Benchmarking Foundation Administrative Expenses: Update on ...

KEY FINDINGSOperating Characteristicsand Expense Patterns,2007 to 2009Independent foundations’characteristics strongly influence theircharitable administrative expenses.Even among the largest foundations,differences in giving levels, assets,operational styles, geographic reach, andprograms vary dramatically and producevery different expense patterns. While somefoundations in this study reported expensesin the millions in 2007–2009, one out ofeight of these large grantmakers reportedno expenses as part of their qualifyingdistributions in that period. One out ofthree had no paid staff (Figure 1). Thesefoundations were likely functioning withvolunteer labor and/or operating costs wereabsorbed by the donor or the donor’sfamily business.Employment of staff is the single mostimportant factor affecting expenselevels, followed by staff size.Paying staff significantly raisesadministrative costs, and expense levelsrise consistently with the number of staff(Figure 2). Staff size, which varies greatlyeven among foundations with similar givinglevels, depends on a foundation’s mission,roles, and scope of activities. In general, thefoundations that tend to give the most havethe largest staffs. But smaller foundationswith complex programs often have aboveaveragestaff size relative to their giving.<strong>Foundation</strong>s that employed staffhad median expense ratios of nearly8 percent, on average, comparedwith less than 1 percent for thosewithout staff.Just 35 percent of staffed foundationshad a ratio below 5 percent, while93 percent of unstaffed foundations werein this range (Figure 3). At the other endof the spectrum, close to 3 percent of largeindependent staffed foundations (21) hadratios greater than 30 percent. 3International grantmaking, directcharitable activities, and grants-toindividualsprograms are stronglyassociated with higher expense ratios.<strong>Foundation</strong>s that engaged regularly inthese practices between 2007 and 2009had median expense-to-qualifyingdistribution ratios that were almost or atleast twice as high as those that did not.These activities may have higher fixedcosts, require more employees, or incurgreater regulatory burdens. Besides thesestaff- and resource-intensive activities,other practices that substantially boosted afoundation’s administrative expense levelswere operating as a health-conversionfoundation (see below), making programrelatedinvestments, and/or maintaininga web site (a proxy for a broadercommunications effort).<strong>Foundation</strong>s with high charitableadministrative expense ratios oftenmix grantmaking and direct charitableactivities (DCAs).While making grants is the primaryfunction of most foundations, one outof five of the large staffed independentfoundations studied regularly engagedin DCAs (Figure 4). These ranged fromconducting health policy research toproviding technical assistance to nonprofitsto operating conference centers or museums.In fact, although they make grants, someindependent foundations seem to functionmuch like operating foundations andhave among the highest expense ratios. 4As foundations increasingly take on nongrantmakingcharitable activities, 5 it iscritical that studies of finances account forthese program costs.Figure 2: Charitable <strong>Administrative</strong> <strong>Expenses</strong> as a Share of Qualifying Distributions,2007, 2008, and 2009: Staff Size (Staffed Independent <strong>Foundation</strong>s)Year2007200820093%3%3%6%6%7%11%10%10%10%7 11%2007–0910%6%3%13%14%> 50 staff15–50 staff7–14 staff4–6 staff2–3 staff1 staff0% 5% 10% 15% 20%13%13%Median PercentageSource: The <strong>Foundation</strong> Center, 2012: The <strong>Foundation</strong> Finances Database (2007–2009). Sample includes 1,171 foundations that rankedamong the approximately 1,900 largest foundations by giving in 2007, 2008, and 2009 for which data were available for all years; qualifyingfoundations gave at least $2 million each year. Of the 1,171 foundations sampled, on average 777 reported having paid staff.15%14%15%16%17%17%Sampling InformationThis study focuses only on largeindependent foundations. The sampleincludes 1,171 foundations that rankedconsistently among the approximately1,900 largest independent and familyfoundations by giving in 2007, 2008,and 2009 and for which IRS Form990-PF was available publicly for allyears. These foundations each gaveat least $2 million in each studyyear. While foundations in the studyrepresented just 2 percent of allindependent foundations in 2007,they accounted for 67 percent of allindependent foundation giving in thatyear and 70 percent of all independentfoundation assets. Aggregate financialdata for these 1,171 foundations,including assets, giving, qualifyingdistributions, charitable expenses,and program-related compensation,are available at foundationcenter.org/gainknowledge/research/benchmarking/2 © 2012 The <strong>Foundation</strong> Center—<strong>Benchmarking</strong> <strong>Foundation</strong> <strong>Administrative</strong> <strong>Expenses</strong>