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Kevin K. Murphy Headshot

Philanthropy Visits the Nation's Capital: Why?

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This week, hundreds of foundation executives from around the United States will descend on the nation's capital to meet with lawmakers on issues ranging from tax reform to agricultural research funding. The event, sponsored by the Council on Foundations, a Washington, D.C.-based trade association representing grant-making foundations, and the Forum of Regional Associations of Grantmakers, highlights the interdependent, if sometimes quirky, relationship that exists between government and philanthropy.

Historically, private philanthropy has operated under a basic business model of "philanthropy invents, government implements." Foundations have provided risk capital to nonprofit agencies to develop, demonstrate and evaluate solutions to societal problems. The basic compact was that once the ideas had been demonstrated effective, government would implement them broadly.

One interesting example of how this model works is the presence of white lines on the side of the roads. The story, as told by the Council on Foundations, is that in the early 1950s, engineer-inventor Dr. John V. N. Dorr developed a "revolutionary highway theory":

Dr. Dorr postulated that at night and when rain, snow or fog impaired vision, drivers hugged the white lines painted in the middle of highways. Dorr believed this led to numerous accidents and that painting a white line along the outside shoulders of the highways would save lives. Dorr... convinced highway engineers in Westchester County, New York, to test his theory along a stretch of highway with curves and gradients.

The decrease in accidents was dramatic, and a follow-up test in Connecticut had similar results. Dorr then used his own foundation, the Dorr Foundation of New York, to publicize the demonstration's results:

Although state funds are now used to paint white lines on the shoulders of this nation's highways, every person who travels in a motor vehicle is indebted to Dorr and his foundation for the implementation of this life-saving discovery.

There are reasons that the relationship between government and philanthropy has developed this way -- and worked so well.

First, governments are inherently risk-averse. Their capacity to test innovative solutions is limited by the basic design of bureaucracies. Virtually all government employment, for instance, rewards longevity rather than results or innovation. Think, for instance, about public school teachers who are paid based solely on years of service and their own level of education, and rewarded with retirement based on having served a certain number of years. There is no economic incentive for performance. The same is true in almost all governmental functions.

On the other hand, private philanthropy is far more capable of taking risks (though it is arguable whether we fully exploit that ability). Endowed philanthropy, in particular, can afford to lose a bet knowing that next year's revenue stream is guaranteed.

But government has massive powers of implementation. In addition to the power to enact laws, they have financial power that vastly outstrips that of private philanthropy. There never would have been enough money in private philanthropy to paint and maintain white lines on roads, but government, through taxation and regulation, was able to implement that safety improvement, now taken for granted.

In exchange for all of this innovation, Congress grants foundations certain preferences, primarily to encourage their growth and recognize their contributions to society. Foundations generally don't pay taxes (there are some exceptions) and operate relatively free of much interference from government.

And that's what we'll be talking about in D.C. this week. How to preserve and strengthen the unique compact between government and philanthropy. Foundations, unlike other groups that visit the hill, don't come with long wish lists for legislators. We'd like to see the extension of the tax deduction for gifts made to charities through Individual Retirement Accounts. We'd like to see the modest tax paid by private foundations made simpler. We're not asking that it be cut, just simplified. Our real "ask" is to continue the conversation and continue to explore ways that the innovative ideas funded by philanthropy can be taken to scale.

Our nation was built, in part, on the unique relationship between generous donors, the foundations they created, and the government our people elect. This week might be among the most important conversations any of us have this year.