Southern Ontario Library Service

Considering a Parallel or Special Interest Foundation for Your Public Library - Part 1
(Originally in SIGNAL, Fall 1999)
 

By Rob Lavery, SOLS Resource Development Consultant
 

Over the past year, a number of libraries have made enquiries for information that would help them in their deliberations around creating a parallel foundation for their library. This is a complex issue, and as such, there is no one clear path to determining what is the right thing to do. There are a number of success stories - libraries which have created foundations, and are happy with that set-up. For the purposes of this article, I have tried to point out some of the areas to be considered in making a decision in this area.

What is a Parallel Foundation?

Revenue Canada describes two kinds of foundations: a public foundation and a private foundation.

According to Revenue Canada a public foundation is a charity with a primary purpose to fund other organizations that are qualified donees. It may carry out some of its own charitable activities. Less than 50% of the charity’s directors or trustees can be related persons, and at least 50% of its funding is received from donors who are not related persons. A public foundation has to be established either as a trust or corporation.

A public foundation is an organization, usually constituted as a corporation, created from designated funds from which the income is distributed as grants to not-for-profit organizations, or individuals. A parallel foundation or special purpose foundation is one of many kinds of foundations that would fall under public foundations. These include: charitable foundations, community foundations, corporate foundations, general-purpose foundations, operating foundations and public charity foundations.

A parallel or special purpose foundation for a public library would have in its articles of incorporation that it actively fundraises to provide financial support for the named library, and usually no other organization.

Why a Foundation?

There are three main reasons why a public library would consider establishing a foundation.

With a foundation model, it is very clear that the responsibility for fundraising rests with the Board, staff and volunteers of the foundation, and not with the library. The mandate of the foundation is clearly laid out - to raise money for the library, and staff and volunteers are recruited for that purpose.

•  to establish an endowment, accumulate an asset

There are different dispersement rules for foundations which allow them to accumulate assets where a charity cannot unless under special circumstances. If the library were planning a capital or endowment campaign, the foundation would be able to hold the money over time.

Fundraising can be expensive, especially at the beginning of a program. If the library were to account for these expenses in their own books, it could scew the public’s perception of how they were spending taxpayers’, funders’ and donors’ money. With a foundation, all the expenses would show on its books. Conversely, the campaigns would would be credited to the foundation, and funders wouldn’t adjust downward attributions to the library because of fundraising success.

Establishing a foundation can take as long as two years from first approvals to the final steps. This is definitely a long-term commitment. Any library board undertaking deliberations regarding establishing a foundation, would be wise to take precise notes of their investigations and reasons for making certain decisions. Since the process could take two years, membership on the board could change, priorities could change and views could waiver. Think of future boards inheriting your decisions, and make sure your logic is spelled out for them.

The following list is a basic outline of a timetable from initial Board approval to the establishment of a new Board responsible for the foundation created.

• Board approval in principal, addressing strategic decisions and directions
• prepare Letters Patent for the Public Trustee (approval, 8-10 weeks)
• register Letters Patent to Ontario Ministry of Consumer and Commercial Relations (processing, 12-14 weeks)
• prepare Application for Registration of Foundations as a Canadian Charity, with supporting documentation including constitution and by-laws
• application to Revenue Canada (processing, 4-7 months)
• receipt of Charitable Status
• recruit slate of Directors
• establish mission and values for foundation
• create annual plan: operations plan, marketing and communications plan, funding  development plan

At each step, questioned or rejected submissions must be addressed and would hold up the process even longer. Also, much work goes into the development of each document to be submitted, usually with the help of legal council. The time lines suggested above are only for the processing agencies’ time, not for the Foundation Working Group’s document development time.

The are many reasons for a library to consider the time and expense of establishing a foundation. But, establishing a parallel foundation is not for every library. The following is a brief list of the pros and cons of creating a foundation.

Upside

Having a parallel foundation:

• allows the charity to build assets separately from the charity it supports;
• protect valuable assets, such as property, by distancing director’s liability;
• promotes a charity’s long-term viability (an important consideration for potential major gift donors and contributors to an endowment);
• allows the charity to focus on program and operational issues;
• gives an organization two sets of directors with different skills (fundraising experience, money/asset management, business skills);
• allows a separate organization to hold charitable status, and perform the administrative duties such as issuing charitable receipts;
• allows the administration costs to be born by the foundation, enabling the charity to improve its efficiency;
• takes the cost of fundraising away from the charity’s limited tax dollars;
• offers the clarity of running two separate businesses with two sets of books to ensure no  co-mingling of accounts;
• provides for a sense of trust conveyed to donors through protected funds;
• broadens your base of volunteers, attracting different volunteers through different activities; and
• gives a clear way of handling endowments and bequests.

Setting up a foundation isn’t going to magically produce results for your library. Doing the paperwork to establish the entity is not going to generate a funding development program if one doesn’t already exist. Establishing a parallel foundation is a good model when there is a natural progression from a mature fundraising program with dedicated staff and volunteers into a separate board and administration. If no one has taken responsibility for fundraising in your library at this point, establishing a foundation is a long and expensive process to go through to create a fundraising program.

Also, a foundation:

• means having a separate board of directors working for the same charity which could result in:
• the potential for conflict over priorities;
• influence in program and service direction;
• influence in how money should be spent;
• additional work for support staff; and
• giving up control of funding programs to an autonomous board.
• could create a lack of clarity around amalgamations resulting in challenges such as
• where is the money going, which branch?
• will the money go to benefit other organizations outside the library?
• in the short term could mean that costs are prohibitive in administering the fundraising program;
• takes a long time to set up;
• takes a long time to reach financial viability, sometimes as long as 7 years from inception to maturity;
• creates the perception of donors and potential donors of not giving directly to the charity;
• creates a fear of loss of control of funds with restrictions on its asset; and
• results in a primary responsibility for asset management.