Why Support Is Mounting for Government to Require Endowments to Spend More

Lawmakers such as Sen. Charles Grassley of Iowa are joining philanthropists such as the billionaire investor Warren Buffett in asking whether endowment-rich charities should be required to spend a portion of their reserves.

They argue that institutions such as Harvard University are stashing away billions of dollars tax-free — money that they could be using to help fulfill their missions.

But Jack Siegel, a Chicago lawyer, writes on his blog that the debate is nothing more than an effort by government to mask its own inefficiency in solving society’s problems.

“The call for minimum payouts/spending rates is really a call to tax the endowments of charitable institutions,” Mr. Siegel writes on Charity Governance. “Unable for whatever reason to raise taxes to meet the public’s unabated demand for services, government officials and those who support government solutions to problems are eyeing big pools of capital.”

Because most nonprofit organizations do not have the resources of the very wealthiest charities, a government-imposed payout system simply doesn’t make sense, Mr. Siegel writes.

Instead, he says donors need to change their giving habits — and nonprofit groups without big endowments need to prove that they deserve a bigger share of donations.

“Harvard’s alumni should begin asking why Harvard requires a $35-billion endowment. Nobody is making them contribute to never-ending fund-raising campaigns,” Mr. Siegel concludes. “Those charities who lack resources need make better pitches to Harvard’s alumni, but those pitches need to be supported by improved practices.”

Should the government require large institutions to spend a portion of their endowments each year? Or are there other ways to balance short- and long-term needs that don’t require government intervention? Click on the comments link below this post to share your thoughts.