Community Foundations

what is a community foundation?

A community foundation is a tax-exempt, nonprofit, publicly supported philanthropic organization with the long term goal of building permanent, named funds, for the broad-based public benefit of the residents in a given area.

The common mission of every community foundation is to enhance the quality of life in the local area. Community foundations carry out this very broad mission by building permanent endowment funds and using a portion of the annual income to support a variety of local non-profit organizations through grants and special projects.

Most community foundation assets are held in separate funds established by local individuals, families, businesses, or charitable institutions. Each fund may have a special purpose, but the foundation board of directors, representing the community, oversees them all.

The IRS recognizes community foundations as public charities in part because they receive support from the general public and their boards largely represent the areas served.

How does a community foundation work?

A community foundation is governed by a board of directors of community leaders and is administered by professional staff. Operating expenses are paid from an annual fund fee and from gifts designated by donors to cover foundation operating and program costs.

The purpose of a community foundation is two-fold:

To grow an endowment that will continually benefit its defined area through grant-making and other charitable activities;
To serve those who donate to the endowment by helping them to accomplish their charitable goals.

Community Foundations Have 3 Special Features

Personalized Service

We’re able to educate people on charitable giving vehicles and customize giving approaches to match personal interests and tax planning needs
We facilitate complex forms of giving and share our knowledge on community needs
We offer grant-making expertise and administrative services
We help people create personal legacies via named funds and offer involvement in recommending uses of a gift
We provide the option to give anonymously

Local Expertise

We’re a local organization with local staff and board members
We have keen knowledge of the issues surrounding our local communities as well as the opportunities
We monitor all community needs, including education, the environment, economic development, arts and culture, and health and human services
We gather information and track local agencies and programs
We direct grants and resources to appropriate areas

Community Leadership

We build endowments to ensure grants are always available to support the community
We support high impact opportunities
We’re governed by leaders with strong ties to our community
We foster development of new organizations and programs
We re-direct funds as community needs change
We act as a community catalyst

Community Foundation FAQs

How do community foundations differ from private foundations?

A community foundation is supported by a far-reaching and ever-widening group of unrelated individuals, families, corporations and institutions. The only thing that connects all of our donors is a desire to improve local communities. Because of their broad base of support, community foundations are classified as publicly-supported charities. This gives community foundations tax advantages not enjoyed by private foundations.

Community foundations are also allowed to treat all funds within their control as part of a single corporation. This gives them administrative and investment advantages over private foundations as well. Private foundations, by contrast, are generally supported by a single individual, family, or business, and are subjected to numerous penalty taxes and legal requirements.

How do community foundations differ from other charitable organizations?

Most nonprofit organizations have a specific mission. By contrast, a community foundation’s mission is very general: to improve the quality of life in a given area. This scope of mission reflects our ability to make grants in any field of interest with a charitable benefit to local communities.

This flexibility allows us to serve a broader group of potential donors on the one hand and, on the other, a widespread group of nonprofit organizations whom we consider our partners in improving our local communities.

Area nonprofits benefit from having a local community foundation because the community foundation helps money stay in the community. Community foundations benefit local nonprofits in other ways too. Besides having local grant money available, some nonprofits ask the community foundation to manage an endowment on their own behalf. We call such funds “organizational endowment funds.”

As it grows, a community foundation gradually becomes a center for charitable giving in a community. We help make connections between the people who want to give and the people who need their support.

How does a community foundation invest its funds?

The community foundation adheres to an investment policy established by the Investment Committee and approved by the Board of Directors.

How many community foundations are there?

The first community foundation was founded in Cleveland, Ohio in 1914. Today, more than 750 community foundations operate in urban and rural areas in every state in the United States.