The Coronavirus Outbreak Could Prove Why Donor-Advised Funds Serve Society Well

The following piece originally appeared in The Chronicle of Philanthropy.

By Terry Mazany

Nonprofits in the United States — and the people who rely on them — are facing a sudden and unexpected shock. 

The Covid-19 outbreak has quickly sent our economy into turmoil and is starting to harm some of our most vulnerable citizens — those who are living just one missed paycheck away from hunger or homelessness, the elderly, and the uninsured among them. We can anticipate a growing number of Americans losing their livelihoods, facing evictions and hunger, and struggling to find child care and health care.

Meanwhile, the nonprofits we rely on to serve those in need are facing the immediate reality of lost income as they cancel walkathons, galas, and other in-person gatherings that are key revenue-generating activities. It won’t be long before some nonprofits are forced to reduce staff or close their doors.

As a result, foundations must be vigilant and responsive on two fronts: the health of our fellow residents and the consequential economic hardships faced by nonprofits and those they serve.

Thankfully, philanthropy has one often-maligned resource that is poised to serve as a shock absorber — donor-advised funds.

Good Times vs. Bad

It is easy to criticize donor-advised funds during good times. When the economy prospers, money flows into these funds at a fast rate as donors seek to direct some of their largest toward philanthropy. What’s more, the assets held in these funds swell even further when investment returns are strong.

That’s exactly what has happened in recent years. According to the National Philanthropic Trust, annual contributions into donor-advised funds grew from just more than $19.9 billion in 2014 to $37.1 billion in 2018. During that same period, the assets in these funds jumped from $70.1 billion to $121.4 billion.

During times of fiscal stress, however, donor-advised funds play a critical role as the philanthropic capital reserve in communities across the United States. In today’s circumstances, these funds deeply rooted in their communities are analogous to having hundreds, if not thousands, of local foundations available for support of the projected torrent of emergency needs.

This isn’t just a theory. Donor-advised funds have a demonstrated track record of stepping up for nonprofits during difficult economic times.

A 2019 study by Dan Heist, a professor at the University of Pennsylvania, and Danielle Vance-McMullen, an assistant professor at the University of Memphis, found that donors who manage DAFs tend to be more generous with their grant making during recessions, especially when compared with other forms of giving.

“While other forms of charitable giving generally drop during economic downturns, we find that grants from DAFs remain relatively stable in recession conditions, despite a reduction in contributions and decline in assets,” the study found.

The Rainy Day Is Here

If historical patterns hold true (and there’s no reason to believe they won’t) nonprofits can expect to find a much more sizable source of capital than they had access to during the most recent recession of 2008-9. Grants from donor-advised funds totaled more than $23.4 billion in 2018 — nearly twice the $12.3 billion granted in 2014 and more than three times the $7 billion that was given out in 2008, at the start of the most recent recession.

Critics often decry the practice of saving philanthropic resources for the future use when those resources could instead be used to address immediate needs. Their voices have been particularly loud in recent years as the economy boomed.

But if saving for a rainy day is prudent advice for households and businesses, it should be especially true for institutions charged with helping people who are facing hard times.

Those of us who have spent our careers working to connect donors to causes in their community that make a difference understand this value. We’ve seen the pain that comes when disaster strikes, markets crash, and unemployment spikes. And we know that donors will be there to keep writing checks to help their neighbors.

Terry Mazany is senior vice president for philanthropy at the Community Foundation for Greater Atlanta. During the 2009 financial crisis, Mazany, then CEO of the Chicago Community Trust, led the Recovery Partnership, a collaboration of 150 nonprofit, foundation, and government partners that worked to deploy more than $1 billion to jump-start economic recovery and job creation.