White House Aims to Boost Spending, Investment by Foundations

The Obama administration has proposed new rules designed to encourage foundations to use their assets in more creative ways to promote social good, the Chronicle of Philanthropy reports.

The proposal would update current regulations to include nine new activities that qualify as so-called program-related investments. Such spending is exempt from the excise taxes that often penalize foundations for making risky investments. The new rules make it clear, for example, that PRIs can be awarded in support of activities in rural areas and countries outside the United States as well as for a variety of charitable purposes, including advancing science and promoting the arts.

For more than a decade, a committee of lawyers who specialize in nonprofit issues has been working to persuade the federal government to update the rules, which were tailored in the early 1970s to cover mostly domestic projects involving low-income people and blighted urban areas. Robert A. Wexler, vice chair of the committee, told the Chronicle that while foundations have expanded the use of PRIs over the years, they often feel obligated to seek legal opinions or rulings from the Internal Revenue Service before proceeding.

Examples of activities that qualify as PRIs under the proposal include making a low-interest loan to a business that employs a large number of poor people in a rural area that has been affected by a natural disaster; backing a loan to help a nonprofit childcare group build a new center in a low-income neighborhood; and buying stock in a subsidiary of a pharmaceutical corporation set up to develop a vaccine for a disease that primarily affects poor people in developing countries, with the requirement that the company distribute the vaccine to the target populations at low prices.

Suzanne Perry. "White House Seeks to Spur Innovative Spending by Foundations." Chronicle of Philanthropy 05/10/2012.