Wealthiest nonprofits favored by foundations

In 2001 alone, private foundations gave $28.7 billion to charities. Such a wellspring of good works was made possible by the enormous federal tax benefits that for generations have flowed to those wealthy Americans who create, through their foundations, enduring philanthropic legacies.

What does the country receive in return for these billions of dollars in subsidies?

In large part, the biggest beneficiaries of foundation giving are the nation's wealthiest nonprofit institutions.

To be sure, some charitable foundations focus their philanthropy on programs to help the disadvantaged. But the largest foundations parcel out a surprisingly high proportion of their grants to already well-endowed colleges and universities and other elite institutions.

Indeed, the most prestigious universities on each coast, Harvard and Stanford, attracted hundreds of millions of dollars more than other recipients between 1992 and 2001, according to a study of foundation grantmaking patterns done for the Globe by the Foundation Center, a research and education organization based in New York.

The study, which examined giving by 1,000 of the country's largest foundations, found that another 14 of that decade's top 20 grant recipients were also elite universities, among them Columbia, Yale, the University of Pennsylvania, the University of Chicago, and Duke. In 2001, more than one of every four dollars donated by more than 1,000 of the largest foundations went to colleges and universities. Also on the preferred donor list at many foundations: major teaching hospitals, large museums, and symphony orchestras.

By contrast, nonprofits identified in the study as human service providers received about 1 in 10 foundation dollars in 2001.

In the foundation world, few contend that Harvard, for instance, is undeserving. And there is little dispute that many of the gifts such institutions receive have "trickle down" benefits for society's neediest. One prominent example: The Bill & Melinda Gates Foundation, the nation's largest, has given Harvard $44.7 million to develop a tuberculosis control program and $25 million to fund an AIDS prevention program in Nigeria.

"The work these foundations do is absolutely crucial to the vitality of American higher education, which is really quite extraordinary in terms of social role it plays and the generation of new knowledge," said Michael Katz, a historian of social welfare at the University of Pennsylvania. "Foundations fund a lot of creative stuff on the cutting edge."

Even so, the almost reflexive preference that many foundations have for elite institutions leaves tens of thousands of other nonprofits, many of which serve the poor, trying to outshout one another for remaining grant dollars. In most cases, they do not have the connections or the fund-raising prowess to attract the attention, much less the money, of private foundations.

Harvard is in its own class. With an endowment of $19.3 billion, the university received grants of $755 million from the 1,000 foundations during the same decade. Only Stanford, with $873 million, received more, because of a single $400 million gift from the William and Flora Hewlett Foundation.

Over time, Harvard has been the favorite charity for foundations, according to Steven Lawrence, the Foundation Center's research director.

The overwhelming majority of philanthropy, whether by foundations or individuals, "goes to established institutions that the givers are associated with in some way," said Paul S. Grogan, president of the Boston Foundation and a former Harvard vice president. Much of this giving, Grogan said, "is very class-based -- geared to elite institutions that serve the givers, their family members, and their class."

Only a "relative sliver" of foundation philanthropy, Grogan said, goes to the truly disadvantaged.

The study data, supported by the views of Grogan and other experts, suggest one common view of foundation giving -- that it mostly helps the poor and augments government efforts to address an array of social needs -- may be considerably wide of the mark. It also undercuts the occasional claim by political leaders that budget cuts in programs for the needy will likely be offset by private philanthropy.

'An undemocratic power'

Wealthy individuals receive large -- most often dollar-for-dollar -- tax deductions to establish private charitable foundations; some experts in philanthropy argue that the government should take a second look at a system that so often works to the decided advantage of wealthy nonprofits.

"The giving of the wealthy perpetuates the status quo and actually serves their class interest," said Teresa Odendahl, chairwoman of the National Committee for Responsive Philanthropy, an advocacy group, and the author of a book on the disparity in grantmaking.Philanthropy, Odendahl said, "is tax money forgone, money the government could be using."

The present system, she added, "gives wealthy individuals and the institutions they create a kind of undemocratic power."

The study by the Foundation Center examined grants of $10,000 or more given or committed between 1992 and 2001 by about 800 of the nation's 1,000 largest foundations, including almost all of the top 500. In addition to the 800 largest, the study also includes 200 other foundations of varying sizes. The sample accounts for more than half of all foundation giving.

Because the study was not based on what statisticians call a "stratified random sample" of foundations, it is not scientific. But Lawrence, who assembled the data, called it "suggestive of grantmaking trends," and said it represents the most complete information on American grantmaking available. About three-quarters of those studied are private foundations that dole out grants, while the rest are corporate, community, or operating foundations.

In 2001, 26.8 percent of foundation grants of $10,000 or more went to colleges, universities, and graduate schools, according to another study by the Foundation Center using similar data. By contrast, human service providers received 9.7 percent. Arts, performing arts, and humanities groups received 5.7 percent, environmental nonprofits 4.1 percent, and civil rights groups 1.1 percent.

Colleges and universities are magnets for grants, from foundations as well as individuals: Old Wealth nourishes Old School ties. And the self-made wealthy often attribute their success to their university education and give accordingly. One example is the John W. Kluge Foundation, which was formed by the media baron who was once listed as the richest man in America.

Over the years, the Kluge Foundation has given $100 million to Columbia University, which Kluge attended on scholarship, according to Edward Hopkins, the foundation treasurer. Much of that money has been earmarked for minority scholarships and to promote faculty diversity, he said. Kluge, Hopkins said, "came to this country from Germany when he was 8 years old. He didn't speak the language, and he considered himself a minority. So he knows what the minorities of today may go through."

Odendahl's research shows that, when it comes to giving, foundations leaders also often favor institutions simply because they know them well. Take the case of New Jersey foundation executive John P. Keegan.

In one recent five-year period, Notre Dame University and the John F. Kennedy School of Government at Harvard received donations of $613,000 from the Charles Edison Fund, where Keegan is the president, and the Elsie E. and Joseph Beck Foundation, of which he is a part-time trustee. Those grants were no small matter for the two foundations: Their combined assets were just $37 million at the end of 2002.

Keegan is an active Notre Dame alumnus and earned a graduate degree at the Kennedy School.

Foundation trustees, Keegan said in an interview, "probably should favor institutions from which we graduated." In the last two years, Keegan estimated, he has reviewed grant proposals from more than 250 nonprofits, and few of them would qualify for grants without considerable research to ensure they were worthy recipients.

"So we feel comfortable dealing with institutions we have strong ties to, and I think that's appropriate," Keegan said.

Universities have other advantages in the pursuit of foundation grants. They have sophisticated fund-raising operations and the ability to exploit alumni and social ties to foundation trustees and staff.

Most elite schools have several people who work full time on polishing proposals, arranging meetings with foundation staff and trustees, and finding new ways to appeal to a foundation's interests.

One example: MIT, which has a strong interest in using the Internet to share educational technology, was well aware that the Carnegie Corporation funds projects involving African universities, said MIT director of foundation relations Jack Oldham. So MIT took a proposal to Carnegie to experiment with using the Internet to share MIT's laboratory capabilities with labs in Africa. The foundation decided to make a $50,000 pilot grant.

Michael Rodin, director of foundation fund-raising at Columbia, said the university aims for "total relationship management," and that includes an awareness of alumni connections. "We'd like to know, who do we know at these organizations, and what are their interests," Rodin said.

But far more important to Columbia, Rodin said, are the informal networks that link faculty members and foundation staff, who, at the largest private foundations, often have doctorates or other experience in academia.

"Maybe they were colleagues in the same field and they've met at conferences," Rodin said. "It's easy [for professors] to pick up the phone and make a pitch. It happens without a strong degree of involvement of the development office."

Unable to compete

There is also top-level cross-pollination: Many officials at major foundations are former academics. For example, Vartan Gregorian, the Carnegie Corporation's president, was president of Brown University, and Gordon Conway, the outgoing Rockefeller Foundation president, was formerly vice chancellor of the University of Sussex, in England.

Officials at smaller nonprofits say they are unable to compete because they simply aren't part of the same world.

"Some foundations which are interested in health care will only fund teaching hospitals and universities," said Bill Walczak, CEO of the Codman Square Health Center in Dorchester, who has had notable succcess attracting foundation grants. "They don't know us; they don't know Dorchester. The closest they get is when they're driving through on the expressway."

Massachusetts General Hospital, the Dana-Farber Cancer Institute, and Brigham and Women's Hospital together brought in $114 million between 1992 and 2001, according to the Foundation Center survey.

Nor do small nonprofits have the budget, staff, or training to achieve anything like the sort of "total relationship management" cited by Rodin.

"The universities are so well endowed, fund-raising is inbred within their very being," said Roni Posner, executive director of the Alliance for Nonprofit Management in Washington. "In most nonprofits that is a luxury expense, because in a lot of cases dollars are directed and specifically restricted to program-related expenses."

With no money for fund-raising and marketing, small and midsize nonprofits "have no voice," Posner said.

The elite nonprofits benefit from a "default mechanism," said H. Peter Karoff, founder of the Philanthropic Initiative, a consulting firm that works with foundations and often helps them identify worthy charities. Karoff said donors have told him: "I know how to give $100 million to my college. I don't know how to give $100 million to help kids in the inner city."

Foundation trustees have a fiduciary responsibility to use money wisely, and some nonprofits are a lot better managed than others. Generally speaking, the more obscure the organization, the riskier it seems to donors, several experts on philanthropy said.

With so many small nonprofits purporting to address one social ill or another, "it's very, very hard for foundations to discern who is doing good work and who is not," Karoff said. "A huge percentage of the smaller foundations don't have the staff or knowhow to do this. That's the big reason many of them hold back."

'Strategic point of view'

Many foundation officials say that the critics who think too much money goes to elite institutions misunderstand what philanthropy is about.

"Foundations look at things from a more strategic point of view than a charitable point of view," said Marshall Smith, director of education at the Hewlett Foundation. "We are looking for areas where we can make a difference, where we can add value to the quality of education in the United States."

Paul Brest, president of the Hewlett foundation, added: "Charity almost never hurts anybody. But there's a lot of giving where neither the funder nor the organization being funded knows if it's made a difference."

Donella Rapier, Harvard's vice president for alumni affairs and development, said potential donors have sometimes asked, "Why should I give money to the wealthy Harvard Business School when I'm from Mexico and there are people in the next neighborhood who are starving?"

"Our response was always, first and foremost, you should always take care of things in your own community," said Rapier, who until recently was the business school's chief financial officer. But if the donor has means beyond that, "an investment in Harvard Business School affects the world."

"A child needs to have dinner at night, but Harvard is doing things to make sure the world standards all rise," Rapier said. "Improving the ways businesses and economies are managed all over world will result in more kids going to bed with dinner than did before."

Still, critics like Posner believe that foundations should "take a greater risk" on small nonprofits, especially as government budgets trim the effectiveness of social services agencies.

"No one can say, `Let's turn off the spigot to Harvard,' " Karoff said. "That just will not happen. But there is a big opportunity to increase money flowing in the other direction."

At Harvard, if anything, there are plans to turn that spigot up. The university is redesigning its development office in part to make it better at pursuing relationships with the top foundations, said Rapier, the development director. The university is seeking grants for a major expansion in its science programs, and for a new campus in Allston.

"We need much greater support for those efforts, and we are looking in a lot of places we may not have looked to before," she said.