Defending Place-Based Philanthropy by Defining the Community Foundation

By Colinvaux, Roger | Brigham Young University Law Review, January 1, 2018 | Go to article overview

Defending Place-Based Philanthropy by Defining the Community Foundation


Colinvaux, Roger, Brigham Young University Law Review


Introduction

This Article is about the changing role of the community foundation in conducting philanthropy in the United States.

Community foundations are an important part of the U.S. philanthropic infrastructure. The nation's 789 community foundations hold roughly $82 billion in assets1 and account for over $7.68 billion of charitable grants.2 Many community foundations are the backbone of the social fabric in their communities, supporting basic human needs, health care, housing, K-12 education, civic engagement, and the arts.3 Yet community foundations face new challenges to their niche and mission.

Historically, the purpose of a community foundation was to provide place-based philanthropy. Community foundations would raise money from local leaders and spend money for the benefit of the community served. Communities could be urban, rural, and even regional, but the main idea was to provide philanthropic support for identifiable communities under the guidance of community leaders - a bit like philanthropic banks for regional interests.4 Today, however, the root idea that community foundations serve local needs is under threat. The community foundation is at risk of becoming more like a national bank, serving metaphysical communities and issues rather than people.

The main challenge to the community foundation identity is due to the enormous success of national charities that sponsor donor-advised funds (DAFs). Examples include organizations like the Fidelity Charitable Gift Fund, Schwab Charitable, and the Vanguard Charitable Endowment, to name three of the largest. These charities have catapulted into the ranks of the nation's biggest charitable fundraisers through the mass-marketing of DAFs.5 With a DAF, a donor makes a charitable contribution to the sponsoring charity (e.g., Fidelity Charitable), gets a tax deduction, and then advises the sponsor on where to distribute the fund assets over time.

The DAF was once the province of community foundations and relatively obscure. Community foundations developed the DAF as a fundraising tool that appealed to donors who wanted to remain involved in advising how their donated funds should be spent.6 After making a typically large gift a donor could consult with community foundation staff about how best to direct funds for the benefit of the community served. The model was consultative, between donor and institution, and mission focused - grounded by the place-based exempt purpose of the community foundation.

Yet today, DAFs are dominated by large, national organizations, not community foundations. In 2014, for the first time, assets held by Fidelity, Schwab, and Vanguard DAFs exceeded the asset value of the DAFs held by the top 274 community foundations.7 The result is not just that national DAF sponsors dwarf community foundation DAFs in fundraising, but more importantly, the mass-market success of the DAF affects indelibly the nature of the DAF and in turn the place-based giving culture that historically prevailed in community foundations.

Community foundations exist to serve a particular geographic area or region and are staffed by people who are connected to their communities. Traditionally, DAFs fit within this model. DAFs at national sponsoring organizations, however, have no connection to place or community but serve as a pass-thru for donors whose advice is simply to designate a 501(c)(3) organization, based anywhere in the United States, with no meaningful consultative role by the sponsoring charity. Because national fund sponsoring organizations now broadly set the standard for donoradvised funds, community foundations are becoming, willingly or not, subject to that standard. As a result, community foundations increasingly will cater to donor expectations of a national scope for charitable distributions, and a passive, individual-based model of advised giving, running counter to the traditional role of the community foundation. …

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