Tools & Techniques 101: The Community Foundation

Tools & Techniques 101: The Community Foundation

A well-kept secret in the philanthropic world is the community foundation. According to the Foundation Center, community foundations account for only 1% of the total number of foundations in existence in this country, but fully 9% of both the total assets and total giving. So, what in the world are they?
Basically, a community foundation is a permanent charitable benefit organization supported by local donors and governed by a board of private citizens who purportedly speak for the needs and well-being of the community. As public charities, these foundations are organized to channel gifts from donors to a variety of charitable organizations in a local community. Within the framework of the community foundation, individuals, families, businesses and organizations can create permanent charitable funds to help their region meet the needs of changing times.
Take the Long Island Community Foundation (LICF) as an example. LICF offers four different kinds of funds in which to invest:

• Unrestricted/Community Response Fund – in a nutshell, the donor is giving money to the LICF to disburse to grantees as it sees fits.
• Field of Interest Funds – The donor indicates his/her area of concern when establishing the fund, giving LICF the authority to make appropriate grants. Essentially, they are like the unrestricted fund but with the limited scope determined by the donor.
• Donor Advised Funds (DAF) – ah, yes, one of my favorite types of giving vehicles! While a DAF in the LICF is technically a legally unrestricted fund (as are all DAF’s) the donor recommends the organizations to receive grants. Presumably, these grantees will be concentrated in the local Long Island area.
• Designated Funds – these funds are established by donors to benefit specific nonprofit organizations. The advantage to using a designated fund rather than making direct gifts to specific charities is long term – if the charity goes out of business or changes it mission, the board of the community foundation can use its variance power to redirect grants to more suitable grantees.

LICF is a division of the New York Community Trust, as is the Westchester Community Foundation. The NYCT is rated with four stars by Charity Navigator and scores quite well in all of the relevant financial metrics. (It goes without saying that the choice of any charity should be done carefully and objectively. Charity Navigator, The Better Business Bureau, and Guidestar are web-based tools to help with those determinations.)
The other three types of funds make intuitive sense for a community foundation, but why would one choose to set up a DAF at a community foundation as opposed to other options such as commercial or specialized nonprofit providers? I think it ultimately comes down to two things – the donor’s ultimate objective for the DAF and the ongoing cost to run it. For the broadest possible reach, one may wish to stick with a commercial provider such as Fidelity or Schwab. For giving with a decidedly religious bent, the Catholic Communal Fund of the Archdiocese of New York or the Jewish Communal Fund (among others, of course) may make more sense. For local giving in the region, however, a community foundation sponsored DAF may be just the ticket.