Incorporating Your Community Spirit

In 1996, a group of civic leaders in Middletown, Conn., sat down to assess their town's future. Middletown, with a population of 46,000, had several problems, from an ailing downtown to poor school performance by kids from low-income families. So they decided to start a community foundation. A foundation, they reasoned, would be a good way to channel charitable donations directly to local nonprofit organizations that could address the town's needs.

The bet has paid off. Launched last year with a $125,000 matching grant from Middletown's Liberty Bank, the Middlesex County Community Foundation now has close to $500,000 for operating expenses and endowment pledges of $125,000. The foundation, whose focus now includes all of Middlesex County, has made grants to an after-school program in Middletown and the public library in nearby Portland.

FLUSH CLIMATE. Community foundations date back to the early part of the century, and in the flush climate of the 1990s, many smaller communities, from rural Oceana County, Mich., to Dalton, Ga., have set up their own. They are ideally positioned for local donors who may not have the expertise to select the best recipients and manage their gifts. For example, if a donor wants to give $10,000 for early childhood education, a community foundation will manage the gift in perpetuity and channel grants derived from the endowment's investments to nonprofits that fit the donor's wishes. "It's a safer, more secure, and productive way to collect money in the community," says Michael Burns, a partner at Brody & Weiser, a Branford (Conn.) consulting firm that works with nonprofits.

If you want to start a community foundation, seek out advice from similar organizations in other towns. A good place to get a handle on such organizations is the Council on Foundations in Washington. Next, you'll need to recruit a core group with ties to local business and nonprofit communities. Chances are they'll become the foundation's first board.

You'll need to analyze the community's fund-raising base to gauge who may be able to provide seed money. In Dalton, Ga., where the Community Foundation of Northwest Georgia was started in September, local businesses donated $200,000. The foundation's goal is to have a $100 million endowment in 10 years. It plans to tap other companies such as Shaw Industries, a major carpet maker, and it hopes to encourage individuals to make gifts via their wills.

You will, of course, have to incorporate the foundation by filing with the Secretary of State for your state, which entails a $100 to $500 fee. In doing so, organizers should draft a mission statement that outlines grant priorities and ways to involve the community. The foundation also must secure a 501(c)(3) letter from the Internal Revenue Service, a key step that confers tax-exempt status and allows tax deductions for donors. Including $500 for the IRS filing, the tab for the entire process can run to $2,500, and that's as long as you find a lawyer, perhaps a board member, willing to work for free, says Helen Monroe, a nonprofit consultant in San Diego. It may take just a day to incorporate, but securing tax-exempt status can take up to a year.

Once it's up and running, a community foundation usually reaches a crossroads: fly solo or affiliate with a more established community foundation. With affiliation, a startup's endowment goes into the same pot as the parent foundation's grants. It also pays a monthly fee to the parent, which takes over the backroom operations. Still, your foundation may need a staff. Many in Indiana secure a matching grant from such foundations as Lilly Endowment in Indianapolis (317 924-5471) to pay for staffers.

Setting up a foundation is a fine way of turning your neighbors' civic impulses into concrete results. The process is not easy, but the payoff is easy to see--right in your backyard.

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