What is a Community Foundation?

A community foundation is a tax exempt, nonprofit, publicly-supported, philanthropic institution with the long-term goal of building permanent, named funds for the broad-based charitable benefit of the residents in a given area.

The common mission of every community foundation is to enhance the quality of life in the local area. Community foundations carry out this very broad mission by building a permanent endowment fund and using the annual income to support a variety of local nonprofit organizations through grants and special projects.

The first U.S. community foundation, The Cleveland Foundation, was founded in 1914 by lawyer and banker Frederick H. Goff, whose vision was “to pool the charitable resources of Cleveland's philanthropists, living and dead, into a single, great, and permanent endowment for the betterment of the city.” Goff believed that that philanthropists should be accountable to the people who lived around them; together with his wife Frances, he came up with the idea of a “community trust,” a permanent endowment that would earn interest, which community leaders would distribute in ways that made sense for the city’s changing needs.

Community Foundations vs. Private Foundations

“Private foundations” is an umbrella term that includes independent, family, corporate, and operating foundations. Like community foundations, private foundations are classified as tax-exempt charitable organizations by the IRS. Private foundations do typically serve the public; the “private” refers to the fact that they don’t raise funds from the public; their money comes from a much smaller base, like a family or even an individual. Private foundations make grants from their endowments based on whatever qualifications they choose for themselves. Some prominent private foundations include The Bill and Melinda Gates Foundation, the Coca-Cola Foundation, and the Rockefeller Foundation.

Some private foundations maintain grant programs, where nonprofits and other public charities can apply for and receive funding to do their work, while others leave decisions about where and what to fund based solely to the donor. On the other hand, virtually all community foundations maintain grant programs. Naturally, these programs focus specifically on nonprofits doing work in the region in which the community foundation is based, whereas private foundations can make grants to whoever, wherever they want. This local focus keeps the foundation accountable to the actual people they serve. It also means that a community foundation will have close relationships with local nonprofits and can get their input on what’s needed most, which is a key benefit for donors who want to ensure they’re making a real difference.

For donors, setting up a fund at a community foundation can have a lot of benefits over setting up a private foundation. The creation process for a donor-advised fund is much simpler and lower-cost, and you can keep your fund anonymous if you wish. These funds allow for more favorable tax deductions, and your investment income is not subject to excise taxes, as is the case for private foundations. Community foundations also have no minimum distribution requirements.

Perhaps most importantly, a community foundation comes with a staff and board made up of committed, expert members of the community who can help clarify your giving goals and maximize your impact.