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About Charitable Grants
What are charitable grants?
Charitable grants are cash or in-kind gifts to nonprofit organizations from a funding organization gifted in order to achieve a charitable purpose. Charitable purposes include goals such as improving services to people living in poverty, performing research to discover treatments and cures for diseases, creating a vibrant community life through arts programs, or building the capacity of a nonprofit organization to meet its clients’ needs by upgrading a computer system.
(For information on distinguishing charitable grants from sponsored projects, please see Getting Started with Grantseeking.)
Who makes charitable grants?
- Foundations: nonprofit organizations that give away money to achieve charitable goals.
- Corporations: businesses giving back to society and customers through charitable contributions and investing in communities where they operate or have customers.
- Other organizations: professional associations, donor-advised funds, giving circles, etc. usually organized to support a specific goal of the individuals involved in the organization (such as scholarships or medical research).
How big a force is the charitable grants sector?
- Nationally, there are more than 92,000 granting foundations.
- Together, in recent years, they have donated more than $42.9B a year.
- In Arizona, there are more than 1,100 grantmakers.
- Since 2003, Arizona non-profits have received more than $100+ M in foundation grants.
Why do organizations make charitable grants?
Corporations give for a variety of reasons, including:
- to improve employee relations and quality of life for employees and customers
- to exercise enlightened self-interest (providing grants to a university from which employees are often recruited, for example)
- to advance knowledge in a field relevant to their business (research)
- to garner publicity and recognition
Foundations are generally established explicitly to donate money (a few instead operate programs)—they are in the business of giving. In exchange for a privileged tax status, foundations must benefit society. The IRS requires that private foundations pay out 5% of their assets annually for charitable purposes. Often foundation giving patterns follow the wishes of the founder, priorities of current board members, or the advice of professional foundation staff.
In many cases, foundations see their role as fostering good ideas—social, scientific, educational, technical or other forms of innovations—that might not get supported by the business community (constrained by the needs of the market) or by government (constrained by politics). This freedom to make a difference in society through charitable investments is what accounts for the collective name used to describe foundation grantmakers: the “independent sector.”
Foundations seem to have a lot of strange rules. Why is that?
Foundations operate within the context of tax law, their own founding charters and traditions, the vision of their leadership, and the reality of the places and people they try to help.
Legal Context. Tax law accounts for a number of “strange rules.” For example, though there are exceptions, most foundations give only to U.S. organizations tax exempt under section 501(c)(3) of the Internal Revenue Code in order to ensure in a simple way that their giving is “charitable” in nature and will not raise questions at the I.R.S.
Traditions. The founding charters and traditions of a foundation often set the parameters of its giving program. For example, a founder may have determined that the purpose of the foundation is to “foster the arts in Cleveland.” In that case, even if the founder passed away many years ago, current foundation trustees and staff will continue to fund organizations that foster the arts in Cleveland, though they may have the flexibility to branch out to surrounding communities or other types of programs, depending on the nature of the foundation’s charter.
Vision and Adapting to Address the Issues of Today. The vision of a foundation’s leaders—trustees on the foundation’s governing board and/or professional staff members—and how that vision plays out on the ground today are also crucial. Foundations can evolve in their strategies and mission, from, for example, a 19th century founder’s interest in providing aid to “widows and orphans” to supporting better education for refugee children today. Many foundations try to apply their grant dollars, significant indeed but minor compared to government spending or business investment, where they can have the most impact to solve problems.
Why don’t they have just one grant application that they all use?
It’s a grantseeker’s dream, but unfortunately not reality. There are common applications developed for grantmakers in different regions (including Arizona), and often these applications are very well done, but the number of grantmakers who accept them is limited.
There’s a saying in this field: When you’ve seen one foundation, you’ve seen one foundation. Although they all follow certain legal rules and often share certain philosophies (such as a focus on innovation), foundations are as individual as people. Some are adventurous, some conservative. Some prefer to focus on local issues; others look to national or even global problems to solve. They generally have individualized grant guidelines, forms, deadlines, and processes. It truly is an independent sector.
What do foundations generally support?
There is no real limit—foundations will fund any number of great ideas as long as they meet the foundation’s charitable mission and priorities. However, it’s important to keep in mind what foundations generally do and do not support.
Although there are always exceptions, generally, foundations do not support endowments. Oftentimes a foundation’s main source of funds to grant out is its own endowment. Grantmakers generally prefer not to release money from their own endowment into another endowment, but rather see the investment go to work immediately.
They generally prefer to support programs (especially new ones or expansions/innovations of existing ones) rather than to fund operations, which are seen as the core expenses of an organization that should not be subject to the vagaries of charitable grants.
In addition to programs, foundations will sometimes provide funds for equipment purchases (or occasionally donate equipment or other goods or services in kind), capacity building projects, capital expenses, and seed money.
A few ideas to keep in mind about charitable grants. They:
- rarely substitute for basic sources of operating funds
- are best thought of as supporting innovations, a margin of excellence, and special projects
- should be part of a balanced funding program.
- typically support innovations, start ups, expansions, or other short-term projects and are not usually a source of long-term funding