Rural America suffered from high rates of unemployment and poverty before the COVID-19 pandemic – and now the situation is even more dire. In Appalachian Kentucky, for example, all 47 counties rank in the bottom 10% of U.S. counties on quantitative measures that include income, poverty rate, and unemployment. Dramatic changes in the energy sector and the pandemic have exacerbated the incredibly uneven economic recovery from the recession. These successive coups have left many people in communities across the country feeling left out by policy makers and leaders.
This includes some of our nation’s philanthropic leaders, who could do more to bring rural people closer to economic parity – closing the rural-urban gap and helping to heal cultural divides. They could start by supporting legislation that unleashes real philanthropic power currently stored away by outdated laws that protect community money.
When the pandemic hit Hazard, Ky., the Foundation for Appalachian Kentucky released more than $1 million in charitable donations to small businesses, family farmers and nonprofit partners who felt the first hits in the fallout. economic and public health aspects of the pandemic. This injection of charitable dollars has saved over 900 jobs, 150 small businesses, 130 small family farms and supported over 20 non-profit organizations.
Simultaneously, the Telluride Foundation in Colorado raised and distributed $1.6 million in COVID-19 emergency relief over 12 months. Even as the foundation responded to the crisis, it advanced plans to build housing for local teachers – 120 new homes in four rural towns – and funded new broadband access.
This is how philanthropy should work: today’s dollars are used to meet today’s challenges.
But the sad truth is that it doesn’t always work that way. Today, due to loopholes in our tax code, donors can put money into charitable intermediaries – private foundations or charitable investment accounts called “donor-advised funds” – and claim the generous benefits. taxes on philanthropy without actually giving the money. That’s a problem: tax cuts are meant to encourage giving, not hoarding.
The impacts of this are real. Americans are losing tax revenue that otherwise could be used to support public programs with no certainty that those dollars will be spent in a way that benefits them. Today in the United States, there are far more funds deposited in charitable savings accounts than are distributed to American charities. And the lion’s share of philanthropic work, especially in times of crisis, then goes to poor and underfunded communities.
The charitable donation tax code is essentially a contract between the federal government and the individual taxpayer, i.e.: “We will allow you to pay less tax if you make a charitable contribution that benefits others . (And by the way, you can donate your money to any cause you want.)
This contract is broken. According to a Boston College report in May, charitable giving by individuals as a share of income has remained largely flat at around 2% over the past 40 years, while contributions to donor-advised funds and private foundations increased nearly fivefold, from 5 percent in 1991 to 28 percent in 2019. Currently, more than $1 trillion sits idly in private foundations and donor-advised funds combined.
This is all the more concerning in light of the many problems facing rural America, where many of our most important organizations already receive inequitable funding. Rural organizations, such as those our foundations serve, receive less than 7% of all private donations in this country. And yet, 78% of all very poor US counties are rural. The lack of donations to some of our most marginalized and poor populations must be addressed. Closing loopholes that slow the distribution of charity dollars is the right place to start.
The good news is that bipartisan legislation has been introduced in the US Senate to implement overdue reforms and put charities back at the center of charitable donation laws. The Accelerating Charitable Efforts (ACE) Act introduced by Sens. Angus King (I-Maine) and Chuck Grassley (R-Iowa) would create a reasonable timeline for the distribution of donor-advised funds to charities — 15 years to 50 years. Additionally, the ACE Act ensures that the payment requirement for private foundations cannot be met by paying administrative expenses or by donations to donor-advised funds.
But, more importantly, the ACE Act recognizes the unique role of community foundations and includes protections that ultimately strengthen these pillars of our communities and ensure that the highly localized and extremely critical missions of these organizations can continue without additional regulatory burden.
As we have experienced in 2020, societal problems are increasingly complex, urgent and intersecting. Racial justice, poverty, hunger, climate change, child care and education, the digital divide and housing – among other issues – are systemic issues that communities face daily. The urgency of the moment is felt across the country, and philanthropy must be encouraged to rise to the occasion.
Getting more money for working organizations faster is something all members of Congress and the philanthropic community should support. As leaders of community foundations representing rural communities, we know that the ACE Act is a first step in the right direction.
Paul Major directs the Telluride Foundation in Colorado. Lora Smith is executive director of the Appalachian Impact Fund at the Foundation for Appalachian Kentucky in Hazard, Ky.
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