How Do Community Foundations Work? Leveraging the Community for Smart Giving

Community foundations play a pivotal role in supporting philanthropy, offering flexible platforms for charitable giving, and enabling donors to contribute to a wide range of community needs—but how do community foundations work?
Community foundations allow donors to make lasting changes in their communities by facilitating growth, scaling impact, and creating infrastructure for the future. They connect communities with charitable organizations and help donors find ways to give, acting as an essential bridge between philanthropic efforts and the people who need them.
In this article, we’ll talk about how community foundations operate, the benefits they provide, and how donors can get involved in smart giving through organizations like Greater Houston Community Foundation. Continue reading to learn more about how community foundations work, or contact us today at 713-333-2210 to start giving!
Key Insights
- Community foundations are tax-exempt, public charities that serve the needs of specific geographic regions and bridge the gap between donors and communities in need of support.
- They rely on public support from a broad donor base, manage various funds for ongoing community support, and possess deep local knowledge to direct resources effectively.
- Unlike private foundations, which are typically controlled by a single entity or family, community foundations pool resources from multiple contributors and are controlled by a board of local leaders.
- Community foundations offer donors a variety of giving options, including donor advised funds, scholarships, and field-of-interest funds, providing flexibility in how contributions are allocated.
- Donating through a community foundation, like Greater Houston Community Foundation, gives you the benefit of local expertise, harnesses collective impact, and can help you reap significant tax advantages.
Table of Contents
- What is a community foundation?
- How does a community foundation work?
- How do foundations operate?
- What are the benefits of giving through a community foundation?
- Partner with Greater Houston Community Foundation
What is a community foundation?
Community foundations are 501(c)(3) tax-exempt public charities designed to serve the needs of a specific geographic region. They represent an important part of the larger philanthropic landscape because of their deep local knowledge and network of resources, which help them bridge the gap between donors and nonprofit organizations who need support.
What are the objectives of a community foundation?
Community foundations are built to serve the areas in which they are formed and the communities that inhabit them. They accomplish this by helping make sure that resources are directed where they are needed most and creating a network of people invested in their region’s well-being.
Below are a few key characteristics of community foundations to remember. Continue reading for more in-depth explanations.
- Public support: Community foundations get their funding from a broad base of donors.
- Management: They create and manage funds to provide ongoing support for the region. Many community foundations also have foundation services to support existing foundations and nonprofits in their areas.
- Local expertise: Community foundations are deeply embedded in their communities, allowing them to identify areas of need and direct resources toward them.
- Flexibility for donors: Donors working with community foundations can contribute to several causes using a wide range of giving vehicles, like Donor Advised Funds (DAFs), helping donors address their community’s needs while meeting their individual philanthropic goals.
What’s the difference between private foundations and community foundations?
Unlike private foundations, which are usually controlled by a single entity or family and run by those who work for them directly, community foundations take donations from multiple contributors, pool resources, and facilitate giving to address community needs specifically.
This facilitation most often occurs in distributing grants to local nonprofits and charitable programs that address vital community needs and issues. Another important distinction between private foundations and community foundations is deep geographical knowledge.
Remember that not all community foundations are the same, and their objectives and structures will vary from organization to organization.
How does a community foundation work?
Community foundations are governed by a board of directors generally comprised of community leaders with particular knowledge or experience in the region. The board’s goal is to ensure that the community foundation operates in a way that aligns with its mission and that funds are managed properly and efficiently for the benefit of our donors and clients. While the board has the final say on decisions for the organization, community foundations are unique in allowing donors to have significant input into how their donations are distributed.
Community foundation examples: Giving Vehicles
That flexibility we alluded to comes first in the form of giving vehicles. Community foundations offer their donors many ways to give to ensure that their donations work for them and create the greatest impact in the communities they support. Here are a few common giving vehicles offered by community foundations:
- Donor advised funds. DAFs are commonly the most popular tool offered by community foundations. They allow donors to contribute assets, receive an immediate tax deduction, and make recommendations about how they would like to see that money used.
- Scholarships. Scholarships allow donors to make a difference in specific geographies or for specific educational purposes, which will last and reinvest itself over generations.
- Field-of-interest funds. These funds allow donors to contribute to specific areas of interest, like healthcare, criminal justice reform, or disaster relief.
Continue reading:
What is a donor advised fund?
How to start a scholarship fund
Where does the money come from?
Community foundations are typically supported by a diverse network of local donors and funding sources, which can include:
- Individuals and families: From individual donations to families known for their philanthropic generosity, local people are the bedrock of community foundation support.
- Corporations: Businesses often partner with community foundations to support causes that align with their company culture or to create and manage corporate giving programs.
- Planned giving and estates: Donors can leave a legacy by including community foundations in their estate plans.
- Other foundations: Large foundations also provide grants in partnership with community foundations to support regional philanthropy.
How do foundations operate?
Let’s outline, in broad terms, how community foundations generally operate. Although community foundations can fit into many situations to solve various complex philanthropic problems, their main functions consist of grantmaking, managing funds, and managing other charitable giving vehicles such as private foundations and supporting organizations, sometimes in collaboration with other local entities.
- Fundraising and development. Though community foundations are philanthropic organizations, they are also nonprofits that need to fundraise to support their operations and expand their impact.
- Grantmaking. Grantmaking is one of the core functions of any community foundation. Greater Houston Community Foundation’s grantmaking is donor-driven, which means contributors all have a direct say in how their funds are distributed.
- Collaborations with local nonprofits. One of the main benefits of working with a community foundation is the proximity to local organizations. These collaborations often extend beyond grantmaking including disaster relief efforts, community impact projects, and long-term development initiatives.
- Ongoing management and investment strategies for long-term growth. To amplify impact, funds held by community foundations are typically invested for long-term growth. With experienced fund managers at the helm, community foundations put themselves in a position to continue to make grants with an eye toward the future.
Keep reading about strategic philanthropy
What are the benefits of giving through a community foundation?
Giving through a community foundation can both unlock philanthropic freedom and increase the impact of your giving. Here are a few ways how:
- Local expertise. The wealth of knowledge brought to the table by Greater Houston Community Foundation can help make sure your donations are used as effectively and impactfully as possible.
- Flexibility and customization. Community foundations allow you to structure your giving in a way that supports your philanthropic goals. You can often gift complex or appreciated assets through a community foundation, which can be much harder to donate on your own. For further flexibility, Greater Houston Community Foundation offers third-party management for funds of $500,000 or more.
- Collective impact. Leveraging collective assets gives the Foundation the ability to make a larger impact than donors would make on their own.
- Tax benefits. The relationship between charitable giving and financial planning is a complex one, but giving allows donors to deduct large portions of their adjusted gross income and can result in extensive tax benefits.
- Accepting non-cash and unique assets. Working with Greater Houston Community Foundation gives you the freedom to give exactly how you see fit. You can simplify your estate significantly by donating retirement assets, business interests, art, and more.
How do community foundations work? By connecting donors to local interests.
Greater Houston Community Foundation empowers donors to maximize their charitable impact. With tailored solutions and expert guidance, we help donors create customized giving plans that meet their unique needs and help them make a difference.
Whether you want to start a donor advised fund, create a corporate giving program for your small business, or need consulting services for your foundation or organization, Greater Houston Community Foundation can help.
Get involved with Greater Houston Community Foundation by giving us a call at 713-333-2210 or reaching out directly to get started.
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