Philanthropy’s lesser known weapons: PRIs, MRIs and DAFs

Silicon Valley Community Foundation, Part Three

Here for introduction and parts one, two, four, and five.

Last year, the 800+ community foundations in the United States held a combined total of over $91 billion in assets and awarded $8.3 billion in grants. As non-profits are incorporated into the “evidence-based” impact agenda, it is important to keep in mind $8 billion+ buys a lot of influence. All you need to do is spend a few hours scanning the grant lists included in the 990 tax forms of Silicon Valley Community Foundation (SVCF) or the Tides Foundation. It doesn’t take much, often less than $50,000 in unrestricted giving to bring an organization into the fold.

Most non-profits are desperately seeking general operating funds to carry out their “good work.” When they get it, they’re unlikely to turn it down, even if it comes with problematic strings attached…even when those strings involve intrusive data collection and reporting requirements that may ultimately harm clients (students)…even when the strings restrict the methods by which services can be delivered.

The influence of community foundations like SVCF is not limited to grants however. Even more important are decisions made about where they invest endowment and donor advised funds. Foundations execute PRIs (program related investments) and MRIs (mission related investments). PRIs are “below market rate” investments made in non-profits, start-ups, or publicly traded companies that advance an organization’s charitable purpose and are not intended to produce significant income or capital appreciation. According to a 2011 brief prepared by Mission Investors Exchange, a foundation can make PRIs in for-profit, non-charitable, non-exempt organizations if the purpose of the investment is deemed to be charitable.

PRIs, like non-recoverable grants, can be counted towards the IRS’s 5% annual distribution, though no distribution is required of community foundations. While the regulatory framework for PRIs dates to the 1969 US Tax Reform Act, foundations have only recently begun to deploy this investment strategy in a serious way. Not surprisingly, the Gates Foundation is a leader in this area. Starting at $400 million in 2009, the foundation’s PRI allocation has grown to $1.5 billion. According to Paul Brest’s 2016 article “Investing for Impact with Program Related Investments,” Gates’ focus is global poverty with investments made primarily in biotech and mobile payment systems; though surely ed-tech investments can’t be far behind.

MRIs differ from PRIs in that they prioritize financial return, but still take social benefit into account. Unlike PRIs, MRIs cannot be counted towards the 5% IRS distribution. In 2015, the IRS clarified its guidelines stating trustees of foundations could pursue MRIs offering below market rate returns as long as the charitable purpose of the foundation was not jeopardized. This clarification gave foundations a green light to expand MRI activities in social impact investment markets. In May 2017, the Ford Foundation announced their intention to put $1 billion of their $12 billion endowment into MRIs. Side note: the Ford Foundation is an institutional supporter of the Kairos Center, which houses the “Poor People’s Campaign.” Larry Cox, who served as senior program officer for human rights at the Ford Foundation between 1995 and 2005, coordinates that campaign.

SVCF pitches impact portfolios as an option for its donors. The foundation offers a range of services from placing assets in the “social impact pool” to “customized philanthropy.”

SVCF Finance Options

Source here.

Among the “customized philanthropy services” offered is guidance on PRI and MRI investments in Donor Advised Funds (DAFs). In 2017, MIT’s Sloan School of Business issued a brief, “Donor Advised Funds: an underutilized philanthropic vehicle to support science and engineering.” The document makes a case for expanding use of DAFs as a form “patient capital” to sustain the development of “tough technologies” that are innovative, but not yet attractive for venture capital investment. The idea is to use DAF funds to “de-risk” cutting edge technologies in the bio-tech, energy, and education sectors, enabling them to survive the “valley of death.” The infographic below, from page 12 of the report, suggests four ways funds can be moved from DAFs into “for-profit charitable organizations.”

DAF MIT

Donor advised funds (DAFs) make up significant holdings in most community foundations. DAFs enjoy privileges not available to private foundations. While donors get an immediate tax benefit when making gifts of appreciated assets, they are under no obligation to make charitable payouts from the fund. In contrast, private foundations must disburse 5% of their endowment annually in order to comply with IRS regulations. DAFs also provide anonymity since awards come from the sponsoring organization without referencing a specific donor.

The map below shows billionaires holding donor advised funds at SVCF; five of them have ties to Facebook. In 2015, more than a quarter of the foundation’s assets were comprised of one corporate stock, presumably Facebook. Mark Zuckerberg directed 18 million shares, valued at over a billion dollars, to SVCF in 2013 and gave an additional $214 million in Facebook stock in November 2018 after Nicole Taylor was announced as the organization’s new CEO.

Reed Hastings, of Netflix, a Facebook board member and long time supporter of and investor in digital learning, established a $100 million fund with the foundation 2016. In a 2014 keynote to the California Charter Schools Association Hastings drew criticism saying he’d like to make elected school boards obsolete, favoring instead the “more stable governance” provided by charter school companies. Hastings also serves on the board of KIPP charter schools, an SVCF beneficiary. According to SVCF’s 2016 990 tax form, KIPP received $2.5 million for its national operations and an additional $12 million directed specifically to KIPP schools in the Bay Area.

Billionaires with DAFs at SVCF here.

SVCF Donor Advised Funds 2

With this in mind, consider how education, and the social sector more broadly, is being set up for hostile takeover via impact investments underwritten by PRIs and MRIs. We have achievement gaps to be closed and “opportunity youth” pushed out of educational systems waiting to be connected to workforce pathways. We have deep trauma and a profound a lack of equity in resource allocation. You can be sure SVCF’s donors are readying their data-driven “solutions.”

Will PRIs, MRIs, and DAFs be tapped to pay legions of coders to create the dashboards, digital identities, and next-gen surveillance systems that will be forced into education and therapeutic settings in the name of “charity?” Perhaps the coders themselves will be incorporated into the “impact” value chain as is already happening with incarcerated people roped into “The Last Mile” computer training intervention at San Quentin.

The need for these technological “fixes” stems from purposeful decisions made by those in power to break and starve public infrastructure, to destroy the commons. Support systems that should be accountable to the people are being replaced by outsourced “solutions” that will be accountable only to investors. Community foundations have been tapped to sustain the development of predatory technologies that will control this new structure. Even though these technologies are not yet economically viable, philanthropic injections of capital will keep them on life support until sufficiently stable markets have been created. All that is required is for-profit initiatives be designated as having “charitable” intent; not a difficult task in  a world where the rich and powerful are more than willing to define data-mining the poor and vulnerable as “charity.”

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