What sparked Arnold’s interest, he said, was seeing wealthy people with philanthropic intent funneling money into CFOs while giving very little to charity.
“The money was right there to grow,” said Arnold. “There was no intention to abuse the system. But the money was only piling up because there was no forcing mechanism. “
Opponents of the bill retort that tighter restrictions on CFOs are unnecessary, as average annual payout rates for CFOs hover around 20%, well above the 5% minimum required of private foundations. Richard Graber, who heads the Conservative Bradley Foundation, calls the legislation “a solution in search of a problem.” (The foundation is affiliated with the Bradley Impact Fund, a DAF sponsor).
Yet without payment requirements, supporters of the legislation claim that the CFOs – which hold around $ 142 billion in the United States – have essentially become warehouses for charitable donations. Accounts allow donors to create endowed accounts that exist in perpetuity and can be passed on to their heirs.
A June report from the Council of Michigan Foundations showed that 35% of CAFs sponsored by Michigan community foundations did not distribute any money in 2020, a year marked by enormous need due to the viral pandemic.
Today, it is estimated that about 1 in 8 charitable dollars goes to CFOs. The New York Community Trust, a community foundation, established the first DAF in 1931. Their use accelerated in the 1990s, when Fidelity Charitable launched a national donor-advised fund program. The charitable branches of many financial companies, including Vanguard Charitable and Schwab Charitable, now run strong DAF programs.