelligentsia of that generation, and he also heavily funded the Museum of Science and Industry in Chicago , although he insisted it not bear his name.

Most foundations revolve around their endowment. Instead of buffering and carefully investing these precious funds, what if they spent them? Now. What if, instead of only gifting the legal minimum of 5% of the foundation assets, they spent 10% or more?

If you are inside the field of philanthropy, this idea may seem extremely unorthodox. And, inversely, if you are outside the field, you may be surprised that an endowment means holding up to 95% of the funds every year. Despite the social value that grants deliver each year, foundations often value their financial worth more, holding onto endowments indefinitely.*

However, huge impacts can come when foundations expire over time. Recently, a new wave of foundations actually seeks their own end. By spending down, they can make bigger grants, create a focused impact, attempt to solve today's problems at today's prices, and avoid the bureaucratic behemoth foundation stage where a donor's vision can be lost or become unfocused.

Of course, these benefits come with their own costs. Foundations meant to live forever may perceive spending down as suicide, and it will naturally mean the end of the jobs for everyone on staff. Some donors may fear that their legacy will die once the money is spent (rather than focusing on the enduring gifts the money provides). And it can be difficult to close up shop technically with the associated investment, legal, and tax ramifications. With the projected 41 trillion dollar rollover, it seems assured that new foundations will arise to replace those that spend down addressing the problems of the next generation and keeping philanthropic staff members employed for years to come. Grantmaking for terminal foundations works differently too. Rather than ongoing grants, spend down foundations may make large capital grants. This shifting in the paradigm of grantmaking may take adjusting to for the whole foundation sector. Spending down may be uncommon, but it fits the prerequisites of a MAD organization: make the highest impact possible.

Examples of “Now Rather Than Later” Foundations

 

Key Benefits of Spending Down

• Bigger grants with a focused impact; make a bigger difference immediately.
• Try to solve today's problems at today's problem prices: issues not only get more expensive with inflation, time tends to exacerbate them.
• Avoid the often clogged, unfocused, high operating costs of an enduring foundation.
• Prioritize creating a lasting mark on the world rather than lasting finances.

A quick example of how foundations spending down can make a big difference today can be seen with environmental granting. A foundation existing into perpetuity can only afford to give a limited amount each year. The relatively small grant can be used each year to buy land for sustainable living use. A spend down foundation might give the same amount overall, but with one large gift it can buy a large track of land at todays dollars and save the land from further damage. That is a double payoff—just what MAD Mavens seek out!

High Impact Giving Now

The Whitaker Foundation

The Whitaker Foundation gives twice the legal minimum (5% as established in 1981). Attacking a specific issue with focused gifts, the foundation hopes to make a visible difference. Even now, feedback response indicates their success. The Whitaker Foundation focuses on biomedical engineering through funding the development of new university departments and programs. Biomedical engineering departments and programs have more than doubled since 1992, when the foundation began its quest.

How does that make a difference? These programs offer training in CAT scans, heart pacemakers, and magnetic resonance imaging (MRI). Miles J. Gibbons Jr., executive director of the Helen F. Whitaker Fund, writes, “It is generally recognized in the biomedical engineering community that The Whitaker Foundation was the catalyst for the rapid expansion of biomedical engineering over the past decade.” [From remarks delivered at the 2001 annual meeting of the Philanthropy Roundtable]

Olin Foundation

John M. Olin followed Rosenwald's logic but had additional motivation. He watched Henry Ford II resign from the family foundation board and recognized that foundations can veer away from the original founder's intention and values. Thus the Olin Foundation will expire between 2005 and 2009. James Piereson, executive director of the Olin Foundation, writes, “Several of our most important accomplishments could only be achieved through the aggressive spending that our plan made possible.” [http://www.philanthropyroundtable.org/magazines/2002/march/piereson.html]

For more information about Julius Rosenwald, visit:

http://www.rosenwaldschools.com/
http://www.searsarchives.com/people/questions/rosenwaldfoundation.htm
http://www.philanthropyroundtable.org/magazines/1998/july/wooster.html

* Of course, many foundations begin as a bequest and must continue, by their own terms into perpetuity (forever). In order to exist forever, they must release fewer funds than they take in, making the gifts sustainable.)