COMMUNITY FOUNDATION BASICS FOR BOARD MEMBERS UNIT 1

COMMUNITY FOUNDATION BASICS FOR BOARD MEMBERS UNIT 1 COMMUNITY FOUNDATION OVERVIEW

DEFINITION OF A U. S. COMMUNITY FOUNDATION Nonprofit, tax exempt under section 501(c)3 Goal of building permanent endowment funds Independent, non-sectarian Focused within a defined geographic area governing body Publicly supported by many unrelated donors Grantmaking is not limited by field of interest or to specific populations

HISTORY OF COMMUNITY FOUNDATIONS 1914 - The first community foundation was established in Cleveland, Ohio. Within five years, community foundations formed in places like Indianapolis, Chicago, Boston, Milwaukee, and Minneapolis. 1969 - Tax Reform Act • private foundations becoming more strictly regulated • community foundations became a more attractive option In the 1990 s, commercial financial services firms, such as Schwab, Fidelity and Vanguard, began to offer donor-advised funds. 1990 s-today – increasing emphasis on CF role in community leadership There are over 800 community foundations in the United States and about 1, 400 existing around the world.

GIFT HISTORY Establish permanent charitable assets across Indiana Support local communities and build civic participation Series of 5 grant phases over first several years Additional programs – Taking Stock, CAPE, SRD, interns Unique program in community foundation world Currently Indiana has 74 legal entities covering all counties in Indiana All Indiana CFs - Over $2 billion in assets

INDIANA COMMUNITY FOUNDATIONS

COMMUNITY FOUNDATION ROLES Develop relationships with donors Invest and protect the principal of donor gifts Distribute earnings from these gifts based on charitable intent of the donor Build a permanent resource for the future Understand community needs Re-direct charitable dollars over time and as community needs change Strengthen existing organizations Bring new and innovative charitable organizations into existence Can be proactive or responsive Convener, facilitator and collaborator Promoter of philanthropy

COMMUNITY FOUNDATIONS – THE REALLY BIG PICTURE GOVERNING BOARD Sets Goals, Direction, Policy STAFF Implementation, Operations DONORS Individuals Corporations Private foundations Charitable organizations GIFTS come in different forms Cash Appreciated Securities Real Estate Closely held securities Personal property Life insurance Retirement assets Wills and bequests These are community foundation ASSETS GIFTS are placed into a FUND Unrestricted Donor Advised Field of Interest Designated Scholarship Agency Funds are governed by the FUND AGREEMENT INVESTMENTS Investment Policy Spending Policy Community foundation FISCAL RESPONSIBILITY PAYOUT/DISTRIBUTIONS Grants for charitable activities Administrative fees to support CF operating budget Fulfilling DONOR INTENT Through this activity, a community foundation gains connections, visibility, knowledge, creditability, influence and resources to provide COMMUNITY LEADERSHIP

COMMUNITY FOUNDATION BASICS FOR BOARD MEMBERS UNIT 1 COMMUNITY FOUNDATION OVERVIEW A FEW LEGAL CONCEPTS

WHAT DOES CHARITABLE MEAN? Charitable (generous) IRS Charitable (tax deductible) Nonprofit Charitable

Section 501(c) – Tax Exempt Organizations Mutual Benefit Orgs • 501(c)(4)-Civic leagues • 501(c)(6)-Business leagues, chambers of commerce, real estate boards • Others Public Charities 501(c)(3) Traditional Charities 509(a)(1) Other Publicly Supported Charities 509(a)(2) • Hospitals, Schools, Churches, Government • Publicly supported nonprofits (including community foundations) • One-third of charity’s support is from the general public Private Foundations 501(c)(3) Supporting Organizations 509(a)(3)

IT’S NONPROFIT - SHOULDN’T IT BE EASIER? For profit businesses have direct relationship with the consumer; exchange money for product/service Nonprofits need to convince a third party (individual, foundation, corporation, government) to give them money to provide benefit to consumer Success is measured by achieving mission, not producing a profit – very hard to measure Donors get to restrict how nonprofit spends the donation; this makes nonprofit accounting more complex

WHAT IS “VARIANCE POWER”? A distinguishing characteristic of community foundations, the variance power permits the community foundation’s governing body to redirect resources in component funds if it determines that the donor’s restriction is unnecessary, incapable of fulfillment or inconsistent with the charitable needs of the community or area served.

UMIFA (UPMIFA) The Uniform Management of Institutional Funds Act (UMIFA), adopted in 1972, provided uniform and fundamental rules for the investment of funds held by charitable institutions and the expenditure of funds donated as “endowments” to those institutions. In 2007, UMIFA was changed to include the word ‘prudent’ (UPMIFA). The UPMIFA (UMIFA in Indiana) now allowed the boards of institutions with endowment funds to spend principal of endowment funds when considering the following elements: • • Duration and preservation of the endowment fund Purposes of the foundation and the endowment fund General economic conditions Possible effects of inflation or deflation Expected total return from income and appreciation of investments Other resources of the foundation Investment policy of the foundation UPMI FA

PENSION PROTECTION ACT (PPA) OF 2006 Abuse of donor-advised funds Over-valuation of non-cash gifts Control by donors over scholarships Personal benefit by donors Misuse of supporting organizations And other problems!

CONFLICT OF INTEREST Board members have a legal obligation to act in the best interest of the organization A “conflict of interest” occurs when personal interests prevent a board member from making an impartial decision Can be financial or non-financial Written conflict of interest policy ensures that public trust is not violated Policy should include procedures on • • Disclosure Recusal from discussion or voting

KEY LEGAL DOCUMENTS A document filed with the secretary of state by persons establishing a corporation establishing the purpose of the corporation. Rules governing the operation of a nonprofit corporation, developed according to state law requirements. Bylaws provide the methods for selecting directors, creating committees, and conducting meetings.

KEY LEGAL DOCUMENTS Official written record of the community foundation’s business. All important decisions made by the community foundation should be documented in the board minutes as stated in the National Standards section on. Examples include approval of: ü ü ü ü new policies new funds changes in funds budget adoption payout percentages, etc. board member abstentions and recusals grant and scholarship recipients

NATIONAL STANDARDS FOR COMMUNITY FOUNDATIONS The National Standards include the definition of a U. S. community foundation as well as standards in each of these categories:

ü Glossary of Terms – Council on Foundations ü National Standards for Community Foundations ü Sample Conflict of Interest Policy ü Could you Give Us Our Money Back, Please?