California's rich keep on giving

By Evelyn Iritani

June 4, 2007 12 AM PT

Times Staff Writer

Pasadena businessman Jerry Kohl and his wife, Terri, used to participate in what he called “friends and family philanthropy.”

A sprinkling of cancer organizations, a liberal helping of symphonies and maybe a museum or two to complete the menu. A charitable smorgasbord, usually the result of whatever his friends and relatives were involved in.

But last year, Kohl -- president of Leegin Creative Leather Products Inc., an upscale City of Industry accessories firm -- realized that he didn’t know whether his money really was improving lives. So with the help of Connecticut-based Foundation Source, he launched his own family foundation with $10 million and started looking for ways to match his money with his passions.

“As you start to think about writing bigger checks, you want to do your homework,” said Kohl, whose family’s $300-million business includes the popular Brighton jewelry line.

Kohl loves music, so when he went searching for a charity to support, he ended up at Little Kids Rock, a Montclair, N.J.-based nonprofit that provides public school students free guitars and lessons in rock and roll.

“For as little as $50, you can do something really interesting,” said Kohl, 55, who donated several thousand dollars to the charity. He likes to check YouTube or littlekidsrock.tv and see his money at work.

Motivated by idealism, guilt and generous tax deductions, Americans last year gave a whopping $260 billion to philanthropic causes, and donations are expected to rise dramatically in the coming years as baby boomers retire.

While many people donate through their religious organizations or traditional charities and humanitarian groups such as United Way of America or World Vision International Inc., a growing number of America’s wealthiest citizens are starting their own organizations.

That is particularly true in California, which has the second-largest concentration of foundations after New York. After taking a dip during the tech implosion that began in 2000 and worsened in 2001 and 2002, philanthropy in the state has rebounded, driven by the new wealth being created in sectors such as hedge funds and real estate, said James Ferris, director of USC’s Center on Philanthropy and Public Policy.

California was home to 6,242 foundations in 2004, a 48% increase from 1999, according to the center. Nationwide, the number of foundations in this country has more than doubled to 75,000 over the last decade.

Philanthropic impulses are often spurred by a disaster or a personal crisis, such as a life-threatening disease in the family. That was the case for actress Jane Kaczmarek of “Malcolm in the Middle” fame and her husband, “The West Wing” actor Bradley Whitford, who launched their charity after the Sept. 11, 2001, terror attacks. The Clothes Off Our Back Foundation raises money for children’s causes by auctioning designer gowns and other clothing worn by celebrities.

The foundation offered a way to turn America’s obsession with Hollywood fashion into something the entertainment industry could be proud of, Kaczmarek told participants at Milken Institute’s annual Global Conference in April.

The couple realized that in a celebrity-obsessed world, big names not only can raise money but can shine a spotlight on issues that might otherwise languish in obscurity, whether it is violence in Sudan’s Darfur region or poverty in South Los Angeles.

“This became an antidote to so much of the cynicism that surrounds us,” she said of her family’s charity, which has raised more than $1 million for groups such as Marion Wright Edelman’s Children’s Defense Fund.

For many people, the decision to start a charity or foundation is triggered by a “liquidity event” such as the sale of a company or a public offering that leaves them with a chunk of cash and a potentially large tax bill, said Douglas Mellinger, founder of global software developer Enherent Corp. He started Foundation Source in 2000 to provide support services for private foundations.

Under U.S. tax law, individuals can write off up to 30% of their adjusted gross income for cash gifts and up to 20% for gifts of securities, he said.

“The question becomes: ‘How much of my wealth am I going to pass on to my children, how much do I give to government and how much am I going to give to charity?’ ” said Mellinger, who is based in Fairfield, Conn., and is opening an office in Los Angeles later this year. “A very large number of people have decided they’re not going to give 100% to their families.”

Keeping a cause alive can be challenging in a crowded market. There are 1 million charities vying for donations in the United States.

Since they are raising money from the public, charities are closely regulated by the government, which increases the paperwork and legal fees. Big fundraisers, such as fancy dinners or fashion shows, are expensive to produce.

Charity Navigator, a nonprofit charity watchdog organization, released a report this month challenging the cost-effectiveness of events such as auctions and walk-a-thons.

Its analysis of 5,177 charities found that the organizations spent an average of $1.33 for each dollar raised through special events, compared with an overall fundraising rate of just 13 cents for each dollar raised.

Instead of starting their own charities, Mellinger urges his 600 wealthy clients, who include 30 to 40 athletes and entertainers, to help existing groups.

“Too many charities are trying to solve the same problems right across the street from one another,” said Mellinger, who also is chairman of the Washington-based National Commission on Entrepreneurship.

For people who intend to give away more than half a million dollars, Mellinger advises setting up a private foundation so they can exert greater control over how their money is used. A foundation generally is funded by a single family or a small group of individuals and is required by law to give out at least 5% of its assets a year.

Mellinger works with a client’s lawyers and accountants to establish a corporation, draw up a mission statement and organize a board. He has developed a system that operates as the foundation’s back office, making it easy to track cash flow, file tax documents and disburse checks.

Each foundation has access to a private website, where donors can select grant recipients from a database of more than 1 million charities registered with the Internal Revenue Service.

Charities hoping to gain a slice of the more than $2 billion in assets being held by Mellinger’s clients are advised to think like entrepreneurs: set realistic goals, document where their money is going and provide measurable results.

“Many people are becoming philanthropic,” he said. “They are driven not by the organization they are giving to, but are driven by the issues they want to make a difference on.”

Kohl said that by handing over his foundation’s administrative headaches to Foundation Source, he has been freed up to become a student of philanthropy, spending hours on the Internet seeking information on prospective grant recipients. One of his favorite sites is Charity Navigator’s free online charity rating service.

Kohl and his wife, who launched their first business when they were in high school, have asked their children, Karyn, 25, and Mark, 23, to help parcel out the family fortune. Their charities include the Pasadena Pops Orchestra, Mr. Holland’s Opus Foundation and the Los Angeles Museum of Contemporary Art.

Karyn is looking further afield. She hopes to find a group that is building wells in Africa and has projects she can visit. Every year, 2 million to 5 million people, the vast majority of them younger than 5, die because they lack access to clean water.

“The idea of a foundation is [that] it lives longer than you do,” Kohl said. “You want to get your kids thinking about where your money is going when you’re alive.”

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Biggest givers

Largest California foundations by amount given in 2005:

(In millions)

William and Flora Hewlett Foundation: $319.9

Gordon and Betty Moore Foundation: 218.8

Genentech Access To Care Foundation: 194.1

California Endowment: 153.2

David and Lucile Packard Foundation: 150.1

Peninsula Community Foundation: 92.3

California Community Foundation: 91.4

Community Foundation Silicon Valley: 75.4