Working Paper 9: Abstract

The Foundation Payout Puzzle

This paper examines public policy toward American philanthropic foundations. We find that the major regulation bearing on foundations -- a mandated minimum endowment payout rate -- has had the effect of repressing foundation giving. Interviews with foundation trustees and presidents point to a number of significant obstacles to proper conceptualization of the payout decision in foundations. In the face of these obstacles, our survey of foundation payout behavior over 25 years reveals that most foundations simply pay out the mandated minimum amount each year, regardless of other relevant considerations. We argue that the minimum rate has gone from being a floor when it was enacted decades ago to a ceiling today. The paper concludes with an exploration of how the payout policy could usefully be reformed.