From Storehouses to Streams: A Hopeful Wake-Up Call for American Philanthropy

Reclaiming Christian generosity by pruning failing nonprofits, measuring real impact, and freeing donor-advised funds to serve widows, orphans, and the oppressed.

American charitable giving – philanthropy – is broken.

And the most broken part of philanthropy is Christian philanthropy.

Christian philanthropy – from the way faith-driven nonprofits are managed and funded to the Christians themselves who make donations – is the most broken, and if there is a God (which I believe there is), our God must be quite sad, even angry, to see who’s getting richer at the expense of many widows, orphans, the poor and the enslaved being neglected, both here and around the world.

First, the majority of nonprofits operating today should either go out of business or be acquired by other higher-performing nonprofits, and top performing charities should have better tools to create even greater impact.

Roughly 1 in 8 U.S. nonprofits — approximately 230,000 tax-exempt organizations — managed to post an operating surplus (i.e., “profitable” results) in each of three pre-COVID years 2017, 2018 and 2019. [sources: Nonprofit Finance Fund, Independent Sector, BDO USA]. Almost no for-profit company would survive posting losses three years straight. And they certainly wouldn’t survive COVID.

One reason many failing and poorly run nonprofits continue to operate is because too many of us are lazy donors and negligent stewards who donate money to feel good about ourselves or at least less guilty about our wealth. Among disciplined donors, and I’d categorize private foundations (independent ones as well as family foundations) among these because of the internal rigor they apply to philanthropy, many forget whose money they steward. When the U.S. government allows tax-exempt entities to grant as little as 5% of market value annually, as is the case with foundations, and allows half of that 5% to go toward “overhead” (read: fancy offices and big salaries) or to Program Related Investments, which the foundation receives back with interest, the U.S. government becomes party to the biggest money grab since before Zaccheus climbed a tree to be able to see a guy named Jesus speak.

We are not only stealing from the poor and giving to the rich; many of us who are rich in this world are passing around money among ourselves and simply getting richer. The next time you visit the Ford Foundation and see a painting by Monet hanging in the reception area, know that the U.S. government allowed that foundation to buy that painting with donors’ tax-exempt dollars. You’ll be served Starbucks coffee made in a Keurig machine both of which also were purchased with tax-exempt dollars.

Part of the solution to this first example of nonprofit brokenness is to offer these organizations professional tools to find wealth and solicit it proactively and boldly. A Blackbaud study a few years ago discovered that as many 60% of donors making a first-time gift of $1,000 or more to a nonprofit first visit that organization’s website before writing a check. The problem is that many smaller nonprofits, even those that are high-performers, don’t have the tools to know who visited their site and, if they do, don’t know whether those website visitors have giving capacity.

We can solve this.

An important side note here is that when donors visit those websites, many of the websites are like western movie ghost town false fronts. What I mean by this is that charity watchdog groups give a better rating to nonprofits that have home page links to their Form 990s and Audited Financial Statements than to those that don’t. The reasoning is that it demonstrates transparency. But what if those Form 990s show three consecutive years in the red? Yes, the watchdogs do take that into account, but why would a nonprofit spend time and money re-doing its website to earn a Guidestar/Candid or Charity Navigator graphic to pin on its website footer when it should be doing all it can to be profitable and achieve outcomes. Successful business owners are my favorite donors: they hold nonprofits to the same standard that a business needs in order to not just survive but to flourish. I don’t know a single one who’d care about a nice graphic more than they would about provable results from donations.

There’s a solution to this: require nonprofits to either have in-house staff focused on outcomes measurements (also called monitoring and evaluation, or “M&E”) or require that they show on their Form 990 that they paid an outside consultant to have that done for them in order to qualify for tax-exemption. M&E “proves and improves” the work done by a nonprofit. A nonprofit that fails to achieve an outcome in a given year but learns why they failed is much better off than one that doesn’t measure at all. Nonprofits should be required to show that they are measuring the outcomes of the tax-exempt dollars they receive.

This applies to foundations as well: they above all should be required to have external evaluators in order to renew their tax-exempt status, because they enjoy the greatest tax benefits in relation to the overly generous 5% rule. Currently, the IRS allows an entity to be tax-exempt merely if it is “organized and operated exclusively for one or more exempt purposes” but doesn’t require the discipline of self-examination that the free market requires of private sector businesses in order to survive. Further, the IRS requires that “the foundation's activities must primarily serve the public benefit and not private interests, such as those of its founders, family members, or controlling individuals.” The Cailloux Foundation in Kerrville is one such foundation that operates arguably on behalf of its founders and family members more so than the public benefit. To its credit, it has disbursed as much as 10.5% of assets in a given year (2016), even if the trailing 15-year average is only 7%. But when they funded the construction of the town’s City Hall they also stipulated – and city leaders agreed – that all public activities or events on the plaza outside the hall must be approved by the foundation itself. Private family foundations should receive increased scrutiny about the public benefit clause to retain their tax-exempt status.

In this time of national self-examination, we have the opportunity to evaluate our nonprofits and find out where the real pain points are in order to provide solutions. We are a historically charitable nation, and we are a world leader in looking out for the widows, the orphans, the poor and the enslaved.

Further, it has been Christians over the past four hundred years who have innovated much of what we enjoy in today’s philanthropy. John Harvard effectively started the nonprofit industry in America in the early 17th century. The Presbyterian Church played a lead role establishing the early endowment system. The American Bible Society popularized the charitable gift annuity in 1919, and for many years before the United Way aggregated its chapters’ fundraising results, The Salvation Army was not only the top fundraising charity, but also and more importantly Peter Drucker famously said it was “by far the most effective organization in the U.S.” Finally, the National Christian Foundation has been not only “a” leader but I would argue THE leader in modern philanthropic innovations, orchestrating multiple private letter rulings from the IRS to create new ways to donate cash and illiquid and appreciated assets, including privately held businesses.

This brings us to the second, and possibly even more broken, area of philanthropy: donor-advised funds, and charitable gift funds (funds of funds), chiefly the commercial ones but also the faith-driven ones. I say “even more broken,” because while nonprofits are broken often because of a lack of professionalism and a desire to be nice rather than effective, gift funds enjoy tax benefits and grow fat while millions go hungry.

Donor-advised funds (DAFs) were designed as on-ramps for generosity – a donor makes a tax-deductible gift into a “fund” and can disburse that corpus over the course of successive years. I’ll be the first to admit it’s a great solution, one benefit being that people can choose to be wildly generous in a given year, even if they haven’t done their diligence on the best nonprofits to give to, and can get the maximum tax benefit. This is a good thing: it encourages generosity.

Regrettably, many charitable gift funds have become convenient parking lots for money that instead should be advancing the missions nonprofits were created to fulfill and which the original donors may indeed care about yet are negligent to follow-up on in the years following the initial donation to their gift fund account. More importantly, fund managers have a vested interest not to encourage those disbursements toward charity. They exist to grow the fund of funds.

Here’s a story that, while an outlier, is emblematic: a friend who has an account with a relatively small fund of funds found that of the hundreds of accounts in that fund, a mere 5% of account holders made disbursements in 2024 to a charity. In other words, 95% of account holders (donors) got a tax deduction in 2023 and accomplished nothing with their philanthropy in 2024, and the fund of funds did little to change that. Either those donors wanted the tax break more than a charitable outcome, or they forgot about their account, or perhaps they didn’t find a worthy organization to make a grant to, in which case see above problem number one.

The small fund of funds in question was a faith-driven one, and the larger parent fund is actually best-in-class at accelerating giving, in some years dispensing as much as 60% of funds received in a previous year, but typically around 35%.

Commercial gift funds like Fidelity and Vanguard, however, are oceans of receipt and salt flats of disbursements.

According to Fidelity itself, “A first-in, first-out analysis of contribution and grant dollars reveals that within five years of a $100 contribution to Fidelity Charitable, $74 is granted to charities.” This is misleading, and I’d argue intentionally so. Because the $74 is paid out over five years, each dollar is eroded by inflation — $1 from 2020 is worth only about $0.93 in 2025 — so charities receive roughly $69 of today’s purchasing power, not $74, meaning less than 70 % of the real value actually gets delivered. And what about the remaining $26? The U.S. government has explicitly allowed Fidelity to invest and grow that $26 for its own benefit. Yes, DAF account holders “benefit” also and can generally disburse the increase in fund balance that a charitable gift fund successfully creates. And it’s true that Fidelity has proven its investment prowess that many account holders lack if they were to try to grow their own gift fund. But over four tax years (2020-2023), grants trailed income by as little as 4% and as much as 33% while assets under management (AUM) grew from $35.4B to $56.7B, a 60 % absolute gain; and a ~17 % compound annual growth rate. At that pace, assets will double in a little over four years. Charitable gift funds’ AUM:disbursement ratio is increasing in the favor of the fund, not nonprofits, and the U.S. government is allowing that to happen.

One solution, reductive though it is, is to have an AI agent objectively, proactively and regularly remind the donor to disburse funds from her DAF to nonprofits that this same AI agent vets with world-class outcomes measurements analysis.

Another fix: change IRS regulations to allow donor account-holders to pledge capital campaign gifts over multiple years. Fidelity says it can’t guarantee fund investment returns therefore it can’t be beholden to a future pledge? That’s not the problem of the donor who put the money there in the first place. Keep that portion of the corpus in low-risk investments in order to fulfill donor intent. If not, charities lose.

Here’s one final stat that should have nonprofits marching on Washington: since 2014, DAF giving has grown 2.5x what overall charitable giving has, a 10-year change of 199% vs. 55% respectively (CAGR of 12.9% vs. 5%). And let’s call a spade a spade: the wealthy donor, not the average one, is driving the growth in DAF funding into the vast salt flats of Fidelity and its peers, enjoying tax benefits in Year One and doing precious little with that money in Years Two-to-Kingdom Come.

In sum, American charitable giving and many philanthropic service providers are broken, deeply.

The Bible (NASB translation) has a saying, and it goes like this: “Pure and undefiled religion in the sight of our God and Father is this: to visit orphans and widows in their distress, and to keep oneself unstained by the world.”

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TL;DR — American philanthropy is upside-down: underperforming nonprofits limp along while donor-advised funds and foundations stockpile tax-sheltered cash that drips out far too slowly. Cull weak charities, demand proof of impact, give high-performers modern donor-intel, and tighten DAF payout rules so money moves quickly to widows, orphans, and the oppressed.