Philanthropy Front and Center-Cleveland

This Week at the Foundation Center (June 29 - July 3)

Monday, June 29:

Introduction to Foundation Directory Online with a special Dialogue with Donors in Education, Columbus, OH, 1:00-3:00pm.
Join us for an introduction ofThe Foundation Directory Online Professional and a conversation with two regional funders of education programs, Sidney R. Hargro, Senior Officer, Strategy & Organizational Learning, The Columbus Foundation and Marlene A. Casini, President & CEO, Community Foundation of Delaware County.

Webinar: Foundation Funding Trends in Higher Education.
This overview will cover what foundations throughout the country are doing to address the recession and how colleges and universities can best work with economic recovery efforts underway in their communities, 3:00 - 4:00 pm.  

Resource Market: Tackling Tough Times Columbus, OH, 4:30-7:00pm.
A selected group of Central Ohio nonprofits and businesses will share information about their services for nonprofits in a fun, trade fair atmosphere.

Tuesday, June 30:

Finding Foundation Support for Your Education with an Introduction to ScholarLink Columbus, OH, 10:00-11:00am.
Join us for the Foundation Center's class on obtaining financial aid for your studies. Diane Higginbotham, Scholarship Manager for The Columbus Foundation will discuss and demonstrate ScholarLink, the Columbus Foundation's free scholarship search database.

Wednesday, July 1:

Grantseeking Basics with a special introduction to Foundation Directory Online, 5:30-7:30pm.
This introduction to grantseeking provides and introduction to the Foundation Center along with instruction in foundation research and identification of potential funders.

Library Hours:
Monday: 12:00 - 4:30 pm
Tuesday: 9:30 am - 4:30 pm
Wednesday: 12:00 - 8:00 pm
Thursday: 9:30 am - 4:30 pm
Friday: LIBRARY CLOSED for Independence Day holiday

Have You Heard About the L3C Nonprofit / For-profit Hybrid?

(This post is from Sandy Pon, virtual library/learning center specialist, Foundation Center)

While reading one of the many newsletters I get in my inbox, a recent BusinessWeek article, "Turning Nonprofits to For-Profits", caught my eye. (Thanks to Council on Foundations' news digest for this news item.)

It was about low-profit limited liability companies, or L3Cs, a form of social enterprise that puts mission first and profits second. "The L3C is a new form of limited liability company which combines the best features of a for-profit LLC with the socially beneficial aspects of a nonprofit. It is the for-profit with a nonprofit soul," according to Americans for Community Development, which is working with legislators across the country to enact the legal framework necessary to permit the formation of the L3C.

Nonprofit Law Blog provides a good overview and definition:

The low-profit, limited liability company, or L3C, is a hybrid of a nonprofit and for-profit organization. More specifically, it is a new type of limited liability company (LLC) designed to attract private investments and philanthropic capital in ventures designed to provide a social benefit. Unlike a standard LLC, the L3C has an explicit primary charitable mission and only a secondary profit concern. But unlike a charity, the L3C is free to distribute the profits, after taxes, to owners or investors.

A principal advantage of the L3C is its qualification as a program related investment (PRI), an investment with a socially beneficial purpose that is consistent with and furthers a foundation’s mission. Because foundations can only directly invest in for-profit ventures qualified as PRIs, many foundations refrain from investing in for-profit ventures due to the uncertainty of whether they would qualify as PRIs or use costly time and resources to acquire a Private Letter Ruling from the IRS to verify that the venture is a valid PRI. An L3C’s operating agreement minimizes this problem by specifically outlining its respective PRI-qualified purpose in being formed, making it easier for foundations to identify social-purpose businesses as well as helping to ensure that their tax-exemptions remain secure.

Americans for Community Development further argues the advantages of an L3C:

[The L3C] also facilitates tranched investing with the PRI usually taking first risk position thereby taking much of the risk out of the venture for other investors in lower tranches. The rest of the investment levels or tranches become more attractive to commercial investment by improving the credit rating and thereby lowering the cost of capital. It is particularly favorable to equity investment. Because the foundations take the highest risk at little or no return, it essentially turns the venture capital model on its head and gives many social enterprises a low enough cost of capital that they are able to be self sustainable.

First and foremost, the L3C is a for-profit organization, so it would have to pay taxes on its profits, and it can't receive traditional grants or tax-deductible charitable contributions, like 501(c)(3) public charities can. The L3C has not been legalized in every state yet, but it's now considered a legal structure in Vermont, Michigan, Utah, and Wyoming, and legislation is pending in several other states. In fact, the Council on Foundations supports federal legislation [PDF] that would encourage foundations to make program-related investments (PRIs) to L3Cs through an expedited review process by the IRS.

Regulations for limited-liability companies vary from state to state, but L3Cs formed in these states can be used in other states. Would-be L3Cs should choose the state with an L3C designation whose LLC law is most compatible with their home state's LLC law, according to Robert Lang, CEO of the Mary Elizabeth & Gordon B. Mannweiler Foundation and creator of the L3C concept.

There are 53 L3Cs in Vermont and a handful in other states so far. Some examples of L3C entities that have been created are:

* Monkton Community Coffeehouse, a multi-use community gathering place in an historical building
* Cool Pass, a carbon offsetter program that assists low-income homeowners with obtaining EnergyStar efficient furnaces, hot water heaters, insulation and other home upgrades
* Faithful Travelers, a travel service that matches faith-based customers with service-based excursions

Other examples are in carbon trading, alternative energy, food bank processing, social services, social benefit consulting and media, arts funding, job creation programs, economic development, housing for low income and aging populations, medical facilities, environmental remediation, and medical research.

As more L3Cs form, will foundations start giving more PRIs and fewer grants since they can get the money back, plus some interest? Charity regulators have asked the same question, along with many others. It's probably too early to tell if grantmakers will shift their giving strategies. However, you can see early responses to the charity regulators' questions [PDF], prepared by attorneys working with Mr. Lang. (One of the attorneys is Marcus Owens, who worked in the IRS's Exempt Organizations Division for 25 years, 10 of those as its director.)

To learn more about the L3C, please consult the resources below:

The L3C: Low-Profit Limited Liability Company Research Brief | Community Wealth Ventures [PDF]
Includes definition; candidates for L3C designation; current activities; implications for foundations; additional resources. Published July 2008.

Low-Profit Limited Liability Company | Vermont Secretary of State Corporations Division
One state's legal treatment of L3Cs. Vermont was the first state to adopt L3Cs in April 2008.

L3C Connect Group | LinkedIn
Intended to provide a vehicle for all stakeholders in this arena to share best practices, make professional connections and to share ideas. Requires registration as a LinkedIn user.

What do you think about this new form of social enterprise? Tell us.

Listen! Jamie Merisotis Discusses Lumina Foundation's Investments in Higher Education

Jamie P. Merisotis, president and CEO of the Lumina Foundation for Education, discusses the foundation's strategic, outcomes-based approach to expanding college access and success, particularly among low-income, minority, and other under-represented populations. Listen!

June is Funding for Education Month at the Foundation Center. Check out our Focus on Funding for Education page for more podcasts, news, and resources.

New Study Examines Funding for Women and Girls and the Importance of Women's Funds

Accelerating Change for Women and Girls: The Role of Women's Funds, a study published jointly by the Foundation Center and the Women's Funding Network, examines institutional giving to projects targeting women and girls and explores the growing influence of women's funds in the philanthropic landscape.

According to the report, which draws on the Foundation Center's grants data, fiscal summaries, and survey research, the rate of foundation giving for women and girls has grown faster than foundation giving in all areas. The role of women’s funds has also gained in significance in recent years, both in terms of actual grantmaking and in terms of bringing attention to “…the catalytic power of investing in women and in women-led solutions” (Highlights, p. 2).

"Women are a rising force in philanthropy," said Christine Grumm, president and CEO of the Women's Funding Network. "This report demonstrates the power women-led solutions have in creating sustainable change in communities."

In conjunction with the release of the new study, Josie Atienza, assistant director of research at the Foundation Center, and Grumm presented report highlights to a group of more than 60 grantmakers and nonprofit organizations. Other speakers were Bradford K. Smith, president of the Foundation Center; Larry McGill, senior vice president for research; Ana Oliveira, president and chief executive officer of the New York Women's Foundation; and Merble Reagon, executive director of the Women’s Center for Education and Career Advancement.

For a free executive summary of Accelerating Change for Women and Girls: The Role of Women's Funds and information on ordering the full report, visit the Gain Knowledge area of the Foundation Center's web site.

This Week at the Foundation Center (June 22 - 26)

Classes:

Tuesday, June 23:
Grantseeking Basics with a special Introduction to the Foundation Directory Online for Health Organizations at the Foundation Center's Cooperating Collection at Cuyahoga County Public Library - Independence Branch, 1:00-3:00 pm.
For beginners, this introduction to the Foundation Center and its Cooperating Collection in Independence provides instruction in foundation research and identification of potential funders, with a special focus towards the fundraising needs of health-related nonprofits. Attendees will also learn how to make the best use of the Center's powerful database, Foundation Directory Online, which lists over 96,000 grantmakers and their funding priorities.

Wednesday, June 24:
Developing a Fundraising Plan. In this course, you'll learn to craft a fundraising plan that includes a healthy mix of resources. With careful planning and an understanding of the components of a well-orchestrated campaign, your organization can attain its fundraising goals, 9:00 am - 4:00 pm.  

Library Hours:
Monday: 12:00 - 4:30 pm
Tuesday: 9:30 am - 4:30 pm
Wednesday: 12:00 - 4:30 pm
Thursday: 9:30 am - 4:30 pm
Friday: 12:00 - 4:30 pm

Thoughts from the Civic Leadership Institute 3: Getting the Story Straight

Last week's session of the Civic Leadership Institute not only allowed us to understand collaboration among the big players in civic life, but also brought a communications challenge to life through a rather daunting exercise.

My table-mates and I, all of us being strangers to one another, were given the budget of a city council and told that we *were* that city council, and we had to meet the press in fifteen minutes with a balanced budget, even though it showed a half-million dollar deficit! We quickly learned the benefits of collaboration and teamwork as each person at the table shared his or her expertise to assist the group in coming up with a budget that could work. Even more jarring than crafting a budget on the fly is realizing the need for having skilled spokespeople who can look into the camera, literally and figuratively, and explain budget cuts and changed priorities. The spokesperson must be able to face the criticism of the media and public and be skilled at the artful explanation of news that has a very high likelihood of being interpreted as negative. This exercise was a little scary, even though it was just "pretend."

The rest of the session picked up on the themes of this exercise, featuring a panel with representatives from the world of philanthropy (Deborah Vesy of the Deaconess Community Foundation and Randell McShephard of RPM International Inc.), the government (Chris Warren, Chief of Regional Development from the City of Cleveland), and the media (Bruce Hennes of Hennes and Associates). 

Mary Beth Carroll from FirstEnergy coordinated the discussion in which several of the panelists described the movement of the last seven years towards regional collaboration, highlighting the philanthropic community's growing interest in scalable projects that are helping the region to come together and to thrive, as opposed to individual, discrete projects or programs. They also noted that regionalism (formerly a dirty word in the area) has grown in appeal among government entities and grantmakers. Programs like the Fund for Our Economic Future's Voices and Choices demonstrate an interest in airing the concerns, needs, and ideas of all people within our region in an effort to bring us together.

So, perhaps our attempts at regionalism are beginning to gain traction, but who sets and communicates the agenda? According to Bruce Hennes, it's not the local media. The days are over for the newspaper to set the civic agenda. The media's job is to tell stories, but with limited budgets and staff, organization's cannot wait for the media to discover them. The message was clear: organizations need to focus on getting their own stories out there, to the local newspaper, yes, but also through e-mail, social media, Internet, blogs, and popular radio shows. 

As we learned in our city council exercise, the hardest part in creating meaningful change is "getting your story straight."  Whatever the collaborative effort, it will wither without clear expectations, communications and public awareness, whoever your public might be. 

--Dave Holmes, Regional Training Coordinator, Foundation Center-Cleveland

Read my other Civic Leadership Institute posts here and here.

Listen! John Beahm Discusses Jenzabar Foundation's Support for Student Humanitarian Work

John Beahm, executive director of the Jenzabar Foundation, discusses the foundation's investments in education aimed at fostering a culture of service and educating and inspiring future generations to create a better world. Listen!

June is Funding for Education Month at the Foundation Center. Check out our Focus on Funding for Education page for more podcasts, news, and resources.

From The Answer Desk: How Much Should My Nonprofit Have in Operating Reserves?

A: Keeping cash in reserve for a "rainy day" may seem like a luxury during an economic downturn, but maintaining a nest egg might ensure your organization's long-term financial health.

The Nonprofits Assistance Fund, a Minneapolis-based nonprofit whose mission is to build financially healthy nonprofits that foster community vitality, provides this explanation of how an operating reserve works:

[A]n unrestricted fund balance set aside to stabilize a nonprofit's finances by providing a “rainy day savings account” for unexpected cash flow shortages, expense or losses. These might be caused by delayed payments, unexpected building repairs, or economic conditions.

Reserves should not be used to make up for income shortfalls, unless the organization has a plan to replace the income or reduce expenses in the near-term future. In short, reserves should be used to solve timing problems, not deficit problems.

A commonly used reserve goal is 3-6 months' expenses. At the high end, reserves should not exceed the amount of two years' budget. At the low end, reserves should be enough to cover at least one full payroll.

However, each nonprofit should set its own reserve goal based on its cash flow and expenses. Organizations that have contracts or fees with regular and reliable payments don't need as much in cash reserves as organizations that rely on periodic grants, fundraising events or campaigns, or seasonal activities.

To be a viable operating reserve, there should be a board agreement and policy about how reserve funds can be used: When they can be used, who is authorized to use them, and how this is reported to the board.

To learn more about this topic, selected resources below may be helpful.

Web Resources

Nonprofit Operating Reserves Initiative Workgroup, NCCS: Maintaining Nonprofit Operating Reserves: An Organizational Imperative for Nonprofit Financial Stability [PDF]
This white paper contends that many nonprofits have inadequate operating reserves, argues why a reserve is vital for financial stability, and offers tips on how to start creating one.

Nonprofits Assistance Fund: The Yin and Yang of Operating Reserves: What You Need to Know [PDF]
Executive director Kate Barr advises on how large a nonprofit's operating reserve should be and how to fund it. Includes a table that aligns an organization's income characteristics with a recommended amount of reserves.

iKnow: Criteria for Nonprofits' Operating Reserves
This brief article by Thomas J. Raffa defines operating reserves and presents circumstances in which a nonprofit should plan for a larger reserve.

Nonprofits Assistance Fund: The Cash Reserves Myth
Kate Barr argues that a 3-month minimum of operating reserve may not suit all nonprofits. Instead, each nonprofit needs to analyze its cash flow, then create a workable and customized policy.

Nonprofit Times: Nonprofits and Squirrels
Richard F. Larkin, CPA, discusses how to decide on the size of your nonprofit's operating reserve.

Books & Articles

• Cash flow Strategies: Innovation in Nonprofit Financial Management by Richard Linzer and Anna Linzer (2008)
• "Improving Cash Flow Management in Challenging Times: A Primer" by Murray Dropkin, Nonprofit Quarterly vol. 10 (Summer 2003) p. 34-41.
• "Make Working Capital Work" by Susan Kenny Stevens, Foundation News & Commentary vol. 41 (July-August 2000) p. 42-5.

Do you have questions? Ask Us!

(This post is from Sandy Pon, virtual library/learning center specialist at the Foundation Center)

Listen! Bruno Manno Discusses Annie E. Casey Foundation's Investments in Education

Bruno Manno, Ph.D., senior associate at the Annie E. Casey Foundation, discusses the key role that schools play in advancing the foundation's efforts to improve outcomes for families and children. As the lead in the foundation's education portfolio, Dr. Manno shares information about the foundation's experiences investing in programs that give low-income parents the opportunity to send their children to high quality schools and to get services that strengthen their community-school connections. Listen!

June is Funding for Education Month at the Foundation Center. Check out our Focus on Funding for Education page for more podcasts, news, and resources.

This Week at the Foundation Center (June 15 - 19)

Classes:

Wednesday, June 17:
Mining Education Data for Proposal Development. Learn the basics of proposal writing and meet Joy Brewington, data analyst, Catalyst Ohio, who will discuss how to access data being captured by Catalyst that may enhance the need statement of grant proposals to education funders, 1:00 - 3:00 pm.

Thursday, June 18:
Grantseeking Basics with an introduction to the Foundation Directory Online. Learn how the Center's resources can help you become a more effective grantseeker! For beginners, this introduction to the library provides instruction in foundation research and identification of potential funders, 10:00 am - 12:00 pm. 

Prospect Research Basics. Learn how to use Internet resources to help find information on prospective individual donors, 1:00 - 2:00 pm.

Friday, June 19:
Dialogue with Donors: Focus on Education Policy and Reformfeaturing Dr. William Hiller and Dr. Helen Williams at the Idea Center at Playhouse Square. Network with colleagues and meet two key leaders in the local philanthropic community’s movement towards promoting an effective educational agenda, 9:30  - 11:00 am.

Library Hours:
Monday: 12:00 - 4:30 pm
Tuesday: 9:30 am - 4:30 pm
Wednesday: 12:00 - 4:30 pm
Thursday: 9:30 am - 4:30 pm
Friday: 12:00 - 4:30 pm