The Rideau Hall Foundation's plan to raise $50 million for renovating 24 Sussex Drive exemplifies a growing trend of using private foundations to fund public works, but such approaches come with significant caveats, including substantial tax credits that effectively shift costs back to taxpayers.
How Foundation Funding Works
Deeply indebted governments are increasingly turning to foundations to cover the budgetary cost of public spending. Instead of raising taxes, they allow private donors to contribute to public works projects. However, donations are partly funded by government through tax credits. For high-income donors, combined federal and provincial tax credit rates can reach 58.75% in Quebec, 54% in Alberta, 53.5% in British Columbia, and 51% in Ontario. Additionally, donors who give marketable securities can claim a capital gains exemption, adding about 5% more to the tax relief.
Conflict-of-Interest Concerns
If not done right, such foundations raise conflict-of-interest concerns, with donors potentially expecting future paybacks. In the U.S., President Donald Trump is using the Trust for the National Mall to fund an $800 million White House ballroom. The foundation is expected to raise half the cost, but since it is not required to reveal donor names, questions about transparency persist. A partial list of 37 contributors includes Amazon, Blackstone CEO Stephen Schwarzman, and the Lutnick family.
International Examples
In 2020, the World Health Organization created the WHO Foundation to fund health programs in poor countries. Donors include the Gates Foundation and medical device and pharma companies. Under Swiss law, donor names are published only if the donor agrees. As of 2023, 48% of donors contributing over US$100,000 were listed as anonymous, again raising concerns about transparency and undue influence.
Canada's Approach
In Canada, the Rideau Hall Foundation will disclose all donor names, which is a positive step for transparency. The final cost of rehabilitating 24 Sussex Drive is not yet known, but the RHF expects to raise $50 million for construction, with additional funds likely needed for security and other costs. According to Jack Mintz, "On transparency, at least, Canada gets it right."
Taxpayer Burden Remains
Despite the foundation model, taxpayers are not off the hook. About a third of the money raised will be covered by governments through tax credits. Most donations come from the highest-income taxpayers, with those in the top two income brackets claiming almost three-fifths of donation credits. As Mintz notes, "Creating a foundation doesn’t mean taxpayers are off the hook."
Conclusion
While offloading costs to foundations may seem like a good tactic for cash-strapped governments, the tax credit system ensures that a significant portion of the funding still comes from public coffers. The debate continues over whether this creative funding model is truly beneficial or merely a way to obscure the true cost of public works.
