Ford, Mellon, Doris Duke, Kellogg, and MacArthur Foundations Pledge to Give More, Hoping to Upend Philanthropy

Thursday, June 11, 2020

Ford, Mellon, Doris Duke, Kellogg, and MacArthur Foundations Pledge to Give More, Hoping to Upend Philanthropy

The week after the U.S. economy shut down in March, Darren Walker, the president of the Ford Foundation, fielded a stream of phone calls from the heads of dozens of organizations that Ford supports. Many were panicked. One was in tears.

“There was a sense of desperation and panic from these usually self-assured leaders,” Mr. Walker said. “There’s never been such an existential challenge to the future of the nonprofit sector.”

In 2019, the Ford Foundation handed out $520 million in grants. Mr. Walker quickly realized that was not going to be anywhere near enough in this crisis-engulfed year.

His solution: Borrow money, spend it quickly and inspire others to follow Ford’s lead.

The Ford Foundation plans to announce on Thursday that it will borrow $1 billion so that it can substantially increase the amount of money it distributes. To raise the money, the foundation — one of the country’s most well-known and oldest charitable organizations — is preparing to issue a combination of 30- and 50-year bonds, a financial maneuver common among governments and companies but extremely rare among nonprofit groups.

Four other leading charitable foundations will pledge on Thursday that they will join with Ford and increase their giving by at least $725 million.

The decision by the five influential foundations — major sponsors of social justice organizations, museums and the arts and environmental causes — could shatter the charitable world’s deeply entrenched tradition of fiscal restraint during periods of economic hardship. That conservatism has provoked anger that foundations, which benefit from generous federal tax breaks, are hoarding billions of dollars during a national emergency, more interested in safeguarding their endowments than in helping those in need.

The Ford Foundation, which has a $13.7 billion endowment, plans to distribute the newly raised money over the next two years, effectively increasing the percentage of its endowment that it pays out annually to about 10 percent from nearly 6 percent.

The four other foundations are among America’s most storied: the John D. and Catherine T. MacArthur Foundation; the W.K. Kellogg Foundation; the Andrew W. Mellon Foundation; and the Doris Duke Charitable Foundation. The MacArthur and Doris Duke foundations plan to issue bonds. Mellon and Kellogg are still working out their financing plans.

Major charitable foundations traditionally spend a little more than 5 percent of their assets in a given year — the minimum required under federal law for the tax-exempt organizations. The less they distribute, the larger their endowments grow and the higher their odds of surviving in perpetuity.

The Ford-led plan provides a workaround. By using borrowed money, foundations would go into debt but wouldn’t erode their endowments. Foundations have issued bonds in the past to finance projects like building new headquarters, but bankers said it was virtually unheard-of for them to borrow money that they planned to distribute.

“For most foundations, the idea of taking on debt is outside of normative thinking,” Mr. Walker wrote in a letter last month to Ford’s board. “Covid-19 has created unprecedented challenges that require foundations to consider ideas — even radical ones that would have never been considered in the past.”

“This is unprecedented for us, but these are unprecedented times,” said John Palfrey, president of the MacArthur Foundation, which will start with a $125 million bond offering and then assess whether more is needed.

With 300 years of experience between them and fortunes forged in insurance and tobacco, automobiles and banking, the five foundations carry the cachet of America’s unofficial aristocracy. They are closely watched trend setters in the philanthropic community...