Testimony for Senate Committee on Finance on “Tax Tools for Local Economic Development”

Thank you for the opportunity to provide written testimony for the record on the subject of “Tax Tools for Local Economic Development.” We commend the Committee for holding a hearing on this pivotal topic as communities around the country continue to recover from the pandemic, natural disasters, and compounding economic crises. 

The Council on Foundations is a nonprofit membership association that serves as a guide for philanthropies as they advance the greater good. Building on our almost 75-year history, the Council supports more than 900 member organizations in the United States and around the world to build trust in philanthropy, expand pathways to giving, engage broader perspectives, and co-create solutions that will lead to a better future for all.   

Foundations gave $103.53 billion in 2023, representing nearly a fifth of all charitable giving. However, the numbers do not tell the full story: foundations infuse billions of dollars as well as countless hours and immeasurable energy into supporting their local economies and responding to unique local needs, both short- and long-term. For example, The Dayton Foundation in Ohio was a key partner in providing the initial funding for a homeownership program in response to the 2019 tornadoes that struck the Dayton region and destroyed over 1500 apartment units. 

Even as they respond to short-term crises, foundations invest in their communities, funding projects that may take years or decades to show their impact. The John T. Gorman Foundation in Maine, for example, worked with partners to leverage $150 million in investments in early education, family economic security, and lead-free housing, among other issues. In the intervening years, they saw a 35% decrease in juvenile arrests, an increase of more than 100 new childcare slots, lower unemployment rates, and a drop in childhood lead poisoning rates from 11% to 2%. 

Foundations play a critical role in economic development, connecting communities to federal funding and providing their own financing for projects aimed at revitalizing their local economies. It is essential that the Committee prioritizes the needs of the philanthropic sector as the Committee considers tax legislation that promotes economic development. 

Pass the Workforce Development through Post-Graduation Scholarships Act (S.1757)

Economic development requires not only business development but also talent retention and skills like nursing, social work, and engineering to return to communities that have been left behind. At a time when the student debt crisis, outmigration, and declining business dynamism plague underserved communities across the country, community foundations have developed an innovative solution: post-graduation scholarships. These charitable grants bring needed skills back to rural and other under-resourced communities by helping pay off an individual’s student loans. In exchange, the individual lives and works in a region designated by the community foundation. S.1757 would update the tax code to treat these scholarships the same as traditional scholarships and exclude them from the recipient’s taxable income.  

Community foundations are ready to create these opportunities for recent graduates as soon as Congress acts to formally designate them as a charitable activity. Over 60 community foundations and philanthropy-supporting organizations from across the country signed onto this letter in support of S.1757. We urge Congress to pass this commonsense, bipartisan legislation. 

Protect the long-term flexibility of donor-advised funds

Donor-advised funds (DAFs) are charitable funds housed at sponsoring organizations such as community foundations. They are a popular and widespread giving tool that helps individuals and organizations support the causes, charities, and communities they care most about today and long-term. Donors retain advisory privileges to recommend how the sponsoring organization should make grants from a DAF. Because of the relatively small amount of initial funding needed to start a one, DAFs create the opportunity for anyone to pursue philanthropy, not just high-income Americans, while allowing donors to benefit from sponsoring organizations’ expertise and experience in the charitable sector. 

DAFs are a crucial tool for the community foundations doing the day-to-day work of economic and community development. In times of economic upheaval, DAFs have historically been resilient, continuing to make grants at relatively high levels even when recessions deflate other forms of charity. Their flexibility has allowed community foundations and other DAF sponsors to not only step up in response to natural disasters and other crises but also to take on the crucial role of rebuilding in the aftermath.  

Thousands of projects are funded through DAFs each year—some respond to urgent crises, while others allow community foundations and their partners the flexibility and time to identify opportunities to address long-term issues like workforce development. For example, DAFs sponsored by the Knight Foundation at local community foundations fund various unique community opportunities, including local economic development. In Myrtle Beach, South Carolina, a grant from Knight’s DAF at the Waccamaw Community Foundation was leveraged to provide funding that revitalized the downtown area, prioritizing local natural resources, smart design, and entrepreneurship. 

It is critical that Congress maintain DAFs’ flexibility, which allows community foundations and other DAF sponsors to adapt to evolving community needs—from rebuilding homes after natural disasters to financing workforce development in underserved communities after decades of underinvestment.  

The United States is the most charitable country in the world, and the nonprofit sector is a vital partner in expanding economic development across the nation. At a time when charitable giving is not keeping pace with inflation, it is essential that Congress deploy every tool available to empower nonprofits to respond to local needs. 

Thank you again for this opportunity to include testimony on the record. We appreciate the Committee’s leadership on this issue. The Council can provide further details on any of the information cited in this testimony, and we stand ready to work with you.