A History of Community Foundations

What is a Community Foundation?
Community foundations are tax-exempt public charities serving thousands of people who share a common concern-improving the quality of life in their area. Individuals, families, businesses and organizations create permanent charitable funds that help their region meet the challenges of changing times. The foundation invests and administers these funds. All community foundations are overseen by a volunteer board of leading citizens and run by professionals with expertise in knowing their community's needs.

The Philanthropic Tradition in the United States
Philanthropy has strong roots in religious beliefs, in the history of mutual assistance, in democratic principles of civic participation, in pluralistic approaches to problem solving and in American traditions of individual autonomy and limited government.

The hardships of early settlers to North America, where government was weak and distant, forced people to join together to govern themselves, to help each other and to undertake community activities, such as building schools and churches and fighting fires. Out of these experiences grew a tradition of citizen initiatives and individual efforts to promote the public welfare. Later, immigrants supported communities by giving through churches and forming groups to help the poor as well as organizing associations to assist each other in their new homeland. Native Americans and African Americans also had deeply rooted giving practices.

Religious leaders encouraged their members to give to the poor and to the charitable works of their churches. Giving to needy people in their communities, to the poor in other lands, to the victims of natural disasters and to their churches was a strongly felt obligation for many people. Religious beliefs are still an important motivation for being involved in philanthropy.

Early Philanthropists and Foundations
Benjamin Franklin, the inventor and statesman of the colonial era, was an early philanthropist. He gave to improve his community and to provide opportunities for people to help themselves. He founded local civic organizations such as the volunteer fire company and institutions such as the Pennsylvania hospital, the University of Pennsylvania and the Philadelphia public library.

It was not until the early twentieth century that individuals generally began to use their philanthropy to seek ways to combat problems, conduct research and promote science. One of the early proponents of modern philanthropy was Andrew Carnegie, a wealthy business entrepreneur. He viewed the person of wealth as a product of natural selection by the forces of competition. By winning wealth, a person became an agent of civilization, and philanthropy became a tool for improving civilization while at the same time substituting for radical reforms. His philanthropy included starting public libraries and other agencies that would provide "ladders upon which the aspiring can rise."

In 1914, in an effort to improve the way the Cleveland Trust Company did business, the company's president, Frederick Goff, established in Ohio the world's first community foundation, The Cleveland Foundation. The problem Goff faced was one of efficiency. His company, like many others, managed several small endowed charitable trusts, some of which were established for specific purposes -- such as education or health -- and others of which were intended simply to benefit the residents of greater Cleveland.

Goff's company was having difficulty identifying the most worthy recipients for the income from these trusts. His proposed solution created a separate organization (an initial committee would later become an independent corporation) that divided the work of managing charitable trusts. The bank would continue to do what it did best (investments) while the foundation would do what it did best (grant making). Thus was born the first community foundation, a solution to a problem of efficiency.

These new "foundations," both private and community, were not designed to help people directly but were to be the instruments, or "scientific charity," of reform, of problem solving, and would address the root causes of poverty, hunger and disease. This idea of systematic, scientific philanthropy is a product of the era of optimism and faith in the ability of science and reason to solve all human problems; it is the rationale for modern American foundations.

A National Trend
The Department of Treasury soon gave formal recognition to this new type of organization, granting community foundations the unique advantage of being able to treat multiple trusts and corporations as part of a single institution rather than as separate organizations. (Each sub-entity is known as a "component fund.")

During the early years of the twentieth century, several civic and business leaders- Andrew Carnegie, John Rockefeller and Margaret Olivia Sage-organized their philanthropic giving in the new form, like the business corporations that were then so successful. The new corporate organizational structure permitted more flexibility than charitable trusts, the traditional mode of giving featured in English law. Boards of Directors, rather than trustees, were responsible for overseeing their operations.

Amazingly, a community foundation with 500 different component funds still files only one tax return. The idea spread rapidly throughout the country. In Cleveland many banks joined Goff in supporting the Cleveland Foundation, just as bankers around the country came together to establish community foundations in their own cities.

The Growing Years
In the years that followed, other local community foundations were established, and hundreds of thousands of individuals across the United States - from all economic backgrounds - joined with their local community foundations to create permanent charitable funds to meet the needs of their communities. By the end of the 1920s Los Angeles, New York, Boston, Chicago, Milwaukee, Minneapolis, Rhode Island, Buffalo and dozens more American cities all had their own community foundations.

In 1931 the first Donor Advised Fund was established by a community foundation in Winston-Salem, North Carolina.

In the 1930s community foundations faced a difficult period of decline during the Great Depression, when resources were scarce and the banking system was in difficulty and disrepute.

Corporate foundations came after the concept of giving by businesses was resolved under United States law in 1935. Corporate foundations grew at a rapid rate during the 1940s, an era of high profits and high tax levels.

Private foundations came under increasing attack in the 1950s for the perception that they abused their tax exempt status. The result was a sweeping change in tax legislation in the late 1960s to combat the perceived abuses.

One strong factor contributing to the rapid growth of community foundations was the Tax Reform Act of 1969. These changes resulted in private foundations becoming more strictly regulated and made community foundations a more attractive option for many donors, primarily because:
          • Lifetime gifts of certain kinds of appreciated property, such as real estate and interests in closely-held
            businesses, to a community foundation can be deducted at full fair-market value.
          • The annual deduction limit for individual gifts is higher for a community foundation gift than for those
            to a private foundation.

Community foundations also are free from excise tax and other requirements that apply to private foundations, enhancing their appeal to many donors.

The upward trend in community foundations was enhanced further by the recession of the early 1980s that put national social programs at risk. By 1989 there were 24 community foundations in Indiana. During the Regan presidency the U.S. government began turning away from large-scale, national social programs, a trend that continued into the 1990s and shows no signs of being reversed. Individuals and private foundations began looking to community foundations as a way to make up for the loss of national funding for local social programs.

Community foundations make up one of the fastest growing sectors of philanthropy in the United States today. Community Foundations build and strengthen communities by making it possible for a wide range of donors to participate in creating permanent (and often named) funds to meet present and future needs. Community foundations have become catalysts for improvement within urban centers and in rural settings through philanthropy that is visionary, diverse and inclusive.

Community foundations are a sustainable aspect of philanthropy - providing leadership and problem solving in the present and preparing for the future with a permanent endowment.

There are nearly 700 community foundations in the United States with 97 community foundations in Indiana and 65 in Michigan alone. Indiana ranks number one in the nation having more foundations than any other state! The community foundation model has spread throughout the world. There are at least 470 community foundations in 41 countries outside the United States, with at least another 140 in development around the world.

Assets
Community foundations in the United States hold approximately $35 billion in assets and are located throughout the country. The Cleveland Foundation alone holds more than $1 billion, while the largest community foundation, the New York Community Trust, stands at just over $2 billion. Hundreds of community foundations presently manage less than $10 million each.

In 2003, community foundations gave grants of more than $2.5 billion to a wide variety of nonprofit activities, including urban affairs, the arts, education, environmental projects, health care and disaster relief, and they reach the lives of over 100 million people.

A Focus on Service
Differentiating a community foundation from other philanthropic options is a high degree of personalized service for donors.

Foundation development staff routinely works with families and professional advisors to design gift plans that fit every situation and donor preference, ensuring that philanthropists receive the most benefit from their charitable contributions. Program staff conducts research, analyses and site visits to ensure that philanthropic dollars are maximized and well-used.

Gifts of All Sizes and Shapes
Community foundations can easily accept gifts of various sizes and types from private citizens, corporations, government agencies and other foundations. Nearly every type of gift-including real estate, closely held stock and artwork-can be contributed to a community foundation. Gifts are frequently made through bequests and also by living donors through various types of funds and deferred giving vehicles. In most cases, a gift to a community foundation is made part of a permanent endowment and thus the intention, the asset and the name of the donor are preserved forever.

Community Foundations
          • know their communities
          • help you achieve superior tax benefits
          • make set-up and administration easy
          • share your interests
          • care about the future