Judging from the growth in foundations' assets over the past two decades, an increased level of payout clearly was warranted during that period. Because foundations paid out more than they took in, the growth in their assets could only have come from their investment performance. That rate of growth during that period was substantially greater than inflation. Investment returns in 1998 and 1999 suggest that that surplus has further increased substantially. But because returns can vary greatly from year to year, such an approach would work against the competing need of foundations to develop future budgets and strategies of charitable support over several years at a time.
Flexibility is key.
With that in mind, foundation officials at the California Community Foundation, in Los Angeles, came up with a new policy. Even using only half the surplus, their current-year giving was increased by 37 per cent. The dividend formula devised by the California Community Foundation is hard to argue with. The foundation has covered all its obligations prudently and still paid out only half its surplus. Most of the tremendous growth in foundation assets has occurred in the last three years.