Public Policy Update - July 2021
Each month, SECF provides members with monthly updates on the latest public policy developments in Washington and state capitols around the region, analyzing their possible impact on the charitable sector. If you would like to see an issue featured in a future Public Policy Update, contact Jaci Bertrand, SECF's vice president of member engagement, at firstname.lastname@example.org.
Upcoming Member Webinar on the Accelerating Charitable Efforts (ACE) Act
Join us at 3:00pm ET on Tuesday, July 27, for a special public policy Member Webinar on the Accelerating Charitable Efforts (ACE) Act, legislation introduced last month that would make significant changes to laws governing the work of private foundations and donor-advised funds (DAFs).
Our webinar will review the major provisions of the legislation and what its provisions could mean for donor-advised funds and different types of foundations. We’ll also discuss the prospects for the legislation in Washington.
Joining us will be Sandra Swirski, Sara Barba and other members of the Philanthropy Team at Urban Swirski & Associates, a leading bipartisan Washington, D.C., advocacy firm.
For more details on the ACE Act and its provisions, read the item below!
Accelerating Charitable Efforts Act Introduced: What Would It Mean for Philanthropy?
Last month, two senators introduced the Accelerating Charitable Efforts (ACE) Act, legislation that would represent the biggest change in laws governing philanthropy in decades.
The ACE act is modeled after the Initiative to Accelerate Charitable Giving proposal put forward by billionaire philanthropist John Arnold and Boston College professor Ray Madoff. We reviewed that proposal in our December 2020 update.
The bill, sponsored by Sen. Angus King of Maine, an independent who caucuses with Democrats, and Republican Sen. Charles Grassley of Iowa, the ACE Act is described by supporters as a needed reform that would “ensure that charitable contributions will swiftly reach the worthy organizations doing good in communities throughout the country.”
However, many in the philanthropic sector have expressed serious concerns about the legislation, which was drafted without their input.
“While some argue new restrictions on DAFs and private foundations are needed to ensure charitable dollars are reaching nonprofits, there is no data to indicate whether these measures would propel more charitable giving,” says a letter signed by a number of national organizations, including the Council on Foundations, Independent Sector, the Philanthropy Roundtable and the United Philanthropy Forum. “As Congress considers reforms that impact foundations and other charitable organizations, we believe those changes should be supported by data, increase charitable giving, build trust in our sector, reflect the on-the-ground experience of both the organizations and donors being impacted, and include voices from a broad representation of the philanthropic sector.”
The bill, which received significant media coverage when introduced, would make several changes relevant to private foundations and donor-advised funds. Here are some of the bill’s key provisions:
Changes to Donor-Advised Funds
This bill would replace the current structure of DAFs with two new categories of the giving vehicles, one of which would offer better tax benefits to those who disburse assets within 15 years while the other would delay tax benefits until funds are exhausted.
- 15-Year DAFs: DAF holders who choose this vehicle could take an immediate tax deduction for their gifts but would be required to disperse all funds or relinquish control of their DAF within 15 years, otherwise face a 50 percent excise tax penalty on the value of the assets held in the DAF.
- 50-Year DAFs: Donors who want more than 15 years to distribute funds from their DAF could elect this vehicle and still receive capital gains and estate tax benefits upon their donation. However, they would not receive a tax deduction for their gift until the funds are distributed. All funds would be required to be distributed within 50 years of donation to the DAF.
The bill does include a significant exemption for DAFs managed by community foundations. The legislation allows donors with less than $1 million in assets in a DAF managed by a community foundation to be exempt from the new payout rules, and DAF accounts larger than $1 million at community foundations would either be subject to a 5 percent payout each year or have to distribute funds within 15 years.
The bill also includes provisions intended to prevent donors of complex assets, such as private stock holdings and real estate, from claiming tax benefits that exceed the dollar amount for which the asset is eventually sold.
Changes Affecting Private/Family Foundations
Private foundations would no longer be able to count disbursements to donor-advised funds or family members’ travel and salary expenses toward their 5-percent minimum payout requirement. The legislation offers additional benefits to private foundations that payout more than 7 percent in any year by waiving the annual 1.39 percent excise tax on investment income that all private foundations currently pay. Additionally, private foundations created after the implementation of the ACE Act would be completely exempt from the excise tax if they agree to grant out all assets within 25 years of founding.
SECF is following this legislation very closely and will provide regular updates as the legislative process continues, including policy alerts as needed.
Dual-Track Process on Infrastructure Continues in Congress
Last month, the White House and a bipartisan group of senators announced agreement on a $1 trillion framework to make significant investments in the nation’s roads, bridges, power grids and other physical infrastructure.
While that agreement garnered significant attention, it is still far from a done deal. The White House and the senators who developed the framework are still working to secure the 10 GOP votes that will be needed to overcome a filibuster in the Senate. Republicans’ chief concerns revolve around how the bill’s spending will be paid for without increasing the deficit. Many key GOP leaders, including Minority Leader Mitch McConnell (R-KY), are waiting to learn more about the bill’s funding before deciding whether to support it. A Senate vote on the package could happen as early as next week.
Meanwhile, Democrats are moving ahead on a separate package addressing another type of infrastructure: the social safety net. This bill would be considered under the same reconciliation process used for this year’s COVID relief legislation – that process prohibits the use of the filibuster, but also would require all 50 Senate Democrats to stay united behind a bill.
According to Politico, Democrats are jockeying to address as many priorities as they can in the legislation, which is expected to cost anywhere between $3 trillion and $6 trillion. The outlines of the bill could be released by Senate Budget Committee Chair Bernie Sanders (I-VT) as early as this week.