This week marks Community Foundation Week, when community foundations across the country promote their presence and accomplishments. Community foundations have received billions of dollars in donations and are growing rapidly in size and number. If you aren’t paying attention to them, now is a good time to start.

What are community foundations?  

The Council on Foundations defines community foundations as “grantmaking public charities that are dedicated to improving the lives of people in a defined local geographic area.” Unlike museums, food banks, or national relief organizations, community foundations don’t directly spend money on programs. Rather, they invest money from donors and use the earnings to provide grants, usually to smaller nonprofits. Unlike private foundations, community foundations rely on donations from the public rather than from an individual, family, or corporation.

Community foundations are growing fast

Donations to community foundations have increased 800 percent over the past 25 years, even after accounting for inflation. Community foundations reported $653 million in donations in 1990 ($1.2 billion in 2015 dollars) and $9.6 billion in donations in 2015, per Internal Revenue Service tax return data compiled by the National Center for Charitable Statistics. Donations to community foundations grew at double the rate of private foundations and at more than two and a half times the rate of other public charities.

The number of community foundations is growing as well. The first community foundation was founded in 1903 in Cleveland, Ohio. By 1990, there were more than 500 community foundations in the US, and by 2015, there were more than 2,000. 

Public policy benefits community foundations

Since 1969, US tax policy has favored community foundations and other public charities over private foundations. The tax deduction for donating to private foundations is capped at 30 percent of adjusted gross income, while deductions for donations to public charities are capped at 50 percent of adjusted gross income. Private foundations also face more stringent reporting requirements and a tax on net investment income.

Many states have policies that provide benefits to community foundations beyond those received by other public charities. Iowa, Kentucky, Maryland, Michigan, Minnesota, Nebraska, and Ohio provide or have provided tax credits to businesses or individuals who donate to community foundations. Iowa also designates a portion of gaming tax revenue to community foundations through its County Endowment Fund Program.

There is not enough evidence to link these policies to the growth of community foundations, but we know taxes affect donations. Donors increase their gifts by more than 1 percentage point for each percentage point in tax savings.

A call for research

Beyond linking current policy to the growth of community foundations, more research is needed to examine the effects of community foundations. Because community foundations are intermediaries between donors and service providers, making this link will be difficult.

There is research documenting successful community foundation initiatives, exploring the relationship between donations and measures of social trust, and determining the factors associated with fiscal efficiency and grantmaking performance. But it is difficult to assess the initiatives funded in part by community foundation grants, the effect community foundations have on a community’s social fabric, or the factors associated with successful grant-funded activities.

Community Foundation Week is a great time to learn about local community foundations and to ask how we can better understand these important and growing institutions.