Minnesota foundations speak out about effect of tax law changes

A year and a half after the 2017 federal tax law, Minnesota foundations and nonprofits are still grappling with its effect on charitable giving and looking for ways the sector can push back.

On Monday, more than 30 foundation leaders from across the state shared growing angst and concerns with U.S. Rep. Dean Phillips, with some reporting a drop in the number of donors last year.

"Fewer and fewer people are participating in philanthropy," said Jeremy Wells, senior vice president of philanthropic services at the St. Paul and Minnesota Foundations. "Is it a one year blip or a trend? It's probably too early" to tell.

Phillips, a freshman Democratic congressman from Deephaven who's also a board member on his family's Minneapolis foundation — the Jay and Rose Phillips Family Foundation of Minnesota — urged philanthropic leaders to do something the sector rarely does: Mobilize and advocate more for themselves.

"I think it's time for the philanthropic community in this country to develop a stronger voice," said Phillips, who represents west metro suburbs in the Third Congressional District. "Business has it. There's no question special interest groups have it. I think it's time for those who are serving the most underserved and in the most challenging circumstances to bring us ideas and elevate the projects and programs and initiatives that are working."

Monday's meeting came a week after a new Giving USA report that showed donations to charities dropped an inflation-adjusted 1.7% in the U.S. last year — the first drop in charitable giving in the country since the Great Recession, according to the Washington Post.

While corporate donations and foundation gifts increased, individual giving dropped 3.4% last year.

Foundation leaders Monday said there's no doubt the tax bill is at least partly to blame, adding that while tax incentives aren't the only reason people give to charities, it can affect how much or when donors give.

Under the new tax code, the standard deduction for couples has nearly doubled to $24,000, and that higher standard deduction means fewer taxpayers may choose to itemize charitable deductions.

Foundation leaders said more donors are now bunching gifts by giving all at once in order to get the tax benefit through donor-advised funds, creating instability for the sector. They also said they worry that it is widening a wealth gap that makes giving more inequitable.

"If people care about equity, they should care about this," Wells said, adding that many nonprofits take on the safety net services government can't do. "If the nonprofit sector isn't there to do it, who will?"

Republican leaders, such as Phillips' predecessor, Erik Paulsen, said in 2017 that the tax bill would help by giving middle-class families and businesses more money from lower tax bills.

Earlier this year, some nonprofits reported that their donations didn't drop at the end of 2018. And about half of nonprofits surveyed by the Minnesota Council of Nonprofits earlier this year said they had no change in giving. But nonprofit leaders said it's likely too soon to see the true effects of the tax bill.

Plus, more nonprofits and foundations may have fewer donors but no significant drop in the amount of donations, buoyed by bigger donors filling in the gap at least in the short-term, Wells said. The St. Paul and Minnesota Foundations, for instance, didn't have a significant decline in giving but did have a 3% drop in the number of donors last year, he said.

"I call it the disappearing donor," Wells said. "That's a trend that I think got exacerbated."

The tax law also resulted in new expenses for the sector, such as new taxes on employee parking and transportation, which cost some organizations thousands of dollars.

"Nothing confounds me or disappoints me more than that tax bill," Phillips said Monday at the meeting at Cargill's headquarters in Wayzata.

Phillips added that he thinks charitable giving will continue to decline and worries about the impact on smaller, rural charities. He urged leaders of foundations and nonprofits to advocate more on behalf of the sector and run for elected positions.

"I just don't think that philanthropic voice is well-represented in Congress and it is more integral than ever," Phillips said.

The meeting was organized by the Minnesota Council on Foundations, a nonpartisan association that plans to draft policy recommendations in 2020. The council has also met with staff of each of the Democratic and Republican members in the Minnesota delegation, said Bob Tracy, the director of public policy and communications at the council, one of the few of its kind with registered lobbyists in the country.

But the sector as a whole doesn't spend much in advocacy work, something that can't continue, he said: "It can't be an incidental part of our work."

Kelly Smith • 612-673-4141