Summer 1996

Putting a New Spin on Philanthropy
How Some Young Foundations Are Redefining Community

A handful of young foundations in Minnesota are putting a new spin on the traditional community foundation model.

Historically, the focal point of most community foundations' missions has been tied to a geographic area, with the foundation giving to a wide range of causes and charities within a specific city, state or region. But for several relatively new foundations in Minnesota, the primary focus of their giving is a community of donors and grantees defined not so much by geography but by a common interest or affinity -- be it religious, philosophical or cultural.

Sometimes referred to as issues-oriented foundations or affinity foundations, these new organizations fit the traditional community foundation model in most other ways. They can offer donors the same range of giving options and the same tax advantages, and fall into the same IRS classification. They represent a tiny fraction of total grantmaking organizations and dollars, with most created in just the last ten years or so, but their numbers are growing. Their missions and interests are as diverse as you can get, yet they all strive to meet the increasingly specialized giving needs of today's donors and nonprofits.

A Grassroots Focus
One of Minnesota's first affinity foundations was Headwaters Fund, which was founded in 1984 to provide grants and capacity building assistance to "grassroots social change organizations" that address economic, racial and social injustice in the Twin Cities area.

The foundation's founding donors were baby boomers with names like Dayton, Rockefeller and Whitney who, according to Steve Newcom, Headwaters' executive director, wanted to start a foundation different from those to which their parents were accustomed to putting their philanthropic dollars. "These were young, progressive, inherited-wealth donors whose politics had been shaped to a large extent by movements in the '60s," Newcom says. "They wanted to start a foundation whose grantmaking activity reflected that consciousness."

Today, the majority of Headwaters' annual funding still comes from progressive, inherited wealth donors. Unlike most foundations, however, Headwaters' grantmaking is led not by the donors but by the constituents who are affected by its grants. "Essentially the founding donors gave up control of their money, which is different from traditional philanthropy," says Newcom.

Grantmaking decisions at Headwaters Fund are made by a 20-member committee comprised of five board members and 15 representatives of a diverse range of constituent groups. "They're all grassroots activists," says Joy Palmer, grants associate for Headwaters, "so they understand the issues and the community." Grants are given only to "grassroots organizations," where the constituency served by the organization is the group providing leadership to the organization. In the 1996 fiscal year, Headwaters gave more than $225,000 in grants.

This type of activist-led grantmaking creates much more potential for conflicts of interest, requiring Headwaters to set up a comprehensive conflict of interest policy -- and the foundation wouldn't have it any other way. "If we don't have people on our committee who are actively involved in the community, then we don't have the right committee," says Newcom. "That's a really different dynamic than what happens in most foundations."

Another way in which Headwaters differs from most foundations is that it doesn't fund social service organizations -- only social change groups. And while many foundations prefer to fund organizations with other funding sources and an established track record, Headwaters seeks out just the opposite: new and emerging nonprofits, and activist groups that cannot get traditional funding. "If you run a parallel list of what most foundations require and what we require, there is a distinct contrast," Newcom says.

Like Headwaters Fund, Philanthrofund was started by a group of donors who wanted to fill what they saw to be an unmet philanthropic need: giving by and for Minnesota's gay and lesbian community. Philanthrofund's four founders saw statistics showing how fewer than .1 percent of all grantmaking dollars have historically gone to gay and lesbian issues, and started the foundation in 1987 in an effort to increase that percentage.

"There was no other foundation regionally that was specifically devoted to the gay and lesbian community," says Kathy Ogle, Philanthrofund's board president. "Certainly a lot of organizations that serve our community have been able to get funds from mainstream foundations or from direct solicitation. But there are a lot of others, especially grassroots organizations and those outside the metro area, that just don't have access to even knowing who to go to."

Ogle points out that Philanthrofund was started not just to provide funding to organizations in the lesbian and gay community, but also to provide a vehicle where lesbians and gays could place their funds and "have their generosity work for their own community." The foundation has a goal of quadrupling its endowment from the current $250,000 to $1 million by the year 2001.

Religion-Based Funding
New ground is also being broken in Minnesota today in religion-based philanthropy. Two new foundations have formed in just the last two years that define their grantmaking mission in terms of religion: the Catholic Community Foundation and the Lutheran Community Foundation. While both organizations have a geographic component to their giving, their emphasis is on giving by and for their identified religious community.

The Lutheran Community Foundation was created in 1995 through a collaboration led by Lutheran Brotherhood, a not-for-profit fraternal society providing financial services, and the two largest Lutheran Church bodies. Although Lutheran Brotherhood and the Lutheran Churches have their own foundations and giving programs, "there was an opportunity that wasn't being met by any of them," says Chris Andersen, executive director of the Lutheran Community Foundation, "which was to provide flexible funds to a community that we define not geographically but as a community of Lutherans nationwide."

The Lutheran Community Foundation was set up to give donors interested in Lutheran causes a greater degree of flexibility in their giving than they could receive through other Lutheran philanthropic organizations. While the giving guidelines for the Lutheran Church foundations require that a certain percentage of gifts go to Lutheran causes, donors to the Lutheran Community Foundation can allocate as much, or as little, as they'd like to Lutheran organizations. This allows a donor to make just one gift that can benefit both Lutheran and non-Lutheran causes of the donor's choosing. Funds in the foundation don't even have to go to Lutheran Church bodies, nor do donors need be Lutheran.
Along with offering donor flexibility, the foundation was also created to achieve some efficiencies. The Lutheran Brotherhood field force, which numbers 1,800 across the country, kept getting requests from clients on how and where to make their charitable gifts in a manner consistent with their Lutheran faith. "Rather than create those relationships in every community across the country, it was much more efficient to do it centrally," says Andersen.

The Lutheran Community Foundation's affiliation with Lutheran Brotherhood makes it unique from almost any other community foundation. "We basically have 1,800 communicators across the country to tell people about this foundation," Andersen says. The foundation's nationwide scope is also something of a rarity.

The foundation has been open since September 1995, and now has about 80 funds -- including its first non-Lutheran donor-advised fund — with total gifts of $19 million. According to Andersen, the foundation hopes to grow field of interest funds in the future, and is slowly growing its undesignated Community Fund, which won't begin making grants until 1997 or 1998. The funds will be distributed based on staff recommendations to the board, and will follow the foundation's mission of focusing on Lutheran causes while also benefiting society in general.

The two-year-old Catholic Community Foundation was created for many of the same reasons as its Lutheran counterpart: to offer more giving options for people interested in more closely aligning their philanthropy with their faith. The foundation came into being following an effort begun by Archbishop John Roach in 1991 to develop a $45 million Family of Faith Endowment to support Catholic education. A survey of the Catholic community, conducted as part of a feasibility study to assess the underlying support for the endowment, revealed a need for a new giving vehicle in the Catholic community. "We found that people were looking for an opportunity to give to a wide range of Catholic causes beyond just education," says Jim Mullin, executive director of the Catholic Community Foundation.

Unlike the Lutheran Community Foundation, the Catholic Community Foundation does place some religion-based restrictions on its philanthropic activities. At least half of the distributions of its donor-advised funds must be to Catholic organizations and to organizations within the geographical boundaries of the Archdiocese of St. Paul and Minneapolis, over a three-year period. And while Mullin says the foundation will facilitate giving for any cause that's worthy of support, it will not give to any organization which is based on or professes teachings "antithetical to the Catholic Church."
The Catholic Community Foundation has about $42 million in commitments for its Family of Faith Endowment Fund, has raised more than $1 million in donor-advised funds, and will report $34 million in assets this year. The foundation's unrestricted funds are still very small, but Mullin sees it as an area for tremendous growth. "We look forward to building a full grantmaking mechanism," he says.

Complementing, Not Competing
Affinity foundations emphasize that they do not intend to compete with other community foundations covering the same geographic area. The Catholic Community Foundation, for example, makes a concerted effort not to compete with the two community foundations covering roughly the same territory: The Minneapolis Foundation and The Saint Paul Foundation. In fact, Mullin says this is one reason why the Catholic Community Foundation requires that at least half of its donor-advised distributions go to Catholic organizations. "If a donor lives primarily in a non-Catholic arena, then we most likely will point them to The Minneapolis Foundation or The Saint Paul Foundation," he says, "because they will be better able to meet that person's giving needs."

When The Minneapolis Foundation began managing the three-year Minnesota Lesbian and Gay Funding Partnership, which has a focus similar to Philanthrofund's mission, Philanthrofund worked together with The Minneapolis Foundation's staff to make it successful. Philanthrofund shared its list of contact organizations, and a member of its board sits on the Partnership's grant advisory committee. Philanthrofund even received a grant from the Partnership to hire its first paid staff person.

Because most affinity foundations are young organizations, at the moment they are directing most of their energies at building their endowments and communicating what they're all about -- particularly to potential donors. Affinity foundation directors say that focusing on a specific giving area typically makes it easier to communicate their mission and values to those within their affinity group, but more difficult with those outside that group. "People who are Lutheran and used to Lutheran organizations look at our mission and I think understand what we're doing." says Andersen. "The challenge is in communicating outside of Lutheranism."

For Philanthrofund, Ogle points out that gays and lesbians clearly understand the many unmet needs in their community, but many outside the community still don't. The "average person on the street" might think there's no financial needs in the gay community, she says, because he or she perceives the community to be "a lot of rich white single men" without many financial responsibilities. "Of course, they're not thinking of the other 90 percent of the community that might be really struggling," Ogle says. "It's a misconception we have to overcome."

Because affinity foundations are putting a new twist on the community foundation model, some wrinkles can occur. Headwaters Fund's commitment to activist-controlled grantmaking, for example, doesn't mesh well with the concept of a donor-advised fund -- which is where most community foundations have experienced much of their growth in recent years. Headwaters meets this challenge by providing the advisors of its donor-advised funds with a suggested list of grantees which have been recommended by the grants committee during each grant cycle, including grantees it did not fund.

"Transcending Borders"
The recent growth of affinity foundations can be attributed in part to the growing popularity of community foundations in the 1980s and 1990s. In the Foundation Center's latest Foundation Giving report, community foundation grant dollars increased more than any other segment of organized philanthropy.

Affinity foundation directors also point to other reasons for the rise in "alternative" giving vehicles such as theirs. One likely factor is the largest-ever intergenerational transfer of wealth that is expected to occur in the United States in the next ten to 15 years. With a greater amount of potential philanthropic funds available, it's only natural that more specialized funds will be created to meet the greater array of charitable interests of potential donors.

Another explanation could have something to do with the fact that the oldest baby boomers are reaching an age where they're thinking ahead to retirement -- and their charitable interests differ from those of their parents. As the first generation of fully "out" gays and lesbians near retirement age, for example, Philanthrofund wants to be there to help them with their options. "We want to be the ones who are helping provide education about not just planned giving but the estate planning needs that are unique to unmarried couples with the legal realities as they are," says Ogle.

Since affinity foundations are focused less on geography than a traditional community foundation, another possible explanation for their growing popularity is the diminishing importance of geography in a person's giving decisions today. "Because of mobility in this country, geography is no longer the point of reference for many people," says Andersen. "We relate to concerns that transcend geographic borders."


Copyright 1996 Minnesota Council on Foundations
Reproduction in any form without the written permission of the publisher is prohibited.

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