Changes in Form 990-PF are neededto improve reporting of foundati<strong>on</strong>administrative expenses and promotegreater transparency.IRS Form 990-PF—this study’s maindata source—has not kept up with thechanging activities and costs incurredby private foundati<strong>on</strong>s in areas suchas communicati<strong>on</strong>s, technology, andevaluati<strong>on</strong>. Nor does it adequately capturefoundati<strong>on</strong>s’ growing involvement in directcharitable activities. 11 Am<strong>on</strong>g the expensecategories in the form, “other professi<strong>on</strong>alfees” and “other expenses” are especially inneed of revisi<strong>on</strong>. As noted above, these lineitems have become catchalls that obscurea significant and increasing amount ofoperating expenditures.<str<strong>on</strong>g>Foundati<strong>on</strong></str<strong>on</strong>g> Finances and the Ec<strong>on</strong>omic Crisis: A Different PerspectiveFigure 7 maps aggregate changes in levels of giving, assets,and program-related expenses between 2007 and 2009 for the1,171 large independent foundati<strong>on</strong>s in this study but does notcapture the extreme differences in how individual foundati<strong>on</strong>sfared. Figure A provides this view for the 1,171 foundati<strong>on</strong>s inthe study by showing the distributi<strong>on</strong> of all foundati<strong>on</strong>s by rangeof increase or decrease. For example, even though overall givingby these foundati<strong>on</strong>s stayed about even in this period, nearlythree out of five sampled foundati<strong>on</strong>s reduced their giving. Andeven though the overall charitable administrative expenses ofthe 1,028 foundati<strong>on</strong>s that reported expenses increased byalmost 24 percent, nearly <strong>on</strong>e in three of those foundati<strong>on</strong>s infact reduced their spending. 1 Finally, am<strong>on</strong>g the 759 foundati<strong>on</strong>sthat reported charitable (program-related) compensati<strong>on</strong>, nearly<strong>on</strong>e in three reduced their spending for this purpose. 21These findings <strong>on</strong> changes in the expense levels of the largest independentfoundati<strong>on</strong>s align broadly with the results of a 2009 <str<strong>on</strong>g>Foundati<strong>on</strong></str<strong>on</strong>g> Center survey offoundati<strong>on</strong> practices, although this study’s sample is far larger than the surveysample. Of the 429 independent foundati<strong>on</strong> survey resp<strong>on</strong>dents, 62 percent hadreduced their operating expenses since the beginning of the ec<strong>on</strong>omic crisis.Am<strong>on</strong>g the ways that they had reduced expenses, the most comm<strong>on</strong> were toreduce staff travel and/or limit attendance at c<strong>on</strong>ferences, freeze or reduce staffsalaries, and reduce staff training opportunities. The complete results of thesurvey are included in <str<strong>on</strong>g>Foundati<strong>on</strong></str<strong>on</strong>g>s’ Year-end Outlook for Giving and the Sector(published in November 2009), available at foundati<strong>on</strong>center.org/focus/ec<strong>on</strong>omy.2Another 412 large independent foundati<strong>on</strong>s in the 2007–2009 study paid out nocompensati<strong>on</strong> in any year.Figure A: Changes in Finances of the Largest Independent <str<strong>on</strong>g>Foundati<strong>on</strong></str<strong>on</strong>g>s by Range of Change, 2007–2009AssetsTotal Giving834 134 66 8232 23404 126 165 144 113 219-20% or greater-20% to -10%-10% to 0%0% to 10%10% to 20%20% or greaterCharitable <str<strong>on</strong>g>Administrative</str<strong>on</strong>g> <str<strong>on</strong>g>Expenses</str<strong>on</strong>g>187 73 114 211 137 306Program Related Compensati<strong>on</strong>88 38 82 198 129 2240 200 400 600 800 1,000 1,200Source: The <str<strong>on</strong>g>Foundati<strong>on</strong></str<strong>on</strong>g> Center, 2012: The <str<strong>on</strong>g>Foundati<strong>on</strong></str<strong>on</strong>g> Finances Database (2007–2009). Sample includes 1,171 foundati<strong>on</strong>s that ranked am<strong>on</strong>g the approximately 1,900 largest foundati<strong>on</strong>s by giving in 2007,2008, and 2009 for which data were available for all years; qualifying foundati<strong>on</strong>s gave at least $2 milli<strong>on</strong> each year. Giving level is based <strong>on</strong> a three-year average for 2007 through 2009.6 © 2012 The <str<strong>on</strong>g>Foundati<strong>on</strong></str<strong>on</strong>g> Center—<str<strong>on</strong>g>Benchmarking</str<strong>on</strong>g> <str<strong>on</strong>g>Foundati<strong>on</strong></str<strong>on</strong>g> <str<strong>on</strong>g>Administrative</str<strong>on</strong>g> <str<strong>on</strong>g>Expenses</str<strong>on</strong>g>
endnotes1Loren Renz, <str<strong>on</strong>g>Benchmarking</str<strong>on</strong>g> <str<strong>on</strong>g>Foundati<strong>on</strong></str<strong>on</strong>g> <str<strong>on</strong>g>Administrative</str<strong>on</strong>g><str<strong>on</strong>g>Expenses</str<strong>on</strong>g>: How Operating Characteristics AffectSpending (New York, N.Y.: The <str<strong>on</strong>g>Foundati<strong>on</strong></str<strong>on</strong>g> Center,2011). This study examined 2004–2006 spendingpatterns for 1,026 foundati<strong>on</strong>s that c<strong>on</strong>sistentlyranked am<strong>on</strong>g the approximately 1,500 largestindependent and family foundati<strong>on</strong>s by giving amountand for which Form 990-PF was publicly available forall years.2Elizabeth T. Boris, Loren Renz, et al., What Drives<str<strong>on</strong>g>Foundati<strong>on</strong></str<strong>on</strong>g> <str<strong>on</strong>g>Expenses</str<strong>on</strong>g> and Compensati<strong>on</strong>? Resultsof a Three-Year Study (Washingt<strong>on</strong>, D.C. The UrbanInstitute, the <str<strong>on</strong>g>Foundati<strong>on</strong></str<strong>on</strong>g> Center, and PhilanthropicResearch, Inc., 2006). This study examined2001–2003 spending and compensati<strong>on</strong> patternsfor the largest 10,000 independent, corporate, andcommunity foundati<strong>on</strong>s, ranked by amount of grantspaid in 2001.3Between 2004 and 2006, 35 percent of the largestaffed independent foundati<strong>on</strong>s studied had expenseto-qualifyingdistributi<strong>on</strong> ratios of less than 5 percent,<strong>on</strong> average, while 88 percent of foundati<strong>on</strong>s with nopaid staff were in this range. At the high end,2.2 percent of staffed foundati<strong>on</strong>s had expense ratiosover 30 percent (compared with 2.7 percent for2007–2009).4Between 2007 and 2009, three of the fourfoundati<strong>on</strong>s with expense-to-qualifying distributi<strong>on</strong>ratios c<strong>on</strong>sistently above 50 percent and eight of the14 foundati<strong>on</strong>s with ratios c<strong>on</strong>sistently above30 percent engaged in direct charitable activities.5The proporti<strong>on</strong> of large staffed independentfoundati<strong>on</strong>s that engaged in direct charitable activities<strong>on</strong> a regular basis increased from 18 percent in the2004–2006 study to 20 percent in the 2007–2009study. By year, the number of foundati<strong>on</strong>s that madeDCAs increased from 138 (2007) to 155 (2008) to160 (2009).6Between 2007 and 2009, health c<strong>on</strong>versi<strong>on</strong>foundati<strong>on</strong>s represented four of the 14 large staffedindependent foundati<strong>on</strong>s with expense-to-qualifyingdistributi<strong>on</strong> ratios above 30 percent each year.7Nearly two out of five health c<strong>on</strong>versi<strong>on</strong> foundati<strong>on</strong>sstudied engaged in direct charitable activities,compared with about <strong>on</strong>e out of five n<strong>on</strong>-c<strong>on</strong>versi<strong>on</strong>foundati<strong>on</strong>s.8Between 2006 and 2007, asset values of a matchedset of 1,151 independent foundati<strong>on</strong>s included inthis study increased 15 percent. Between 2004 and2006, total assets of the 1,026 large independentfoundati<strong>on</strong>s in the 2004–2006 study of expensesincreased 15 percent.9While the directi<strong>on</strong> of assets and giving tends to trackthe ec<strong>on</strong>omy, changes in administrative expensepatterns generally follow a l<strong>on</strong>ger time horiz<strong>on</strong>. Plans toexpand instituti<strong>on</strong>al infrastructure—especially staff sizeand program commitments—cannot be easily reversedas assets fluctuate from year to year. This may help toexplain why expenses of studied foundati<strong>on</strong>s increasedby 24 percent between 2007 and 2009, while theirasset values fell by 19 percent and their giving levelsbarely increased. As Figure 7 shows, most of theincrease in expenses occurred between 2007 and2008, whereas the crash in the stock market came inlate 2008.10From 2007–2009, foundati<strong>on</strong>s with at least$500 milli<strong>on</strong> in assets allocated 22 percent of theirexpenses for other professi<strong>on</strong>al fees, <strong>on</strong> average,up from 16 percent from 2004–2006. C<strong>on</strong>versely,they allocated 45 percent of 2007–2009 expensesfor compensati<strong>on</strong>, down from 49 percent in2004–2006. “Other professi<strong>on</strong>al fees” was thefastest growing expense category of the largestendowed foundati<strong>on</strong>s.11For a summary of recommended changes toForm 990-PF, see page 6 of <str<strong>on</strong>g>Benchmarking</str<strong>on</strong>g> <str<strong>on</strong>g>Foundati<strong>on</strong></str<strong>on</strong>g><str<strong>on</strong>g>Administrative</str<strong>on</strong>g> <str<strong>on</strong>g>Expenses</str<strong>on</strong>g> (published in 2011) atfoundati<strong>on</strong>center.org/gainknowledge.Source for all data: The <str<strong>on</strong>g>Foundati<strong>on</strong></str<strong>on</strong>g> Center79 Fifth Avenue u New York, NY 10003foundati<strong>on</strong>center.org u (212) 620-4230For more informati<strong>on</strong>, c<strong>on</strong>tact Reina Mukai at the <str<strong>on</strong>g>Foundati<strong>on</strong></str<strong>on</strong>g> Center, at (212) 807-2485,or via e-mail at rkm@foundati<strong>on</strong>center.org.7 © 2012 The <str<strong>on</strong>g>Foundati<strong>on</strong></str<strong>on</strong>g> Center—<str<strong>on</strong>g>Benchmarking</str<strong>on</strong>g> <str<strong>on</strong>g>Foundati<strong>on</strong></str<strong>on</strong>g> <str<strong>on</strong>g>Administrative</str<strong>on</strong>g> <str<strong>on</strong>g>Expenses</str<strong>on</strong>g>