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Policy priority: A scaled disbursement quota to increase funds available to communities

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Policy priority: A scaled disbursement quota to increase funds available to communities

Registered charities are required to spend a certain percentage of their assets on charitable programs or on grants to other charities annually. This quota mainly impacts foundations.

Why it matters
Budget 2022 proposes to introduce a graduated disbursement quota (DQ) for charities. Starting January 1, 2023, for investment assets exceeding $1 million, the disbursement quota will increase from 3.5% to 5%. While all charities are subject to the disbursement quota, those that directly operate programs and services usually spend far more than the current minimum of 3.5%. The disbursement quota must continue to balance today’s interests with the need to ensure funding sustainability for long-term challenges and the needs of future generations. This is especially salient in times of crisis, such as the COVID-19 pandemic.
Did you know?
  • From 2008 to 2019, total foundation assets have almost tripled, going from $39.5 billion to $116 billion in constant 2019 dollar terms. 
  • On the whole, a small amount (approx. $200 million) of new spending will be released if the DQ is raised to 5% when compared to the total amount of funding that the sector receives annually. 
  • We analyzed the impact that a 10% DQ would have on the largest foundations (e.g. those with more than $3 billion in assets). Our data shows that 84% of those foundations can afford to disburse at 10% without spending any of their endowment. 
  • Equity-seeking communities are often underserved by philanthropy. A sample from 2015 of private foundation disbursements (Snapshot of Foundation Giving in 2015) demonstrated that funds tend to be directed towards charities with mission areas in education & research (over 30% of total disbursements) and health (at 17%) leaving some equity-seeking communities underserved. 
Our ask
During the summer of 2021, we submitted the following recommendations to the consultation launched by the federal government on potential changes to the disbursement quota. You can read our full submission to learn more.
  1. Implement a scaled disbursement quota designed to infuse new funds and reflect the different realities of the foundation community. Assign a graduated range of percentages to foundations based on their inclusion in categories as determined by asset size and designation. For example, the minimum threshold of 3.5% could be maintained for smaller organizations (those under $1 million in assets) and range upwards in the area of 7% and beyond for larger organizations.    
  2.  Commit to a mandated review of the disbursement quota at five year intervals. Proactively engage the sector in the review, and seek the perspectives of organizations outside the legal and foundation communities (i.e. grantees and potential grantees).
  3. a) Allocate funding to a coalition of charitable sector organizations and expertise for education and guidance to foundations in accessing new communities within the scope of their charitable purpose and in developing equitable granting practices; and

    b) Apply an equity principle to transparency & accountability measures applied through the T3010 process. Ask foundations how they intend to apply considerations of equity to their disbursements.

  4. Commit resources to identifying the causes of T3010 completion errors. From there, appropriate expectations across asset size classes, as well as adequate reporting enforcement & education mechanisms can be developed. 
  5. Implement transparency and accountability measures through the T3010, with varied expectations across scaled categories (a range of simplified-to-detailed 
  6. T3010 forms to complement a graduated scale DQ regime), leading to enhanced clarity of donor advised funds, and greater accountability to the public of the foundation’s accumulation and disbursement strategies.
  7. Ground the periodic review of the disbursement quota and evolution of the regulatory regime in the principle of ‘intergenerational justice’ -- that the current generation is due some decision-making authority over the timing of the release of funds for public benefit.
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