Opinion: Community foundations play vital role in addressing real issues
Note: Christian Braemer is the co-founder & CEO of Benefunder. This piece originally appeared in Benefunder's newsletter and has been republished with his permission.
By Christian Braemer
Community foundations have recently been characterized by the press as schemes the wealthy use to shelter funds and avoid taxes. Some of these stories have even called out well-known entrepreneurs turned philanthropists like GoPro founder Nick Woodman and Facebook's Mark Zuckerberg in their critiques of the largest community foundation in the heart of Silicon Valley.
Most claim community foundations don't do enough to distribute to local charities and offer little access or information on donors.
But do these critics have all the facts?
Because Benefunder works with community foundations, donor advised fund (DAF) administrators, and private foundations to deploy their resources more effectively to research and innovation, we thought it was important to set the record straight.
First, it's critical to understand what community foundations are -- and what they are not. They play multiple roles, one as a foundation with a location based charity to support their defined mission, second as a supporting organization for local foundations, and third as a DAF administrator. These roles are often conflated, but it is important to distinguish them.
Community foundations were originally created as a way to support charitable issues facing the local communities -- like homelessness, clean water, hunger etc. -- and to consolidate the operations of local private foundations and public charities. They convene, influence, mobilize, and execute in a way other funding sources cannot.
They have prominent boards and concentration of charitable assets, they manage back office operations for local non-profits and tend to have their finger on the pulse of what's happening in the community and can often identify and react to problems before they become catastrophic.
This aspect has been overlooked in the recent articles, but it is a critical role in serving their local stakeholders: Global philanthropy expert Kris Putnam-Walkerly says Community Foundations are the best way to donate to, and make an impact, on disaster relief.
DAFs came along later and are akin to an outsourced private foundation, a tax deductible account that allows the donor to give over time without all the HR and audit risk of a private foundation. They are inexpensive to set up and provide lots of convenience to the donor, including the ability to give anonymously, not to mention the support and services associated with effective giving.
A few key trade offs in using a DAF vs. a private foundation is that while the donor gets the full benefit of a charitable donation at the time of contributing to the account, they give up control of the assets to the administrator in exchange for the ability to recommend distributions.
These charitable accounts have become so popular, that they now represent the majority of community foundation assets. While they may technically belong to the foundation, they are directed by the individual donors.
The fallacies in these recent articles are that community foundations don't do enough to deploy their assets in the local community and that DAF holders are getting all the benefit and not distributing enough.
The reality is DAFs distribute at 3-4 times the rate of the average private foundation, none of which is directed by the community foundation. Also, there is no way for these reporters to know if or how much these individual donors have or have not given.
But generally, it's easy to follow the money. In 2013 the Silicon Valley Community Foundation was recognized as both the largest single grant-maker to San Francisco Bay area nonprofit organizations and the largest international grant-maker among Community Foundations. They continue to push initiatives locally, nationally and globally today.
While it is true that there are tax benefits to philanthropy, those benefits in no way diminish the work that Community Foundations do. Work like The Big Lift, an effort to improve the literacy of grade-school age children in San Mateo County, or The Silicon Valley Regional Fund, which aims to expand housing and transportation strategies that link local nonprofit service organizations.
The manner in which community foundations provide for their communities makes them legally accountable to that community, and while they are not required to grant funds in accordance with the exact wishes of their donors, they are required to maintain privacy for their donors.
The point is, any program can be abused by unethical individuals, but the work community foundations do makes them worth keeping around. Their structure is what allows them to do what they do best. For example, if a community foundation is required to distribute funds that are currently unrestricted, there will be none to respond to a community's emergent and unexpected needs, which is where community foundations are often most invaluable.