A Brief History of Community Foundations
The first community foundation was founded in Cleveland in 1914 by retired judge and banker, Frederick Goff. It was created for several purposes:
- First, to ensure donors’ charitable intentions could be carried out in perpetuity even if original purposes became obsolete or inconsistent with the charitable needs of the community (variance power).
- Second, to establish a vehicle whereby people of modest means could engage in large-scale philanthropy by pooling donations.
- And third, to provide a bifurcated governance system in which the bank’s trust department oversaw the investment of the assets, while a distribution committee, composed of people broadly representative of the community, oversaw the distributions of earnings back to the community. (Over time, community foundations have changed so that one governing body is ultimately responsible for investment policies and grantmaking.)
In 1915 alone, eight community foundations were created, and by 1930, there were 21 sizeable foundations. The public’s expectations of the government also were changing. This time period saw the beginning of modern public health systems, social work, public libraries, and high schools. The passing of the first federal income tax also began to shape institutional philanthropy.
National regulatory changes in the mid-1970s established the “public support test,” requiring community foundations to demonstrate public support, which helped launch the donor development practice. Community foundations began to spread across the country.
Traditionally, community foundations have served three constituencies: donors, nonprofit organizations, and the community at large. From serving these three constituencies, certain roles naturally evolved, including:
- Asset development
- Community leader
Think of the community foundation as a three-legged stool. The three functions with which the foundation serves its constituencies – asset development, grantmaking, and leadership – are the legs that hold up the seat. All three legs must be equally strong for the foundation to be stable. In its early years, a community foundation often focuses on one of these constituencies, leaving the other two less developed. Some examples of this approach include:
- The Cleveland Foundation’s initial focus was the community at large. In 1914 they gathered diverse people together to solve the community-wide problem of water pollution.
- The New York Community Trust, founded in 1924, received several large bequests early on. Thus the trust could quickly focus on making grants for selected causes.
- The Columbus Foundation started out to serve donors’ charitable interests. It developed the first donor-advised funds in the late 1940s.
As a community foundation matures, it often works to strengthen the other legs of the community foundation stool, eventually mastering all three traditional roles and adding new ones. Emerging roles include:
- Providing donor services
- Providing services to nonprofits and other grantmakers
- Acting to convene a wide array of groups within the community
- Serving as a promoter of philanthropy within the community
- Providing stewardship
Characteristics of Community Foundations
- Founded and operated for public benefit and tax exempt under Internal Revenue Code (IRC) Sections 501(c)3 and 170(b)(1)(A)(vi)
- Supported by many unrelated donors and meets the public support test
- Independent governing body broadly representative of the area served
- Governed body retains variance power
- Grantmaking is not limited by field of interest or to specific populations
- Grantmaking is focused within a defined geographic area
- Goal of building permanently endowed funds
- Responsible and accountable to the community
From the beginning, community foundations have held a unique place in the philanthropic world. A community foundation is not like a private foundation whose financial base usually comes from a single donor, family, or company. Nor is it like other nonprofit charities that focus on specific areas of interest or causes. A community foundation is a hybrid organization that both grows community resources and serves as stewards of permanent resources, while also making grants into the community.