Minnesota’s Philanthropic Legacy

By Casey Selix (MinnPost.com)

Tuesday, Nov. 17, 2009

More than 60 years ago, retailer George N. Dayton decided that the Dayton Co. would donate 5 percent of pretax profits to the community, setting an example that 184 Minnesota companies follow today in various ways.

He was following in the footsteps of his father, company founder George Draper Dayton, who set up the Dayton Foundation in 1918 with a $1 million endowment. Today, the business is called Target Corp., which in 2008 was the No. 1 grant-maker in Minnesota with its $138.2 million in grants from the company and the foundation. (Please see here)

Though the Dayton name is long gone from Target Corp., and Dayton’s department stores are now called Macy’s, the legacy of giving continues across the Minnesota business community. Today’s Give to the Max effort, sponsored by GiveMN.org, marks another 21st century attempt to inspire individuals to donate online. MinnPost has a separate report about the foundation-sponsored effort here.

Meanwhile, succeeding generations of Daytons continue to give in different ways. For example, George N. Dayton’s great-grandson, Judson “Jud” Dayton, is board chairman of the One Percent Club, which also is focused on individual giving. The 1,100 members in the 12-year-old organization agree to donate 1 percent of their net worth or 5 percent of their income, whichever is greater.

Income levels of One Percent members range from “extremely high to very modest,” said Jud Dayton, the 52-year-old son of Kenneth and Judy Dayton, the first members to sign up for the club in 1997.

“As a fairly young child, my brother and I were encouraged to make contributions to things we were interested in and then as we got older to get involved with our time as well,” said Dayton, who also helps support the Science Museum of Minnesota, United Way, the Nature Conservancy and Groves Academy. “It was modeled extremely well by my parents, yet we’ve always tried to keep a sort of low profile in giving.”

Individual Contributions Dominate

Individuals continue to dominate charitable giving in Minnesota, and like the rest of the nation, the bulk of their donations go to faith-based organizations. In 2007, residents gave about $4.2 billion or more than three-quarters of the $5.5 billion in total charitable contributions, according to the Minnesota Council on Foundations’ 2009 Giving in Minnesota Report, which uses IRS statistics on itemized tax-deductible contributions. But not all residents itemize their donations, so the dollar figure could be even higher.

Minnesota Council on Foundations 2009

About 907,000 Minnesotans claimed charitable contributions on their 2007 tax returns, and the average donation per deduction was $3,785, the MCF found. That average remains below the national average of $4,623, but MCF notes that history shows more Minnesotans itemize their donations than the national average. Individual giving in Minnesota also was down 0.1 percent from 2006, and it’s a good bet that it fell in 2008 and 2009, although statistics are not available.

Corporate foundations and giving programs were responsible for 10 percent of charitable dollars in 2007, private foundations for 10 percent, and community/public foundations for 3 percent, according to MCF. Two years ago, 43 percent of grant dollars to nonprofits in the state came from corporate foundations and giving programs and another 43 percent came from private foundations.

In contrast to individual giving, foundation and corporate giving increased 10 percent between 2006 and 2007. Given the recession and the stock-market’s decline since then, giving could be down in the foundation and corporate sector.

Sources: 2007 Census estimate and The Foundation Yearbook, 2009 edition

Note: The Foundation Center ranking does not include corporate giving in Minnesota. Ten percent of charitable giving in Minnesota comes from corporate giving programs and foundations, according to the Minnesota Council on Foundations.

While Minnesota is No. 21 in population in the nation, it ranks No. 14 for total charitable giving and No. 11 for per-capita giving, according to a state-by-state analysis by the Foundation Center. But the analysis does not count corporate giving programs, which are a big part of grant-making in the state.

Creation of Five Percent Club

Although the Daytons are often mentioned in any history of philanthropy in Minnesota, the business community’s practice of donating 5 percent of pretax profits didn’t really gain momentum until 1976, when the Minneapolis Chamber of Commerce polled members to see who was following the Dayton philosophy, said Bill King, president of the 40-year-old Minnesota Council on Foundations and unofficial philanthropy historian.

It turned out that 23 member companies were giving that amount, so the chamber decided to host an annual program – called the Five Percent Club – to honor the companies and encourage the philosophy. Why the name? At the time, 5 percent was the maximum allowable tax deduction for charitable contributions, King said.

Formation of the club made national headlines, which in turn led to companies across the country modeling the practice, he said. “The national average [for corporate giving] was 1 percent for companies … and this was a pretty significant opportunity to recognize them.”

In subsequent years, the Minneapolis chamber also honored members who donated at least 2 percent of pretax profits. Today, the club is known as the Minnesota Keystone Program, which hosts an annual recognition luncheon in December. (A list of current members can be found here.)

Membership typically ranges from 200 to 230 companies that certify they are donating 2 percent to 5 percent of pre-tax profits to the community, said Cheri Koch, member relations manager for the chamber. At present, 184 members are listed but the annual enrollment and certification is under way, she said, adding she couldn’t speculate on whether the number is lower than usual because of the recession or that companies are slow to re-enroll this year.

“I think more than anything, the intended goal (of the program) is to show what companies are doing in our community – not just to celebrate that but to encourage other businesses to do the same,” she said.

That’s the example George N. Dayton and his father wanted to set in the 20th century.

“Their view was that if the community was doing well, we’ll do well as retailers, and it was important to have a strong and vibrant community,” said King.

Minnesota was home to 1,429 active grant-making entities in 2007, a 66 percent increase from 1997, according to MCF records. Among the private namesake powerhouses are the McKnight Foundation and the Bush Foundation, each of which was started in 1953 by 3M Co. executives William McKnight and Archibald Bush.

A Culture of Civic Engagement

But even before the Daytons, the McKnights and the Bushes, philanthropy was taking hold in Minnesota, King said. He traces its roots to the Scandinavian and German settlers who came to the state in the 19th century, as well as to New Englanders who resettled here and started businesses. Civic engagement is a big part of Northern Europe heritage and that ethic carries on to this day with Minnesota frequently ranked No. 1 in high voter participation and so on.

The harsh climate of Minnesota also played a role, King believes. “We live in a cold climate for eight months of the year, and we have the tendency to meet and figure out how to make things better,” he said.

In the 1800s, settlers from New England also soon realized out how isolated Minnesota was from Eastern U.S. centers of education, arts, culture and civic institutions. “It was not possible to go to Chicago and New York to do the things they wanted to do and have the kinds of quality of life they wanted -- they had to build it here,” King said.

In the 21st century, Minnesota’s generosity continues to impress outsiders.

“Ask anybody in the world of corporate philanthropy and they’ll tell you: Minneapolis-St. Paul is like no place else, a bastion of giving in an age when most companies are cutting back,” New York Times columnist Joe Nocera wrote in 2007 after traveling here to get a firsthand view. (Please see here.)

‘Dorothy in the Land of Oz’

Nocera quoted from a speech that John D. Rockefeller III gave to the Minneapolis Chamber of Commerce in the 1970s. Rockefeller said, according to Nocera, that he had heard so much about “the public spirit of its business community, about your remarkable Five Percent Club that I feel a bit like Dorothy in the Land of Oz. I had to come to the Emerald City myself to see if it really exists.”

While the stock-market crash last fall and the recession battered the bottom lines of companies and the asset portfolios of foundations in the Emerald City – for example, McKnight lost $700 million or 30 percent of its endowment (please see here) - the market has gained 20 percent this year, King noted.

Over time, corporate giving has served as a “counterbalance” when private foundation assets declined during bear markets, he said. Though there’s been a double-whammy from the market and the recession, some foundations are stepping up by making the same dollar amount of grants as the previous year even though they’re only required to give 5 percent of their asset base each year, he said. Others, of course, are cutting back.

While the MCF doesn’t have 2008 IRS data on tax-deductible donations yet, a 2001 Independent Sector study titled “Giving in Tough Times” shows what could happen. The study found that the “most-generous households” ($75,000-plus incomes) cut their giving by 33 percent. Households with less than $25,000 in income cut their giving by 23 percent.

The One Percent Club

It’s that type of disparity in giving – lower- and middle-income folks giving more percentage-wise than the upper-income set – that prompted Joe Selvaggio to found the One Percent Club and sign up former Dayton-Hudson CEO Ken Dayton and his wife, Judy, as the first members. The late Kenneth Dayton also actively recruited wealthy individuals.

“Ken and I thought the wealthy were under-giving,” said Selvaggio, a longtime advocate for the poor who also is a founder of Project for Pride in Living and MicroGrants.

Selvaggio said he was inspired by the late Claude Rosenberg, author of “Wealthy and Wise: How You and America Can Get the Most out of Your Giving” (Little, Brown, 1994). Rosenberg thought that if the wealthy would give 1 percent of their net worth it would inject an extra $100 billion into philanthropy – potentially $1 billion in Minnesota, Selvaggio said. Most people donate to charity based on their income and not their net worth.

“Compared to the middle class and the poor, the rich were under-giving,” he said. “Poor blacks gave a bigger percentage of their wealth and income than anybody else because they gave so much to their churches. I thought people (who are poor or low-income) should invest in themselves first … and that the wealthy should be more generous.”

A 2001 Chronicle of Philanthropy analysis shows that in a state ranking of charitable deductions by taxable incomes ranging from $75,000 to $1 million-plus, Minnesota consistently ranked in the middle of the nation or lower and barely surpassed the U.S. average. (Please see here. Note - you’ll need a Chronicle subscription to see it.)

The state’s lowest ranking – No. 31 – was in the $500,000-$1 million category. That group gave 3.4 percent of their taxable income compared with the U.S. average of 3.3 percent. The highest ranking (No. 20), however, was in the $1 million-plus category, with Minnesota taxpayers donating an average of 5.2 percent and surpassing the U.S. average of 4.6 percent.

Spreading the Effort

Though Selvaggio and Dayton initially targeted the wealthy for One Percent Club membership, their successors have opened membership to people of all means, said Jud Dayton (Ken’s son). A club chapter was recently started in La Crosse, Wis., and the founding club is looking at other cities to spread the effort.

“Membership has grown slowly and methodically,” Jud Dayton said, “and now as we try to increase membership we try to spread the word, which may or may not end up in membership but hopefully in increased philanthropy.”

Every little bit makes a difference, Dayton and others will tell you.

“Whether it’s $10 or $10,000, it’s all important in supporting the issues you care about, said King of MCF.

It’s not our imagination that nonprofits seem to be coming up with creative ways to appeal to individuals of all means – whether it’s the One Percent Club or GiveMN.org or a group suggesting a bequest.

Since the late 1990s, King said, “there have been significant efforts to grow giving” by philanthropic interests because of a generational transfer of wealth. “With the downturn of the economy, there’s an urgency to continue to encourage donors to give … and on helping people understand what their charitable options are.” Efforts like GiveMN.org, a foundation collaboration designed to save fundraising costs for nonprofits, promote charitable giving to the online generation.

“The key for electronic giving is that it provides a vehicle for those who are comfortable giving online,” King said. “There are some generational differences about the comfort level with doing things online. If you look to the future, there will be a lot more comfort in generations” paying their bills or donating to their favorite causes online. “We’re interested in creating tools” to make it easier, he said.

Casey Selix, who once covered the nonprofit sector for the Pioneer Press, is a news editor and staff writer for MinnPost.com. She can be reached at cselix@minnpost.com. Follow her on Twitter.

Editor’s note: GiveMN has partnered with MinnPost.com to provide this site with monthly articles on various aspects of philanthropy in Minnesota.