They manage more than $30 billion in assets and were responsible for more than $2 billion in charitable giving in 2000. More than 550 of them are located in the United States alone, representing both major metropolitan areas and rural neighborhoods. They're community foundations, and they play a key role in the nation's philanthropic process. But what exactly do they do?

Community foundations exist as a  means for local citizens to make a difference in their communities, managing funds to ensure that every charitable dollar contributed generates the greatest possible impact over an extended time. They represent the varied interests and objectives of their donors, matching them up with like-minded charities in the community. Contributions made to a community foundation are used to build permanently endowed funds for philanthropic purposes. The income generated by these endowments is then used to make grants to local nonprofit organizations. This process ensures that a charitable gift given today will continue to have a positive effect on the community well into the future.

Donors often turn to community foundations as a way of making the most of their donations and to take advantage of the services and knowledge offered by professionals with expertise in local and financial matters. Often, funds are established in the name of a loved one as a lasting memorial that benefits the entire community. Community foundations manage these funds, whether large or small, maximizing the impact they have on society.

Although money is the most common contribution, community foundations accept many different types of donations, including real estate, artwork, and stocks. There are also several different kinds of funds that can be set up, each designed to meet the intentions of the donors that establish them.

Unrestricted funds are designed for donors who want to help their community but don't have any specific cause or organization in mind. The community foundation is given the authority to allocate grants as it sees fit. This type of fund gives community foundations the capital needed to enact long-term solutions to social problems as well as respond quickly to emergency situations.

Donor-advised funds give donors the chance to have a say in the decision-making process. Although the community foundation handles the final decisions, donors may make recommendations as to how much money goes where. Foundations will generally do their best to enact all suggestions. Field of interest funds allow donors to specify a field of interest to be supported, without specifying individual charities. The foundations then make grants to appropriate local organizations serving the designated need.

Designated (restricted) funds are similar to donor-advised funds. Donors, however, make their recommendations for grant dispersal when they establish the fund, rather than making multiple suggestions over time. Often, this type of fund is set up as a means of supporting a single organization over an extended period of time.

Scholarship funds are created to support academic excellence and support local students. Donors can designate criteria for awarding gifts to scholarship applicants.

Agency endowment funds are established by nonprofit organizations in the interest of building their own endowments. Income from these funds provides the organizations with a source of revenue they can rely on, increasing self- sustainability and financial security.

Administrative endowment funds are pledged to support the community foundation itself, specifically day-to-day administrative operations. Donors set up this type of fund as a means of assisting the foundations in all of their projects, building up infrastructure and reducing the fees charged for fund management.

Requirements and procedures for starting a fund of your own vary from foundation to foundation. It's probably a good idea to contact your local community foundation if you're interested in finding out more. Although they may not be for everyone, community foundations offer useful solutions for civic-minded donors looking to make a difference through philanthropy.

Patrick Ferraro, October 2002
© 2002, Philanthropic Research, Inc.