Considering a Parallel or Special Interest Foundation for Your Public Library - Part II (Originally in SIGNAL Spring 2000)

by Rob Lavery, SOLS, Funding Development Consultant

Alternatives and Case Studies

In Part I of this two-part article on parallel foundations (Signal, Fall 1999) we looked at: what a special interest or parallel foundation is; why a library would chose to establish a foundation; the work involved in creating a foundation; and, some of the positive and negative elements of this undertaking.

In this article we’ll look at some of the alternatives to foundations that libraries have chosen to achieve their goals. There is a whole spectrum of options from which to choose. This is not meant to take the place of researching the best option for your own purposes – merely an overview to help you in your decision-making. These are complex legal and financial vehicles and deserve to be thoroughly investigated by your own team.

Also, this is not a decision that can be made completely independently. The municipality should be involved in the decision-making. A simple option is to create a reserve fund within the municipality with funds ear-marked for the library. The library board may decide that a parallel foundation is the model that best meets their long-term needs. This may require approvals at council to allow the library board to undertake incorporation of a foundation using the name of a municipal agency, and to list in the letters of incorporation that they will be raising funds to support the work of the library. So when you set out to do your research, one of your first calls should be to the municipality.

 Reserve fund

The reserve fund option is probably the most commonly used by public libraries. The designated funds accumulate in an account administered by the municipality on behalf of the library. The reserve fund offers the library and the board one of the most carefree options, with the municipality taking on the responsibility for managing and investing the asset, as well as processing any gifts and issuing charitable receipts.

The fund could have resulted from a gift from a donor, or a particularly generous council wanting to start the "pot" for a future capital project. In the case of a directed donation, the money must be used as directed by the donor. So as long as the library board is aware of the donor’s wishes, they can monitor the use of this fund. However, if the asset is funded by council for a future project, there is no guarantee that the municipality isn’t going to change its mind on how exactly the money gets spent. This is not meant to ring alarm bells, merely it’s meant as a word of caution, especially directed to libraries which have accumulated assets in reserve funds and are headed into a period of amalgamation.

A reserve fund is a good passive vehicle in place for any donation directed to the library which requires a charitable receipt. A Friends group could take on the responsibility of the fundraising program centred on a roster of activities that don’t require receipting such as book tables and craft sales. If that were the case, the Friends group would not require its own charitable status.

 Trust Fund

Creating a trust fund as an asset-building vehicle is another option for some libraries. This creates some distance between the library and the municipality, as the library and/or donor nominate trustees to the fund, and it’s the trustees of the fund who have ultimate control over the asset. A trust fund often comes into play during a capital campaign where the campaign cabinet and the library board have cross-appointed trustees to share in the responsibility of managing the money.

As a longer-term model to allow the library to actively fundraise, it’s perhaps not a good option. As one library found out, it’s difficult to convince Revenue Canada that a trust fund should qualify for charitable status. The result of that situation is that if a donor wishes to contribute to the trust fund, the library would still be dependent on the municipality to issue the charitable receipt. And the municipality might not be willing to take on the administrative burden of processing donations if they get no benefit from managing the asset.

There is also a complication with the relationship between the library and the trust fund. There may be restrictions around how the trust fund supports the library with donations. As we encountered with Friends groups, there are complications around ownership of the donated goods.

 Community Foundation

I will declare my bias up front – the Community Foundation option is, in my opinion, the best option for most libraries. The more I explore the issue, the more I’m convinced that – if you’ve got a Community Foundation in your area – it’s the way to go. It offers a low maintenance opportunity that will have the least impact on your already stretched resources. It is a great vehicle for libraries to accept bequests and major gifts, and to establish an endowment fund.

Hamilton Public Library (HPL) has a great relationship with its Community Foundation. HPL did a lot of work in researching the various options for establishing a permanent endowment fund. And they have been very generous will all the information they accumulated. I have found that it’s not easy researching this information, and the HPL experience has been invaluable.

Community Foundations exist in over 60 centres across the country. Their purpose is to serve their communities and their charitable needs, and to contribute to the achievement of a better community. They achieve this through a pooled endowment. The capital is owned by the foundation and held in perpetuity. The income from the endowment is available to meet the needs of the community at the discretion of the foundation board, or the donor.

A full range of services is offered by the foundations. Administration such as processing gifts and issuing charitable receipts, investment services, audits and tax returns, and recording and reporting could be offered by the foundation to ease the burden of managing those tasks internally. They also offer a range of relationships – managed capital funds for directed gifts, permanent endowment funds for community agencies, and general unrestricted funds.

One of the other major benefits of housing a designated fund within a community foundation is the pooled capital. Libraries would benefit from being part of a large, diversified portfolio that offers better returns and lower management fees than they could achieve as an independently managed fund.

Another benefit of being a part of a community foundation is the fundraising expertise available through the foundation. A community foundation is in the business of investments and building assets, as well as marketing its benefits to the community and undertaking its own fundraising program. The library would benefit from an increased awareness of the foundation and their part in it, as well as an association with the special expertise the foundation is able to draw on.

I’ll let my colleague Beth Hovius from Hamilton Public Library enthuse in her own words about HPL’s relationship with its community foundation.

"Hamilton Public Library (HPL) researched the possibility of establishing an independent parallel foundation quite extensively, and decided in the end to create a fund at the Hamilton Community Foundation (HCF), specifically for bequests and large donations designated for future use.

"The HCF provides all the fiduciary, legal and investment responsibilities leaving the HPL Board to spend the income. Since the HCF has over $40 million in assets, it can diversify its investments more than HPL could with its own foundation. The Community Foundation provides the library with an annual report indicating the income available. The Board allocates these funds according to the donors’ wishes.

"HCF also enjoys a high profile in the community from which the library can benefit. The community fund assets are distinct from the managed funds which HPL has invested with HCF."

Community foundations are popping up all over the province, as communities recognize the value of a centralized community fundraising vehicle and endowment fund. You can find out more information about this option at the Community Foundations of Canada Website at www.community-fdn.ca . There is information on establishing a community foundation, and what benefits a community foundation offers.

 Parallel Foundation

The decision to establish a parallel foundation can be prompted by a number of things, but should always follow a period of thorough research on structures and models of foundations and their alternatives. There are a number of public libraries that have chosen this option, and I’d imagine most would be willing to share their research.

As we discussed in the earlier article, foundations take a long time and considerable expense to set-up. One of the most common reasons to choose the foundation model occurs when the library receives a major gift, a bequest or an endowment gift. A large gift ensures that the foundation is financially viable from the start. If the library does not have an immediate need for the donated funds, libraries can use these large gifts to meet longer-term goals. A foundation allows the library to build assets over time while they plan their uses of the funds.

Another reason for the library to decide on a parallel foundation is to delegate the responsibility to raise money in the community to a separate but related organization. Even within the parallel foundation model there are a number of ways to structure the relationship between the library and the foundation: the number of cross-appointments between boards and staff; who takes responsibility for the administration of the foundation and gift processing; and, how the fundraising activity gets divided up – if in fact it is intended to divide different program activities between the library, the Friends, and the foundation board.

As I’ve suggested, there is a number of ways libraries can structure their relationship with a parallel foundation. As one example let’s take a closer look at the Kitchener Public Library Foundation.

The Kitchener Public Library Foundation was established in 1994, as the first parallel foundation for a public library in Ontario. The Kitchener Public Library Board created the Foundation as an independent charitable organization, with a mandate to raise funds to support the development of public library services in Kitchener, and foster community goodwill.

The Library Board recognized that traditional sources of funding could only satisfy the demand for core library service, and that other sources of funding needed to be developed to support the costs associated with new initiatives. The Foundation was established as a timely response to the funding challenge with a volunteer Board of Directors. The funding priorities for the Foundation are drawn from the library’s strategic plan. KPL’s CEO sits on the Foundation Board as Secretary, and two other staff members participate as board members.

The Foundation undertakes fundraising in a number of ways including planned giving and major gifts, and also runs an annual campaign consisting of special events, donor recognition events and information sessions. The Foundation Board has a number of sub-committees that take responsibility for these program areas. KPL provides administrative support to the activities of the Foundation’s volunteer board.

The Foundation takes responsibility for administering two endowed funds: the Edna Staebler Writer-in-Residence program; and, the Kitchener-Waterloo Montessori School’s Endowment for Children’s Literacy. The income from these two funds goes toward the annual programs.

More information about the Kitchener Public Library Foundation can be found at:   http://www.kpl.org/foundation

If you have any questions regarding establishing a foundation, or choosing the option that best suits your long-terms goals, please do not hesitate to contact me (1-800-387-5765, ext. 5137 or rlavery@sols.org. Also, I am certain that any of the libraries that have established parallel foundations would be happy to share with you their experiences. I would like to thank Beth Hovius at Hamilton Public Library, Elizabeth Orton at Community Foundations of Canada and Cathy Matyas at Kitchener Public Library for their assistance in preparing this article.