Community foundations are the fastest growing sector of philanthropy today. There are now more than 650 of them in communities all across the United States, and several have formed in Canada, Great Britain, and Australia. Their assets more than tripled in the last decade and have reached $27 billion. U.S. community foundations gave away over $1.6 billion last year to charitable organizations.
What Is a Community Foundation?
A community foundation, or community trust, is a collection of endowment funds contributed by many individual citizens, corporations, other foundations, other charitable organizations and government agencies to benefit a specific geographic area. Some community foundations serve small cities, others entire states.
Community foundations are governed by volunteer boards of directors, sometimes called "distribution committees," which are comprised of community leaders broadly representative of all sectors of the population. They frequently include educators, clergy, non-profit leaders, bankers, attorneys, and business leaders. Some community foundation boards have members who are appointed by public officials. These boards or committees-aided in most cases by professional staffs---distribute the income, and sometimes portions of the principal, when permitted, from donors' charitable gifts and bequests to meet the changing needs of the region they serve.
The flexibility to address changing community needs gives community foundations their strengths. The first community foundation was started in Cleveland, Ohio over 85 years ago by the chairman of a major Cleveland bank, Frederick Goff who was concerned that when, over time, the literal compliance with the terms of a specific charitable gift, grant or bequest under the management of his bank became "unnecessary, undesirable, impractical or impossible to fulfill" that there be some way to redirect the funds to a similar public good. Further, when a small to medium-sized charitable trust was instituted to help orphans, or promote mental health. for example, without naming specific agencies to receive the grants, the trust department had to develop a grant strategy and search out a charitable beneficiary. That process was inefficient and uneconomical for the bank to deal with. The opposite concerns of a too-specific, and therefore, inflexible bequest, and the additional administration required for unrestricted bequests, caused Goff to create the concept of a community foundation. His bank continued to invest the money from charitable bequests, but turned over responsibility for distributing the income to a separate entity--the Cleveland Foundation-with a publicly-appointed, volunteer board of leading citizens.
Today, the funds of most community foundations are managed by several "trustee" banks; or the community foundations are incorporated - a later variation of Goffs idea-and the board of directors of the foundation also has fiscal responsibility for the investment management of its endowment.
The Role of Community Foundations
Community foundations have traditionally had two major missions: to stimulate the establishment of endowments to serve the local community now and in the future; and to realize the intent of donors, carrying out their charitable intentions while reserving the right to modify those intentions as the community's needs evolved. But the philanthropic role that community foundations play today goes far beyond Goff's original vision.
Community foundations leverage funds: from national foundations, major corporations, and the federal government for worthy community projects. The Ford Foundation, Chevron USA, and the National Endowment for the Arts (NEA), for example, have recognized that community foundations have vast knowledge about and contacts in the community that make them a useful tool for distributing grants in local neighborhoods. The NEA selected a number of community foundations to receive challenge grants of up to $200,000 over four years for sub-granting to local arts agencies with modest budgets. Community foundations serve as the "eyes and ears" for national funders that would not otherwise have the capability to evaluate small grants on a local level.
A community foundation can be a catalyst to action by helping groups start new agencies, by studying areas of unmet need, and by calling forth contributions from others through matching grants and the power of its endorsement. Their solutions are not limited to the private sector. They have funded oversight committees to improve civic governance, for example. Not infrequently, a group of citizens turns to its community foundation to accomplish some community goal when there is no other organization through which to raise money to get started. When contributions from around the country poured into Atlanta, Georgia to aid in the investigation of the mass murders of 28 Black youngsters, they were placed in a fund with the Metropolitan Atlanta Community Foundation.
Many community leadership activities undertaken by community foundations do not require funding. A key role that many community foundations play is as a neutral convener on difficult public policy issues. They are often able to bring disparate parties from the private and public sectors together to constructively build frameworks for community problem-solving. Community foundations often provide technical assistance to local agencies on topics such as non-profit management and some serve as resource libraries on grant-making by other foundations. Many operate scholarship programs, and low-interest loan programs.
Their Donors
Community foundation also serve the donors whose generosity makes possible their endowment funds. A public charity under the law, a community foundation offers its donors maximum tax advantages. A community foundation is permitted to receive a wide range of gifts, and can assist its donors with a variety of tax-planning, estate planning and deferred giving options. The specific types of individual funds that can be established and the minimum amount required to establish a fund will vary depending on the policies set by each community foundation's board in keeping with state and other government regulation.
Donors to community foundations range from people of relatively modest means to some of the most prominent names in American philanthropy. The community foundation stands apart within the field of philanthropy through its ability to grow---to bring into philanthropy an infinite number of donors, both large and small and to create permanent and lasting capital to fund a community's charities. Local decision-making and control brings philanthropy within reach of all people, and in doing so, extends the limits of organized philanthropy itself.
Some of the more common types of funds that individuals have established in community foundations include: 1) named funds, where a donor wishes to memorialize his or her family; 2) funds created to protect the anonymity of certain donors; 3) charitable remainder annuity trusts and pooled income funds, which irrevocably donate the principal of the fund to the community foundation, but provide that the interest income go to a third party---often a spouse or other heir--usually for ones lifetime, and then reverts to the community foundation. The donor receives certain tax advantages immediately; and 4) gifts of life insurance or other assets.
Recognizing that community needs are likely to change, many donors specify that the local community foundation directors select the charitable causes and institutions to be assisted based on serious local concerns at any given time. For example, the AIDS epidemic could not have been predicted a decade ago, yet many community foundations are able to assist victim of AIDS, provide community education about AIDS prevention, and take other important steps to address this worldwide problem through the use of unrestricted funds.
While most community foundations recommend the contribution of unrestricted gifts to allow the board or distribution committee the maximum flexibility to address emerging and unforeseen needs, as illustrated above, many community foundations encourage the active participation of living donors in providing advice on possible grant purposes or recipients from time-to-time. This participation might include reviewing grant applications, for example. Some community foundations execute agreements with donors to distribute the funds within a specific field of interest of the donor. By law, the final determination on specific grant recipients lies with the board or distribution committee of each community foundation to insure that the recipient agencies meet all fiscal requirements for the grant, and to allow the community foundation to fulfill, its mandate to best serve the needs of the community in perpetuity.
Other Types of Donors to Community Foundations
Community foundations can also provide financial management services for non-profits, and it is not uncommon for certain agencies such as a local arts organization or the local United Way to place an endowment fund with the community foundation. Certain changes in U.S. tax law in 1969 encouraged the boards of numerous private foundations to terminate the foundations and transfer the assets to community foundations. In certain situations, the resultant new funds in the community foundation required lesser tax payments, lower administrative costs and allowed for larger distributions to charities than had the private foundation continued to operate. Corporations have also found community foundations an economical way to operate a corporate giving program The corporation can turn over appreciated stock to establish a fund, or annually transfer a specific amount of capital to be paid out to charity each year and be replenished. In 1982, Chevron USA distributed $13 million to eight community foundations in cities where the company had concentrations of employees.
Start-up of New Community Foundations
New community foundations are forming in communities around the United States, and this burgeoning movement is being assisted by many far-sighted private foundations. The Charles Stewart Mott Foundation through the Council on Foundations has funded technical assistance efforts to help community foundations get established, and has also provided challenge grants to many to help them build their endowments. The Ford Foundation, Lilly Endowment, David and Lucile Packard Foundation, the Gannett Foundation, William and Flora Hewlett Foundation, the MacArthur Foundation, and Chevron USA are among the private and corporate foundations which have provided past or current support for community foundations.
Many other foundations, city councils, and local United Ways among other organizations are helping community foundations get started in their area. The Kresge Foundation, with assets of over $1 billion in 1986, helped the Community Foundation Southeastern Michigan get started to serve the Detroit, Michigan metropolitan area. In 1985 the Mott Foundation, in a Special Report entitled, Community Foundations: A Growing Force in Philanthropy, quoted the Kresge Foundation's chairman. William H. Baldwin on the Foundation's reasons for providing the small support. "Having a strong United Way, and having strong educational, health and cultural institutions, which we do, is not enough. There remain unmet needs which the community foundation can help to meet," Baldwin said.
