Almost every metropolitan area, and a surprising number of rural counties, has a charitable endowment a few miles away with three or four people on staff who give money to local groups every year. It is not a government program and it does not advertise. Small neighborhood organizations that would qualify often never send in a single page of paper.
The institution is a community foundation. The Council on Foundations counts more than 900 of them operating in urban and rural areas across every state, holding assets that run from under $100,000 to more than $1.7 billion, and in 2017 those foundations awarded an estimated $5.48 billion to nonprofit work in arts, education, health, the environment, and disaster response. That accounting sits on the Council's page about community foundations. Some are big enough to move a city's cultural budget. Others are one part-time director with a spreadsheet. Both usually want applicants they do not already have.
A banker's fix for the dead hand
The model was invented once, by someone who spent a career watching the alternative fail. Frederick H. Goff, president of the Cleveland Trust Company, established the Cleveland Foundation on January 2, 1914. He had handled enough estates to know the recurring problem: a donor writes a trust for a specific charitable purpose, the purpose becomes obsolete, and the money stays locked to an instruction nobody can amend.
Goff took the language for the complaint from an 1880 argument by Sir Arthur Hobhouse that property ought to be directed by the living hand rather than the dead hand. His answer had two moving parts. Gifts from many donors, large and small, were pooled and invested by local financial institutions acting as trustees. The income was handed out by a committee of people who lived in the city, with seats that turned over. The Encyclopedia of Cleveland History at Case Western Reserve University records the shape of it: an eleven-person distribution committee, five members appointed by the trustee institutions, five by public officials, and one person with a philanthropy background chosen by both.
That last detail is the part worth carrying forward. The people deciding where the money goes are meant to be reachable residents rather than a distant board, and the seats turn over. A local group asking for a grant is asking a committee of neighbors.
Five kinds of fund under one roof
What confuses people is that a community foundation is not one pot. It is a container for dozens or hundreds of separate funds, each opened by a different donor with different strings attached, and the strings decide whether your project is eligible at all. Reading the fund list first saves applying to money that was never available to you.
- Unrestricted funds, where the donor left the choice to the foundation. This is the money that responds to a new problem, and it is the smallest share at most foundations.
- Field of interest funds, tied to a subject rather than a recipient. A fund for youth literacy will hear a reading program and decline a drainage project, however good the drainage project is.
- Designated funds, pointed at one named organization forever. A group cannot apply to these, and much of a headline asset figure is committed this way.
- Scholarship funds, which pay individuals under criteria the donor wrote. These are frequently underused, because the eligibility language is narrow and nobody local reads it carefully.
- Donor advised funds, where a living donor recommends where the money goes and the foundation makes the grant.
Advisory privileges are not control
That last category has grown fast enough to understand precisely, because the popular description is wrong. The Internal Revenue Service defines a donor advised fund as a separately identified fund maintained and operated by a section 501(c)(3) sponsoring organization, in which the sponsoring organization holds legal control while the donor or the donor's representative retains advisory privileges over distributions and investments.
Read that split slowly, because it changes how a request should be made. The donor recommends and the foundation decides, so a promise from a generous person with a fund is not yet a grant. The check and the paperwork come from the foundation, on the foundation's timetable. A group told money is coming that starts spending against it has misread whose money it currently is.
The payout question nobody asks
Here is the failure mode that costs local groups a year. Money given away is not necessarily money distributed, and the two are governed differently. A private foundation faces a distribution requirement with real teeth behind it: under section 4942 the Internal Revenue Service imposes a 30 percent excise tax on income the foundation failed to pay out on time, and an additional 100 percent tax if the shortfall is not made up within 90 days of notice from the agency.
No comparable annual payout floor is written into federal law for a donor advised fund. A gift can be complete for the donor, held by a sponsoring organization, and still be sitting there in three years. This is not fraud and not unusual, and it is why a group should ask a scheduling question rather than a moral one. Ask when the grant would actually be paid, and ask whether the request has to clear a quarterly board meeting before a check is cut.
A sponsor for a group with no tax status
The most useful thing many of these foundations do is rarely on the front page of their site. A block club, a mutual aid group, or a volunteer creek cleanup usually has no 501(c)(3) status, which blocks it from receiving tax deductible gifts or applying for most grants. Many community foundations will hold a fund on behalf of such a group, or act as its fiscal sponsor, so donations become deductible and the group can apply for money it could not otherwise touch.
The trade should be understood before signing. The foundation takes a small administrative fee, holds legal responsibility for the money, and expects receipts and a short report. In exchange an informal group skips the cost, delay, and annual filings of incorporating. For a project with a two-year life, that trade is usually the right one.
One call before the next grant cycle
Find which foundation covers your county through the Community Foundation Locator on the Council on Foundations site, or search your county name with the words community foundation. Then read the most recent grant list, which nearly all of them publish. That list tells you the real range of awards, the kinds of groups that get funded, and whether the average grant is two thousand dollars or two hundred thousand.
Then call the program officer, before writing anything. Say what your group does in two sentences and ask three questions: which fund would fit this, when is the next deadline, and does the foundation act as fiscal sponsor for groups without tax exempt status. That conversation takes twenty minutes and routinely saves a wasted application. The money described here is not hidden and not as competitive as people assume. In a lot of counties the binding constraint is that almost nobody asks.