Thursday, April 22, 2021
Jill Horwitz (UCLA) will present No, Really, The Endowment is Not For Us: Endowment Restrictions and Crises virtually at Duke as part of its Tax Policy Workshop Series hosted by Richard Schmalbeck & Lawrence Zelenak:
The pandemic has caused enormous suffering, and charities have not been spared. They have faced extreme revenue loss, reduced programs, laid off staff, and closed their doors. Yet in the midst of this devastating crisis, there is a lot of money sitting in endowments, and it is largely unavailable to alleviate harms to charities, charitable beneficiaries, and employees. Moreover, charities regulators across the country have provided guidance reminding charities that legal constraints still apply, both with respect to restrictions mandating that assets must be held for investment as in the case of endowment funds and other kinds of specific restrictions on spending. Restrictions on charitable assets are meant to be observed, even during a crisis, even during a pandemic. Do these rather inflexible restrictions make sense? Even during a pandemic? This article answers that question, largely in the affirmative. It engages decades of scholarly debate regarding the justification for adhering to restrictions in general, with particular attention to endowment restrictions, and uses crises as a stress-test of the law. It considers the wisdom of changing rules in the midst of crises. In a discussion of waste it concludes that, with the possible exception of extreme cases, both practical evidence and theory point towards maintaining restrictions. It re-examines traditional arguments for allowing donors to restrict the use of donations as applied in the context of emergencies.
The article concludes that the arguments for granting charities unilateral ability to release restrictions, even during a crises, are largely wanting. With some exceptions, extant law provides sufficient tools for charities to respond to needs, even to crises. Understanding that the goal of charities law is to protect charitable purposes rather than particular entities, the case for upholding restrictions becomes even stronger.