Pew Seeks Flexibility Through New 'Public Charity' Status
The $3.8 billion Pew Charitable Trusts, founded in 1956 and now one of the nation's largest private philanthropies, plans to become a public charity, a restructuring move that some observers said could give it more freedom and financial leverage to support and lobby for education initiatives.
Robert B. Schwartz, a professor at Harvard University's graduate school of education and a former director of education programs for Pew, said that "clearly, this gives Pew more freedom than before to be more aggressive on behalf of education initiatives and get the country to understand why these things need to be funded."
Basically, public charities can act with more financial and political flexibility than private foundations, which must comply with stricter spending and operating rules under federal law.
Officials at Pew said the move would not cause dramatic changes, however, in its future education funding or affect current K-12 education grantees. Education Week receives funding from the Pew Charitable Trusts.
Pew, which has focused mainly on higher education in recent years, will increase its emphasis on prekindergarten education.
"This is where we feel we can make the most impact," said Sue Urahn, Pew's director of education. The philanthropy will continue to underwrite K-12 opportunities as they arise, she said, but all future grants will be given only if there's evidence that the funding can have a noticeable impact.
Pew, which contributed almost $10 million in prekindergarten grants in 2002 and about $12 million in 2003, currently funds early-childhood-education research, development, and legal support. The goal of its prekindergarten support, Ms. Urahn said, is to help K- 12 education by ensuring that a majority of 3- and 4- year-olds have access to high-quality preschool programs.
"This is a unique transformation," Rebecca Rimel, the president of the Pew Charitable Trusts, said last week in an interview about the organization's planned shift in status, which will become official Jan. 1. "It's not a model for others to follow because it's hard to imagine another foundation being dealt the same deck."
In fact, experts in philanthropy said, it's next to impossible. Internal Revenue Service requirements usually prohibit private foundations from becoming public charities. But Pew, based in Philadelphia, is funded by seven individual trusts that the IRS considers private foundations, so it meets what is called the "10 percent rule" under federal tax law. That rule stipulates that a public charity must receive at least 10 percent of its funding from five or more independent donors.
"Being a private foundation and a public charity are very different," Ms. Rimel said.
Pew intends to take advantage of those differences, she said, to increase the organization's influence and flexibility. The philanthropy will change its tax status to a 501(c)(3), which will exempt it from excise taxes, saving an estimated $4 million a year. That change in tax status will also increase tax- deduction rates for donors from less than 20 percent to up to 40 percent.
As it shifts to public-charity status, Pew also plans to restructure its seven program areas into three, more focused areas: public information, public policy, and civic life. Currently, the seven program areas include culture, education, the environment, health and human services, public policy, religion, and a venture fund that supports journalism.
In practice, the tax changes will allow Pew to operate more like a business. It will be able to raise money directly for its programs, operate and provide services for grantees, provide funding to individuals, and partner with virtually anyone, including financial institutions. All those activities are prohibited for private foundations.
Moreover, as a public charity, Pew would be able to spend up to 20 percent of its annual budget on lobbying. However, it's unclear whether Pew will take advantage of that option, Ms. Rimel said.
The main advantage of the change, she argued, is the increased flexibility. That will allow Pew to pursue its funding goals more aggressively and better assist grantees, she said.
"We can realize an economics of scale that we couldn't before," Ms. Rimel said. "Under foundations, that's not possible."
Vol. 23, Issue 12, Page 10Published in Print: November 19, 2003, as Pew Seeks Flexibility Through New 'Public Charity' Status