Public and Private Dimensions of Grantmaking Foundations

Abstract

In United States, organized philanthropy as a formal, social institution has spawned grantmaking foundation (Karl & Katz, 1987; Prewitt, 2006b). Since 1970s, number of U.S. foundations has increased over 200 percent; as of 2009, 76,545 foundations were registered with federal government (The Foundation Center, 2012). Aggregate foundation assets are estimated at $646.1 billion (Lawrence, 2012), including those of some of largest foundations such as Rockefeller Foundation, Carnegie Corporation of New York, Ford Foundation, and Bill and Melinda Gates Foundation. Their size and function provide grantmaking foundations a unique role in nonprofit sector (Faber & McCarthy, 2005). Characteristic of United States, 99 percent of foundations are popularly classified as private, including independent and corporate foundations, while other one percent are foundations, including community foundations or trusts (The Foundation Center, 2012). The characterization of grantmaking foundations on a single dimension of versus is core subject of this paper. We describe single dimension definition as a hegemonic view that conditions how grantmaking foundations function and engage local communities. We contend that this hegemony reinforces treatment of grantmaking foundations as primarily organizations, which influences both way that foundations operate and expectations that stakeholders have for them. Following a description of grantmaking foundations in U.S., we argue that contested conceptions of and complicate expected relationships between grantmaking foundations, government, and communities they serve. ESSENTIAL CHARACTERISTICS OF GRANTMAKING FOUNDATIONS Grantmaking foundations are formed through the transfer of property from a donor to an independent institution whose obligation it is to use such property, and any proceeds derived from it, for a specific purpose or purposes over an often undetermined period of time (Anheier & Toepler, 1999, p. 3). Foundations are typically designed and intended to operate in perpetuity with substantial endowments (Prewitt, 2006a). Their collective purposes generally focus on various missions regarding the intent to make world a better place ... less poverty, war, sickness, illiteracy, violence, parochialism, hunger; and conversely, more freedom, art, understanding, opportunity, security, education, [and] health (Prewitt, 2006b, p. 366). Through commitment of financial resources, foundation missions have most often supported nonprofit organizations, or have purchased from or subsidized supply of by nonprofit and governmental agencies that provide healthcare, social welfare, educational, cultural, and religious services (Hammack, 2006, p. 49). Founding philanthropists commit their financial resources to advance some collective purpose, and in return receive a tax advantage. According to U.S. Tax Reform Act of 1969, foundations are either or private depending on where they fall on criteria spelled out in two tests: purpose-mission and support (Heydemann & Toepler, 2006). A foundation is (rather, called a public charity in section 501 of U.S. Internal Revenue Code) if it provides a community benefit and relies on contributions from an assortment of donors. A foundation is by default private if it fails support test by relying on asset dividends or contributions from few or single donors (Grenbjerg, 2006; Roelofs, 2003). Foundations are further differentiated in Internal Revenue Code by regulatory requirements established from their or private status. Public charities, including community foundations, have a federal tax-exempt status that includes no tax bill on income. Private foundations, including independent and corporate foundations, on other hand, pay a small excise tax on investment income and are required to pay out at least five percent of all assets each year through a combination of grants, donations, and administrative spending. …