On October 19, 2021 I read the following from a newsletter of Imagine Canada:

 

Imagine Canada supports increasing the disbursement quota to above 5%

The disbursement quota consultations closed on September 30. In our submission, we recommended that the government increase the disbursement quota to above 5%, in addition to six other changes that would improve the nonprofit sector’s funding environment. One of the major challenges to any discussion about the disbursement quota is a lack of data about the status quo and its impact on the nonprofit sector. We therefore analyzed data from 11 years of T3010 forms to inform our submission. We see these consultations as the beginning, rather than the end, of a sector-wide conversation about many of the questions that the consultations have raised, such as the definition of charity; the role for impact investing; the issue of generational justice when it comes to the accumulation of funds; and questions of equity in terms of where grants are directed

 

I was confused by this statement.  I wrote to Imagine Canada saying that I had seen this in their newsletter and I was not able to find the submission on their website and asked for them to let me know where it was.

 

I never heard back from Imagine Canada.

 

There are a few interesting matters here:

1. The DQ issue is one of the most important equity issues facing the sector.   Imagine Canada has been opposed in the past to any increase in the DQ.
2. The CEO of Imagine Canada, who is Co-Chair of the ACCS, submitted on August 31, 2021 a unanimous submission from the ACCS to the Department of Finance opposing an increase in the disbursement quota.
3. In October the submission from Imagine Canada was not publicly available on their website.  So the ‘representative’ of the charity sector was not providing a copy of this submission to the charity sector that it supposedly represents.  As well, it appears that Imagine Canada only let the public know about its change and position on increasing the DQ about 2 weeks after the Finance consultation with the charity sector had ended.
4. What does it mean “increase the disbursement quota to above 5%” – is that 7.5% or 10% or 20%? Not so clear.

 

Just to make things more enigmatic the following appeared on November 9, 2021 in the Imagine Canada newsletter:

 

Let’s Advocate ✊ Imagine Canada policy position: A scaled disbursement quota to release new funds In response to the financial troubles that organizations are facing during the pandemic, the 2021 federal budget committed to consultations on a potential increase to the disbursement quota (DQ). To recommend measures that would have a meaningful and positive impact on the sector’s funding environment, we analyzed data from 11 years of T3010 forms to inform our submission. We recommend the following measures to increase funding while supporting the sustainability of smaller foundations, improving data quality, encouraging more equitable granting, and introducing greater transparency and accountability: 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. 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). 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. 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. Implement transparency and accountability measures through the T3010, with varied expectations across scaled categories (a range of simplified-to-detailed 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. 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. Please note that in the October 19 edition of the Early Alert, we accidentally sent out an incomplete placeholder statement about our position on an increase to the disbursement quota. The recommendations listed here are our full and correct recommendations.

 

I find this quite interesting.   Here are a few points.

1. “Please note that in the October 19 edition of the Early Alert, we accidentally sent out an incomplete placeholder statement about our position on an increase to the disbursement quota. The recommendations listed here are our full and correct recommendations.” If you have a major mistake why does it take more than 3 weeks to let people know?
2. For an organization that says it wants to simplify the regulation of registered charities, why are they suggesting an extremely complicated mechanism for increasing the DQ.  Do they not realize how complicated their proposal could become?  Is this an attempt to delay any changes?
3. Much of this statement is heavy on jargon but difficult to understand as it has few details and is so different than previous public positions (or lack thereof) of Imagine Canada.  Maybe some of it is good – like greater transparency and accountability, which I have been advocating on for over ten years.  But quite confusing.
4. I am thinking that it would be nice to see the full submission that is supposed to represent the voluntary sector and there was no link in their November 9, 2021 newsletter to such a submission.

 

So it appears that Imagine Canada in about 6 months has gone from opposing increasing the DQ, to not opposing increasing the DQ but not supporting increasing the DQ, to the DQ should be above 5%, to “a scaled disbursement quota” of 7% and beyond for some larger organizations.   Perhaps someone can explain this confusing path to me.

 

Today is November 15, 2021, National Philanthropy Day, so I thought I would check out Imagine Canada’s website.  They still never responded to my request for their submission.  Lo and behold they have posted their submission on their website.   36 pages in all, mainly schedules.    It is an undated submission – I have not seen that before but I guess one can send in an undated submission.  Also no page numbers so my reference are to the pages in the PDF document.

 

 

It has a lot of interesting things to say and I will only comment on a few paragraphs.

 

“Due in part to the longstanding lack of sustained and substantial engagement between the federal government and the country’s charitable and nonprofit sector, Canada is relatively behind other jurisdictions in the space it provides for critical examination of issues surrounding the DQ.”

 

I don’t agree with the above at all.  The Finance Dept and CRA are constantly, incessantly consulting with the sector – the problem is that most of that consultation is with a very small group of people who are highly organized, well-financed and opposed to a lot of the ideas that would result in greater equity such as increasing the DQ, increasing transparency and accountability and increasing enforcement of the current provisions of the ITA. For example how much time was spent with 14 people on the ACCS over the last 2 years.   The ACCS is opposed to increasing the DQ.  CRA has a job to do.  Finance has a job to do.

 

“It is therefore our hope that this dialogue continues past this consultation period, and be supported in an open and inclusive manner by legal scholarship, the federal government, the foundation community itself, and sector intermediaries. “

Really.  People have been talking about increasing the DQ for ten years.  Perhaps we should spend another ten years discussing this topic!  Finance made a mistake when they announced a consultation on the DQ.  The Logic has some very good articles on that whole situation.   To increase the DQ is a very simple change that costs the government nothing – to increase the DQ from 3.5% to a higher number such as 5 or 6% (that I have been advocating for over the last decade) and now believe in light of the huge foundation gains and limited grantmaking that should be perhaps at the 10% level as others have advocated.    Why not increase the DQ to 5 or 6% or 10% and then continue the discussion.  Not only are donors getting 60 or 70% tax benefits when they donate marketable securities to their private foundation but they are also getting all increases in the Foundation’s portfolio tax-free forever.   This is very expensive and Canada simply cannot afford this level of subsidy.

 

By Imagine Canada’s own numbers if you increased the DQ to 10% it would result in additional giving from foundations of $2.6 billion per year (page 5).   They later note that these are “low-bound estimates”.  For a sector suffering from COVID that is money that is certainly needed.  I still don’t fully understand why the Federal Liberal government has provided so little to the charity sector during COVID (with the exception of one charity that seemed to have a special connection with the Liberal government) but perhaps one reason is that they see foundations sitting on $116 billion dollars.

 

There are a few paragraphs that were interesting or helpful in the Imagine Canada submission such as:

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.

Also at issue is anxiety over perceived wealth accumulation by particularly private foundations. The data shows many foundations regard the DQ as a target for good governance, rather than a floor or minimum. This clustering around the 3.5%, and the gap between what many can disburse without encroaching on capital and what they do disburse, raises questions about fair accumulation of the proceeds of tax-receipted dollars intended for public benefit. The diversity of asset sizes renders this issue challenging to regulate, even within class or category configurations.

Asking foundations to articulate their disbursement and accumulation strategies relative to charitable purpose could advance the field in a positive direction and account for complexity in  size, mission areas and sustainability goals. The T3010 could request – with as much precision as possible – information on:

i) how the past year’s disbursements advanced a charity’s purpose; and

ii) what the organization’s accumulation strategy is relative to charitable purpose for the next 10 years and beyond.

This consultation has also raised questions regarding the state of available information on donor advised funds (DAF), the lack of which contributes to suspicions regarding the extent of ongoing
donor control, the rate of DAF disbursements, and the role these funds play in the furtherance of the sponsoring organization’s charitable purpose. To enhance transparency and
accountability, the T3010 should ask trustees about the number of individual DAFs sponsored, the funds contained within them, whether a portion of that is being disbursed currently, and
their link to the organization’s disbursement and accumulation strategy.

 

 

I am not going to reiterate all the problems with Imagine Canada’s submission.  Here is our submission to the Finance Department which discusses in detail our views on changes to the DQ.  Finance should act quickly on increasing the DQ.