Political Animal

Blog

March 18, 2013 2:53 PM Measuring Social Impact in the Charity Biz

By Ed Kilgore

The lede of Georgia Levenson Keohane’s review of Ken Stern’s With Charity For All in the March-April issue of the Washington Monthly got my attention as a college sports fan:

In 2006 the oil tycoon T. Boone Pickens gave $165 million to his alma mater, Oklahoma State University, to build a new football stadium, marking one of the largest charitable gifts on record to an American university and the most gargantuan to an athletics program. Pickens directed that the money be spent on a new west end for the Boone Pickens Stadium, for fields and practice facilities, and for a residential village and dining buffets for OSU athletes.
Less than an hour after Pickens’s donation landed in the bank account of Cowboy Golf, one of the athletic department’s fund-raising arms, the money was rerouted to BP Capital Management, Pickens’s hedge fund, where it was soon matched by an additional $37 million in unrelated donations that the university had agreed to invest as a condition of Pickens’s largess. With the funds now illiquid, OSU took on debt to construct the stadium—a strategy, notes author Ken Stern in With Charity for All, that is not unusual for a nonprofit organization, which can “leverage” its tax-exempt status to borrow at lower rates and invest existing assets in matching but higher-yield, taxable securities. The resulting arbitrage, in theory, produces a lower-risk cash flow for the organization, particularly when the matching funds are allocated in a relatively conservative way. OSU’s investment with Pickens, in an oil and gas fund betting on changes in commodity prices, initially spiked in value to $300 million. Then, in the 2008 crash, BP Capital Management lost more than $1 billion—and with it most of the OSU donations, Pickens’s and otherwise.

That’s actually only half the story, because Pickens also talked his alma mater into a peculiar alumni life insurance policy scheme that has also gone bust. He seems to have held OSU harmless for its losses, so he’s still a hero in Stillwater. But it does illustrate the often unorthodox methods and questionable fruits of big charitable operations, which is the subject of Stern’s book.

You should read the whole thing, but the review emphasizes the growing realization in the charitable sector that its efficiency can be measured neither by the amount of money raised and spent nor by mechanical adaptations of methods common in the for-profit sector. A new breed of “social entrepreneurs,” some of whom are highlighted by Stern, are developing new measurements of “social impact.” And of particular interest to Monthly readers, these measurements are also taking hold in the public sector’s grantmaking operations:

Perhaps the most interesting and underreported manifestation of the social entrepreneurship movement’s sway is in the public sector, where, as Stern describes, there is a new penchant for evidence-based grant making and use of tools like innovation funds that allow government agencies to work with intermediaries like New Profit to channel public dollars to high-performing nonprofits. These kinds of partnerships indeed offer a better way to give, and a better use of all resources, public and private, to advance the common good.

At a time when “public-private partnerships” have developed an unsavory reputation, that’s good news indeed.

Ed Kilgore is a contributing writer to the Washington Monthly. He is managing editor for The Democratic Strategist and a senior fellow at the Progressive Policy Institute. Find him on Twitter: @ed_kilgore.

Comments

  • boatboy_srq on March 18, 2013 3:23 PM:

    Less than an hour after Pickensís donation landed in the bank account of Cowboy Golf, one of the athletic departmentís fund-raising arms, the money was rerouted to BP Capital Management.... With the funds now illiquid, OSU took on debt to construct the stadium.... OSUís investment with Pickens... initially spiked in value to $300 million. Then, in the 2008 crash, BP Capital Management lost more than $1 billionóand with it most of the OSU donations, Pickensís and otherwise.

    Another strike at "Free Markets Will Provide" advocates of slashing the public safety net. If non-profits really did the things they claim with the donations they're given, this would be a different story; but so long as Wall St's siren song of riches and glory continues to attract investors (unwary or otherwise, as this case points out) then the charlatans of the financial world will continue to play them for suckers, and the common weal will continue not to be served.

    Pickens can "hold harmless" his alma mater all he wants - and so can every wealthy benefactor of his/her noble cause. But so long as both giving and the net results of those gifts remain variables there's no effective way for the private sector to match the public sector's guaranteed benefit - and far too many ways for "maximized benefits" to translate into opaque financial instruments just as toxic as any we've seen.

    I'd also point out that, rather than provide for classrooms, equipment, professorships, scholarships or other (meaningful) academic assets, Pickens' gift was for a football stadium, and for other perks for the athletes. I have no bone to pick with college sports per se, and what one does with one's money is one's own business, but one would think that better educated athletes would be at least as important to the US business world than merely better-equipped athletes.

    New Profit is a nice counterpoint to this story. But the New Profits of the planet are still rare, young, and just as vulnerable to the vagaries of private giving as any conventional charity.