Private U.S. foundations are legally required to distribute 5% of their assets annually, and most large organizations do that, but no more, The Chronicle of Philanthropy reports in a new study.
Georgetown University law professor Brian Galle, citing Foundation Center data, told The Chronicle that an estimated $900 billion in foundation endowments was gaining investment returns but not being put to work.
Grants, tax payments and some administrative costs qualify as distributions.
Critics who push for foundations to significantly increase their spending find the inclusion of administrative costs in the 5% calculation particularly troubling.
The report, based on an analysis of IRS data compiled by the Foundation Center, said foundations take advantage of administrative costs to varying degrees.
For example, between 2010 and 2014, MacArthur Foundation expenses ranged between 12% and 16% of distributions, while at the Walton Family Foundation, which employs fewer staffers, they were between 2% and 5%.
The Chronicle noted that in 2003, foundations successfully lobbied against federal legislation that would have disallowed the use of administrative expenses in calculating the distribution rate.
Overhead spending also bothers many donors. And many very wealthy donors worry about how their money is being used.
Policy makers on Capitol Hill appear to be taking notice. Last year, Rep. Tom Reed, R-N.Y., introduced legislation that would force colleges with large endowments to funnel at least 25% of their endowment income into student aid.
The Chronicle noted that the bill would not apply to foundations, which have yet to be scrutinized in the same way as elite universities. However, with a tax overhaul on the congressional agenda, many philanthropy observers say Congress might ask grant makers to increase their spending.