Raise the disbursement rate

Given the mixed response of foundations in 2020 to the covid pandemic, Finance should immediately enact a higher, temporary disbursement quota of between 7.5%-10%. Canada's permanent disbursement rate should be restored to 5%. Restoring the disbursement quota is a simple and effective tool to grow funding for charities and is in Canada's best public interest.

Read Charity Intelligence's submission for a higher disbursement quota.

 

A higher, temporary disbursement quota of 7.5%-10% is appropriate for the covid response.

The large foundations had a voluntary mixed response to the first year of the covid pandemic. On review of the T3010 filings of Canada's largest 100 private foundations, one can see their activity during covid. Of these 100 largest private foundations, the 2020 T3010 filings for 72 are now posted on the CRA Charity Directorate's website.

Sadly, this analysis shows a varied response to the covid pandemic. Some foundations were champions. They were first responders for covid, funding frontline charities. This exceptional leadership was not followed by other private foundations. Some foundations that pledged to give +5% reneged on their covid promise.

In the first year of the covid pandemic, here's how 72 of the largest private foundations responded:

 

Covid champions

Like everything else in the charity sector, there are strong performers and weak performers.

The Rogers Foundation emptied the bank in 2020 and granted $87 million, a disbursement of 100%. These grants included $20 million to food banks, $20 million to homeless shelters, and $20 million to at-risk youth charities.

The Sprott Foundation more than doubled its disbursements from 17% of assets to 41% of assets during covid. It gave $17 million to charities serving vulnerable people, including food banks, homeless shelters and Indigenous programs.

The Jim Pattison Foundation is also a standout during Covid Year 1. It increased its disbursement from 8.1% to 18.9%, including $27 million to hospital foundations.

Key facts on how the 72 largest private foundations responded to Covid Year 1:

During the covid pandemic, these 72 private foundations spent $738 million on charity activities: $698 million in grants to charities and $40 million on in-house charity activities. This is a 27.6% increase over charity spending in 2018 of $578 million.

2020's asset values are $10.3 billion, an asset increase of $604 million, or 6.2% during the year. Assets at the end of 2020 were 16.7% higher than at the end of 2017. This is due to both new donations to foundations and investment returns.

The average size of these foundations is $143.6 million in non-charitable assets (investments) at the end of 2020 compared with $123.1 million in 2017. 

In 2020, the average disbursement rate of these 72 foundations was 9.6% compared with an average disbursement rate of 8.1% in 2018. The average disbursement rate is often cited but, because of the wide range in spending, the average bears little meaning. Averages are useful when there is a bell curve distribution, that is, when most are around the average. Private foundation spending is all over the map. For example, during the past covid year, one foundation reports spending 0% and one spent 127%.

Flight or Fight

Canada's largest private foundations had different responses to the covid pandemic. Some spent more, some spent less. This chart shows the disbursement rates of the 72 largest private foundations for 2020. Using the 3.5% current disbursement quota as the base line, foundations that spent more are shown in blue, foundations that spent less than 3.5% are shown in red. Foundations that spent exactly 3.5% show as gaps. Foundations are shown left to right by non-charitable asset size from highest to lowest.

"Too many of Canada's largest private and philanthropic foundations are absent in stepping up"

Charity Intelligence "Late, but hopefully not too little." February 2021

A temporary covid disbursement quota

Based on the analysis of the 72 large private foundations spending in 2020, here's a rough estimate of how a temporary covid disbursement quota would affect spending. Rather than the additional money, the percentage increase is likely a better indicator of how a special covid disbursement rate would affect spending.

If a 7.5% disbursement quota was in effect for 2020, charity spending would have increased by 36%.

If a 10% disbursement quota was in effect for 2020, charity spending would have increased by 64%

11 of the largest private foundations spent more than 10% of assets in 2020.

Among these 72 foundations, investment assets increased by $604 million. Even with a 10% disbursement quota, the size of foundation assets would still increase.

Our model shows a disbursement rate of 11.49% would have offset the increase in foundation assets during 2020.

 

 

Conclusion

Others have submitted to Finance that a disbursement quota will not materially increase funding to charities. We disagree. Raising the disbursement quota will be the pivotal reform of Canada's charity sector that will unleash billions in additional annual funding to charities.

Canada's economy in August 2021 is about $50 billion lower than where it was before covid. "We're not out of the woods" with "shockingly weaker than expected" figures released over the summer. Raising the disbursement quota will not alone get us back to where we were, but it will be a meaningful contribution. Canadian foundations have the capacity to make this greater contribution.

Others have submitted that a higher disbursement quota may place too much burden on foundations to make this change. For far too long, many of Canada's largest foundations have had it easy by only granting 3.5%. 

Moving to a temporary disbursement quota between 7.5%-10% for a short covid period will stretch them. Change is difficult. Yet, thankfully, some foundations made this change quickly.

For those foundations where the change is too hard, or they lack the capability to grant more, the 110% financial penalty is an easy-out option. What would be given to charities can instead be paid to the Charities Directorate for its essential work supporting Canada's charity sector. 

 

 

As the Charity's Commission's own research shows, the charity sector can no longer count on being given an automatic benefit of the double. The public wants reassurance that charities are behaving charitably as well as delivering their charitable purposes ... and to meet growing demands on retaining the confidence of the public, and the public's view of the value provided to society. It is this goodwill that underpins the legal and economic privileges charities enjoy."

UK Charities Commission

Read Charity Intelligence's full submission for a higher disbursement quota. 

 

Previous articles on Canada's disbursement quota:

Late, but hopefully not too little, February 24, 2021

Statement to Finance Committee, August 6, 2020

 

Notes:

Canada's 100 largest foundations: Charity Intelligence created this category in 2020 based on the 2018 T3010 data. With "circulation", some foundations growing and some shrinking, this may not accurately reflect the 100 largest foundations in 2021. For this submission, we wanted to compare how private foundations responded to covid in relation to data we had for 2018.

Mastercard Foundation is Canada's largest private foundation but is excluded from this list because of unique issues. 

Apotex Foundation is also excluded. In 2020, it granted $67.8 million, a disbursement quota of 60%, to one charity that is undisclosed.

Our analysis of these largest 72 private foundations includes RBC Foundation. This is a private foundation yet acts as a "flow through" with annual grants closely matching annual income. In 2020, RBC Foundation's payout rate is 127%. RBC Foundation's high disbursement rate affects the average disbursement rate by 150 basis points. For example, in 2020, including RBC Foundation creates an average foundation disbursement rate of 9.6%. Without RBC Foundation, the average disbursement rate is 8.1%.

In the sensitivity analysis of a special covid disbursement quota one needs to bear in mind this is an influential but small sample size that may not be indicative of other foundations.

 

Charity Intelligence's research on foundation disbursement quotas is generously funded by The Amazing Moustache Foundation to strengthen philanthropy in Canada.

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Legal disclaimer: The information in this report was prepared by Charity Intelligence Canada and its independent analysts from publicly available information. Charity Intelligence and its analysts have made endeavours to ensure that the data in this report is accurate and complete but accepts no liability.

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