The Nonprofit FAQ

Creating a community foundation

Donald A. Griesmann of Community Services Support Center in Ventnor NJ (and author of Don Griesmann's Grant Opportunities on CharityChannel.com asked nonprofit colleagues a series of questions about forming a community foundation in October 2004. He wrote:

A group of us are preparing a feasibility study about creating a community foundation. We are at very early stages. I have performed some research through Google, but I would like to hear from others.

(For a report on the status of Community Foundations around the world, see the WINGS Foundation website at http://www.wingsweb.org/information/publications_community.cfm —Ed.)

Here are the questions, with answers from Susan D. Smith, a consultant in philanthropy from Barneveld, NY:

Q: What would be your suggestion in handling the planning and adding new members to our organizing group? Are there specific talents we should pursue?

A: Who is added and why depends upon your proposed foundation's intent. Many of the long-time community foundations used a combination of elected and appointed members as they developed their governance structure. Though the concept of appointing authorities has fallen out of favor in the more recent community foundations, there are still foundations that use them.

Q: In developing a community foundation, how and when was the community involved in the idea? The United Way, other foundations, other nonprofits and houses of worship could see this as a competition for funding.

A: Two community foundations I know about did not have smooth or necessarily cordial relationships with the United Ways that preceded them. One of these has always taken great pains to differentiate itself from the United Way by noting that the UW raises money to take care of community issues that exist now and to provide operating support, while the Foundation has targeted those critical, but long-term needs of organizations -- capital needs, multi-year projects, organizational effectiveness -- the funding of priorities rather than services or ongoing operations.

Q: Do CF's provide administrative and investment management services to donors, including gift acceptance and receipt, regular fund statements, filing of tax and legal documents, community relations, grantmaking advice and evaluations?

A: All of the above are provided by the Community Foundation here. The grant making advice and evaluation is relatively new -- since 1996 -- while all of the other services have been offered for quite some time.

Q: How and when did these services start? Is there anything else provided to donors? Has the foundation set minimum and maximum levels of grants - what are they?

A: Donor and grantee services were rolled out when and as the expertise was available on a full-time basis. It wasn't until 1996 that this Foundation went after DAF's in a major way, and hence needed someone to assist donors with grant making. Ditto with technical assistance to prospective grantees and evaluation. Once those skills were available from paid, professional staff, then it happened.

Q: When and how did the first funds come in? What administrative procedures and processes needed to be in place? We welcome any good suggestions for the initial marketing plan?

A: The Community Foundation began here in 1952. It started pretty modestly (less than $3 million by the late 1980's). The first executive director who took over from the founder did so in the 1980's. The office consisted of the founder, the new ED and a secretary. It was housed in a spare office at a local bank. The Foundation is now headquartered in an elegant Victorian house in downtown Utica. The staff consists of a President (currently in the hiring stages), a development/sr. program officer, a program/marketing officer, a finance officer and finance assistant, a donor services person, an administrative assistant, receptionist and college intern.

The assets are now somewhere around $50 million. Most of the gifts initiated by the founder have been realized. Now, the Foundation is needing to do some serious fund raising to get the new money from living donors. Many of the first gifts were from bequests, estates and similar. More than 80 percent of the funds are unrestricted. DAF's are now coming in and that is changing the complexion of what the Foundation does and what is available for grant making.

Q: Does the community foundation handle donor-advised, designated, field of interest, restricted, endowment, restitution (from class-action law suits, for instance), real estate, venture philanthropy and competitive funds and scholarships? How and when did these services begin? Are there other portfolios you handle?

A: Yes to all, save the restitution money. The Foundation did receive the assets from a business dissolution, though. They have not done much with real estate, either, but they would probably accept it if something worthwhile came their way. They also handle PRI's (program-related investments). Until 1996, most of the funds were unrestricted, broad field-of-interest and restricted. In 1996, the other fund activities began. The Foundation also handles the endowments of other nonprofit organizations.

Investments are handled by an Investment Committee along with a consultant. The consultant...doesn't do the actual investing, but consults with the Investment and Finance Committees -- and also with the Board -- on how to invest and what the portfolio should look like.

Ken Ristine added from Tacoma, Washington:

The foundation here has funded a few of community foundations when they were just getting started.

The most basic lesson we've learned from these experiences is that the organization (board members especially) need to understand that the primary purpose of the community foundation is to be a vehicle for people to do charitable giving. That may seem like a simple point, but in many cases we've dealt with that message has gotten mixed. Many of the community organizations...and the board members of those organizations, have acted as if creating the new community foundation was like creating a new United Fund from which their organizations could get grants. When those interests have dominated the discussion, the organizations have foundered. The more the organization can keep the focus on the idea that it is a donors' organization (or as a friend of mine always likes to say...the community foundation is the United Way of the dead) the more the community will benefit because the community foundation will prosper.

With that focus in mind, the other details tend to fall into place.

Susan Smith continued:

I would second Ken's words about the foundation's creation as a vehicle for donors to make charitable gifts that will benefit the community. If that isn't the primary goal for creating a community foundation, then the group needs to re-think its purpose.

There's a new community foundation that has just been created nearby. Now, its home base already is "covered" by the existing community foundation for the counties. But, the founding group decided that they "wanted their own" foundation as a vehicle to fund "their own" local nonprofits. Though they have made some grants here and there, they are having a very tough time attracting donors because the motivation for creation wasn't to attract those who want to make charitable gifts, but to "take care of their own" when it comes to grant making. That isn't to say that this foundation won't ultimately find success, it will just be difficult until they re-focus their purpose on community giving, rather than on seeking to fund agencies, projects and programs they like.

That isn't to say that there isn't a strong link between why people give charitably and what they give to support. But, when the two get confused, as Ken suggests, foundations don't find success. It IS all about the donor.

And here is a another set of responses to the queries, this time from David Ross of the Community Foundation of Oak Park in California:

Q: Those of you who have been or are involved with a community foundation -- would you be willing to share a copy of the incorporation papers, bylaws and IRS Form 1023?

A: Our articles of incorporation and by-laws are found under "Documents" on our Web site at http://www.OakParkFoundation.org/. However, requirements for articles and by-laws are different in different states. Even here in California, the requirements may have changed since we incorporated 25 years ago.

Q: What would be your suggestion in handling the planning and adding new members to our organizing group? Are there specific talents we should pursue?

A: You should have a lawyer and a CPA. You should also have someone who will either perform secretarial services or commit to have them performed.

Q: In developing a community foundation, how and when was the community involved in the idea? The United Way, other foundations, other nonprofits and houses of worship could see this as a competition for funding. Was that your experience?

A: We were a very small community (perhaps 1,000 homes or fewer) faced with the prospect that our new public school district was beginning operation just as Proposition 13 (the first of many tax-cut propositions) became effective.

Our community had an Oak Park Civic Association, which was voluntary and for all residents (not just owners). Since this non-profit was a private-benefit organization (not a 501(c)(3)), donations to it could not be itemized on Schedule A when filing income taxes. The Civic Association voted to support the creation of a 501(c)(3) to raise funds to replace some of the property taxes lost through Proposition 13 and donated some startup money. The School Board endorsed this move; the Superintendent of Schools even assigned his secretary to help us. A call for volunteers for the organizing committee resulted in about 10 individuals.

No other 501(c)(3) existed within the community at that time. Oak Park is surrounded by other communities and cities, each of which had its own non-profits. We never heard any opposition.

Note: About 8 years after our Community Foundation for Oak Park incorporated, the Oak Park Civic Association dissolved. Their remaining funds were donated to the Community Foundation.

Q: What were the barriers you faced when developing a community foundation and how did you handle them?

A:The primary problem was finding enough volunteers for leadership positions. Originally a membership organization, we had trouble finding candidates for election to the Board of Trustees. We finally resolved that problem by having the members vote a by-laws change to eliminate memberships and make the Board self-perpetuating.

Q: Do you provide administrative and investment management services to donors, including gift acceptance and receipt, regular fund statements, filing of tax and legal documents, community relations, grantmaking advice and evaluations? How and when did you roll out these services? Is there anything else you provide donors? Has the foundation set minimum and maximum levels of grants - what are they?

A: Oak Park is still a relatively small community with about 5,200 homes and 15,000 population. Our Community Foundation is also relatively small. We operate entirely through the services of unpaid volunteers and without any paid employees.

Other than our checking account, our funds are invested in an "agency endowment" with the giant California Community Foundation (CCF) in neighboring Los Angeles County. Structured donations (e.g., gift annuities, charitable remainder trusts) would be handled by the CCF. This is detailed on our Web site under "Donations" and "Special Funds" (see http://www.OakParkFoundation.org/).

I personally acknowledge all donations of $250 or more with a formal letter. Fund statements are available in our Treasurer's annual and semi-annual reports. The annual report is on our Web site under "Documents" -- http://www.OakParkFoundation.org/.

Our Treasurer (a CPA) handles our tax and legal filings. Our Secretary is a retired PR professional; he handles press releases and other community relations. I advise potential applicants for grants.

Each of our special funds has a specific policy on grant-making detailing how grants are approved and how amounts are determined. Most of these are scholarship grants to students graduating from Oak Park and Oak View High Schools. Scholarship grants are approved by committees of educators at those schools.

For grants from our General Fund, see "Grants" on our Web site at http://www.OakParkFoundation.org/. We have no minimum amount for such a grant. The maximum amount is dictated by our uncommitted resources (generally less than $1,000).

Except for PR, we established all these services at the very beginning (even before I was on the Board).

Q: When and how did you receive your first funds? What administrative procedures and processes did you need to put into place? We welcome any good suggestions for the initial marketing plan?

A: As I indicated above, our first money was a start-up grant from the Oak Park Civic Association (about $600). Then, we solicited memberships within the community with annual dues set at $15 per person. At the peak, we had about 200 members. (Besides the problem of getting candidates for election to our Board, another problem was maintaining membership records and conducting elections. Not being able to get a quorum for a general meeting to conduct an election, conducting an election via mail was both costly and a real effort.) After we eliminated membership, a mass mailing to all residents still generated a good response.

We had no formal marketing plan. However, our Oak Park Unified School District gave us much free publicity since much of our support (but not all) was directed towards our schools.

Q: Does your community foundation handle donor-advised, designated, field of interest, restricted, endowment, restitution (from class-action law suits, for instance), real estate, venture philanthropy and competitive funds and scholarships? How and when did you roll out these services? Are there other portfolios you handle?

A: For what we call "donor-defined funds", see "Special Funds" on our Web site. These would cover donor-advised and field of interest funds. We consider all donor-defined funds restricted and agonize over how to handle situations whenever the purpose of a donor-defined no longer exists. We take very seriously our commitment to following the wishes of our donors. We do not want to show the same failure to abide by donor wishes as the San Francisco Community Foundation made in the 1980s with the Buck bequest, which very correctly resulted in the bequest (over $100,000,000) being taken away from San Francisco Community Foundation and placed in a new Marin Community Foundation.

We can process non-cash donations (e.g., real estate) through the CCF; see "Donations" on our Web site at http://www.OakParkFoundation.org/. We do not engage in venture philanthropy or make competitive grants. We do not handle restitution funds.

We initiated special funds at the request of the Oak Park Unified School District within a year of incorporating. We solicited donations to a Sports Fund and a Summer School Fund to subsidize athletics and summer school when Proposition 13 threatened the former and eliminated the latter. We had to do this very carefully. Donations had to be solicited community-wide, not merely from families with students participating in those programs, so that donations could not be considered fees for services. The District requested us to do this so that the donations could not be considered tuition (which is illegal in California for public schools); then all students registering for the programs would be accepted without regard for whether their own families donated.

Very quickly, we had to adopt formal policies for these funds.
Then, we had to adopt a policy on refunds of donations, primarily more of an explanation of why donations cannot be refunded (especially when requested by a family whose student suddenly decided not to participate in a program). The funds no longer exist, but the policy on refunds does.

Possibly our most important program is our activity committees.
These are standing, semi-autonomous committees that focus narrowly on clearly defined community needs. Our activity committees involve volunteers and funds orders of magnitude greater than what is under the immediate, direct control of our Board of Trustees.
See "Activity Committees" on our Web site (at http://www.OakParkFoundation.org/).

Posted 11/9/04 -- PB