Canadian charities have never had so much money in their coffers. These altruistic reserves, which are said to be around a hundred billion dollars, are causing unease in the philanthropic world, where many voices are calling for donations to be redistributed more quickly in the community.
Posted at 1:40 p.m.
That’s the opinion of Montreal philanthropist Jonathan Goodman, who founded two companies in the pharmaceutical sector. “Poverty is an immediate problem and the pandemic has not helped matters, worries the executive president and founder of Therapeutics Knight, in an interview. We should be helping people now, not in the future. »
Together, Canada’s 10,881 charitable foundations held nearly $92 billion in long-term assets in 2018, according to the most recent data provided by Philanthropic Foundations Canada (PFC). This sum could have crossed the 100 billion mark, taking into account the stock market returns of the following years.
These accumulated billions demonstrate that foundations do not distribute a sufficient share of their capital, believes Mr. Goodman. The minimum that charities must donate, 3.5% of their assets per year, is too low, he says.
When a foundation sticks to the minimum required, its portfolio returns often generate more money than it gives out, regardless of new donations, the businessman continues. “If we don’t increase this quota, the money will stay with the foundation almost forever. »
This comment is aimed specifically at private foundations, says Mr. Goodman. Their donors are usually connected to a wealthy family whose members play an important role in the governance of the organization. The businessman believes that family foundations should have exhausted their capital after twenty years or let the new generation take over.
A “deal” with taxpayers
Philanthropy is often perceived as a private matter, but the disbursement quota is a social issue, defends Sylvain Lefèvre, researcher at PhiLab QC UQAM. Taxpayers indirectly funded nearly half of donations through the charitable donation tax credit that donors took advantage of. “If we consider philanthropy as a collective investment, it is worth looking carefully at how we collectively invest this money,” says the professor from the Department of Strategy, Social and Environmental Responsibility at ESG UQAM.
Canadians get a “bad deal” when private foundations pay out only 3.5% of their assets, calculates tax expert Brigitte Alepin. Taking into account current tax rules, stock market performance and inflation, the professor of taxation at the Université du Québec en Outaouais estimates that it would take between 50 and 60 years before “Canadians get their money back » for the tax credits granted in exchange for donations from the most fortunate. “We, the taxpayers, we are always losers in this,” laments the author of “These rich who do not pay tax”.
The federal government could also soon review this famous “deal”. The Ministry of Finance conducted public consultations on the “potential” increase in the disbursement quota for 2022. The consultations ended last December. “Further information on the next steps will be communicated in due course,” said a senior official at the ministry.
Large sums are at stake. There would be a “gap” of almost 1 billion between the money that grows in the portfolio of foundations and the money that should instead be paid out, says the ministry in the 2021 budget, where the intention to hold consultations had been announced.
Long term projects
The figure of 5%, the same threshold as in the United States, is often mentioned in the philanthropic sector and could be the threshold chosen by the federal government. Several organizations have taken the lead and pledged to give more than the minimum required.
This is what the Lucie and André Chagnon Foundation, created with a donation of 1.4 billion in 2000 after the sale of Videotron to Quebecor, has undertaken to do. From 2021 to 2025, the private foundation plans to pay 500 million in funding, which would represent approximately 5% of its capital.
Forcing all foundations to disburse their assets faster, however, could be counterproductive, as some projects take time to mature and require long-term support, warns François Lagarde, the foundation’s vice president of communications. “One of the most appreciated things about our contribution is the long-term support. »
Without long-term funding from the Chagnon Foundation, Démarche Cosmos, which contributes to the development of young people throughout the territory of the MRC du Bas-Saint-Laurent, would not have been able to continue its activities, says Emma Savard, its executive director, who points out that the Chagnon family foundation represents between “70% and 80%” of its annual funding.
If family foundations were required to disburse their capital more quickly, the organizations they support would not be able to find other donors, she warns. “In-depth work doesn’t attract many financial partners. People want small projects to tell themselves that it was done in a year. »
Not all organizations are necessarily ready to receive more money, adds Mr. Lefèvre, who acknowledges that this statement “may seem bizarre” at a time when many community organizations “need a lot of money”. “It can destabilize an organization that is not always ready to receive it. The foundation must also be ready to do it well. If there isn’t the in-house expertise to see if it’s the right way to give… It’s not as if it’s enough to open the floodgates and everything just flows out in a simple way. »
Make an impact with your portfolio
The idea of increasing the minimum disbursement is only part of the solution, believes Karel Mayrand, president and CEO of the Foundation of Greater Montreal (FGM). It is time for players in the philanthropic world to “modernize” their investment practices so that their assets are not incompatible with their mission.
For example, a foundation could own a mining company that would have a project against the will of the Aboriginal peoples on the one hand and on the other pay a grant to support Aboriginal reconciliation. It’s completely ridiculous.
Karel Mayrand, President and CEO of the Foundation of Greater Montreal
Even if an increase in the minimum to be paid out was desirable, according to him, a threshold that is too high could have an undesirable effect by encouraging foundations to increase the risk of their portfolio to compensate for their withdrawals. “It would discourage foundations from making impact investments in the community, such as social housing. Often, these investments have a slightly lower financial return. »