Item 02 - Social Impact Commons_Fiscal Sponsorship_Short Overview for Austin_08-25.pptx.pdf — original pdf
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Fiscal Sponsorship Short Introduction & FAQs Austin Arts Commission | August 18, 2025 This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International Public License This means you can adapt this work and share its contents freely for non-commercial purposes, provided you credit Social Impact Commons. What’s fiscal sponsorship? What’s fiscal sponsorship? Fiscal sponsorship is an arrangement where an exempt organization, typically a 501(c)(3) public charity, furthers its mission by receiving and expending funds to support a mission-aligned “Project” while retaining discretion and control over the funds. Depending on the model, fiscal sponsors may also share their legal home, back office, and other resources with their Projects. Unlike a traditional program carried out by a nonprofit, fiscal sponsorship arrangements are typically memorialized in an agreement that defines roles and responsibilities. The leadership of the Project usually reserves the right to exit the relationship. Model “C” Pre-approved Grant Attributes ● ● Arm’s-length, re-granting relationship Complete corporate independence & separate tax treatment ● Only addresses contributed revenue receiving ● Independent earned revenue/expense streams ● Governance remain completely independent ● Independent entities raise tax considerations Uses ● Moving charitable funds to non-exempt receivers ● ● Access to charitable funds for nonprofits awaiting a ruling Access to funding for simple/small/temporary projects Model “A” – Comprehensive Attributes ● Operationally integrated program relationship ● ● ● ● ● ● Uses ● ● ● ● ● Solution for comprehensive shared services Legally a co-management relationship Project maintains an advisory body Sponsor responsible for all legal and compliance All revenue and expenses managed by sponsor Sponsor is employer of record for project staff Sharing back-office services and economies of scale Allowing established nonprofits to share infrastructure Incubating new nonprofits Access to funds for nonprofits awaiting a ruling Access to funding for simple/small/temporary projects Comparison of common models Costs (% of Revenue) Back Office Support Stand-alone Formation 17% - 27% Model “A” Comprehensive Model “C” Pre-approved Grant 10% - 15% 4% - 8% Project provides all finance, HR, legal, compliance, insurance, both staff and other direct costs. Sponsor provides all finance, HR, legal, compliance, insurance, both staff and other direct costs. Sponsor provides compliance for contributions only. Sponsee entity does the rest of the back office work. Identity & Relationships Project retains relationships with donors, patrons, funders, partners, etc. Project leads retain relationships with donors, patrons, funders, partners, etc.Project leads & Sponsor work together to report to funders Sponsee retains relationships with donors, patrons, funders, partners, etc. Sponsee & Sponsor work together to report to funders Mission, Program, Finance Decisions Project makes key program, staffing, financial, and strategic direction decisions. Project leads make key program, staffing, financial, and strategic direction decisions, in advisory relationship with sponsor. Sponsee makes key decisions concerning contributed income, with approval of sponsor. Employees & Contractors Project holds all employee/contractor liability and responsibility. Sponsor holds all employee/contractor liability and responsibility. Compliance & Liability/Insurance Project is 100% responsible for all compliance and risk management, including costs of insurance and CPA services. Governance Project maintains independent governance and advisory relationships. Sponsor is 100% responsible for all compliance and risk management. Project is in a shared fiduciary and co-management relationship with sponsor. Sponsee holds all employee/contractor liability and responsibility. Sponsor is responsible for compliance on contributions only. Sponsee is responsible for the rest, incl. insurance. Project is in a co-fiduciary/co-management relationship with sponsor only concerning contributions. Comparison of core supports Model “C” Core - Federal Tax Exemption - Contributed Income - Receiving/Accounting - Contributed Income Compliance - Board/Fiduciary Responsibility Additional - All Insurances - Consulting & Advisory Support - Other Services & Resources - Space, Technology, & Other Systems Model “A” Core - Federal Tax Exemption - Contributed Income Receiving/Accounting - Full-charge Accounting (AP/AR) - Nonprofit/Employer Compliance - Board/Fiduciary Responsibility - Legal & Transactional Partner - Human Resources (Employer) - General Liability/D&O Insurances - Strategic Financial Guidance Additional - Special Insurances (RE, E&O, etc.) - Consulting & Advisory Support - Other Services & Resources - Space, Technology, & Other Systems Patterns of practice: resource model High to 100% subsidized Minimal cost recovery from sponsees Moderately subsidized Some portion of whole cost is recovered from sponsees 100% Whole cost recovery All fiscal sponsorship costs are recovered from sponsees More akin to conventional non-profit model More potential to operate like a co-op or shared stewardship Why fiscal sponsorship? An evolving field Fiscal Sponsorship Field Evolution 1959 - 1993 1993 - 2004 2004 - 2020 2020 - Present EMERGING IDENTIFYING ORGANIZING BUILDING The field is growing organically, largely through nonprofit peer to peer networks. There is little intentional field building infrastructure. The field begins to identify legal challenges to operate and addresses these through research, codification, and building case law/guidance. Greg Colvin publishes Fiscal Sponsorship: Six Ways to Do It Right (Study Center Press, 1993). The field begins to organize more formally through regular convenings and more structured exchange of practice. The National Network of Fiscal Sponsors (NNFS) is formed in 2004 with support from the W.K. Kellogg Foundation. The field begins to specialize and invest in more direct capacity and field building resources, including research and advocacy. Social Impact Commons is founded in 2020 with support from the Mellon Foundation. Sponsors steward extensive resources Over winter of 2022/23 we surveyed a sample of 100 fiscal sponsors of varied model, age, size, focus, and geographic reach, gathering basic descriptive data, DEIA information, and data on sponsorship practices and program capacity. Our sample of sponsors stewarded: ➔ Over 12,000 charitable projects; ➔ More than $2.6 billion in sponsored project funds; ➔ $575 million in government funding to projects; ➔ 18,000 staff members employed and contractors managed; ➔ Almost $700 million in contributions to individual income (employees and contractors combined). We estimate our sample to represent between 10% and 20% of the identifiable population of sponsors. A keyword search in Candid, filtering for activity over $50,000 annually, returns just over 500 organizations with “fiscal sponsor/ship” in their IRS Form 990 narratives, and some financial activity. Through a growing field The fiscal sponsorship field has been growing rapidly over the last two decades, with 73% of our sample fiscal sponsors having been launched after 2000. (*) Comparative data between 2023 and 2006 field scans. Supporting diverse communities. Field scan respondents (with roughly 50% reporting), evidenced consistently greater overall diversity in project leadership served, staff, and board constituency than the broader sector. Average Representation Across Race Differences in Field Scan vs. Candid dataset Estimating the broader ecosystem Through our work with Candid, and through collating other lists and inventories from within the field of fiscal sponsorship, we have assembled data on the broader discernable ecosystem. Number of Fiscal Sponsors: 511 (Collated Association Membership)¹ 1,462 (Incorporating Candid)² Total Organizational Assets: $68.8 billion (Incorporating Candid) Sponsored Project Revenues under Stewardship: Number of Projects under Stewardship: Amount of Project Support from Government: $2.6 billion (Field Scan)³ $24.2 billion (Estimated)⁴ 12,184 (Field Scan) 42,369 (Estimated) $576.4 million (Field Scan) $7.7 billion (Estimated) 1. Membership of Impact Commons, NNFS, Fiscal Sponsor Conversations, and Fiscal Sponsorship Directory. 2. 3. 4. Incorporating Candid keyword data (suspected but not verified fiscal sponsors). Data from the 2023 Fiscal Sponsor Field Scan (n = 100). Estimated using adjusted ratios from the Field Scan data applied across the larger population of note 2. Enduring values of fiscal sponsorship Equitable Access – Offering turnkey entrée to nonprofit infrastructure with low financial and knowledge barriers to entry. Provides support in proportion to need. Efficiency – The model offers comprehensive back-office support, freeing up 10% and 20% of the overall budget (and up to 50% if overhead) to be reallocated from indirect costs to front-line programs/services.* Solidarity – Provides shared capacity for diverse missions that share values; changemakers today are increasingly turning to Solidarity Economy solutions. Compliance - Provides a compliance enhancement for funders and can relieve private foundations of the burden of exercising expenditure responsibility (*) Comparative economic analysis on the SMU Data Arts data set, conducted by Social Impact Commons in 2020 on 475 arts and culture organizations operating in Southeastern Pennsylvania operating below $2M in annual budget. Economies of scale Comprehensive sponsors create economies of scale through shared systems, staff, and other wrap-around support. The space between gray and orange = overhead can be reallocated! Budget Size G&A as % of Revenue A study of arts and culture organizations operating below $2M spend between 17% and 27% of their revenues on the same resources that a comprehensive fiscal sponsor can provide for between 9% and 12%, a difference of 10%. Since overhead for these organizations averaged 20% of overall budget, this represents a 50% reduction in overhead that can be allocated to front-line programs. Budget Bracket Source: (*) Research on 475 Pennsylvania cultural organizations with budgets less than $2M completed in 2019 by Social Impact Commons in partnership with Accenture and SMU Data Arts. Sponsor benefits ● Resource and infrastructure sharing is a sustainable business model for alliance/hub organizations. ● Close co-management can build trust and greater value for constituent organizations and practitioners. ● Collective capacity building multiplies and scales time and financial investment and impact. ● Managing together as a community can ensure greater stability and resilience in the face of challenges. Project benefits ● If comprehensive, no need for separate incorporation, bank account, or other infrastructure for the project lead. ● Partner staff have space to do the educational work and not have to worry about infrastructure and administration. ● Back office, compliance, and other costs are shared (distributed) and thus lower than stand-alone operation. ● There is greater resilience in numbers: individual partners can better navigate bumps in the road. ● Other field-specific needs can be sourced and shared as a community: technology, staff, supplies, etc. A healthy relationship must have… ➢ Trust and rapport between sponsor and sponsee/project and a responsive and supportive relationship - not a mere passthrough. ➢ A Fiscal Sponsorship Agreement, required as an exhibit to any grant application, clearly articulating: ○ The parties to the agreement and terms of exit; ○ Services and supports provided by the sponsor; ○ Responsibilities of the project to the sponsor/funders; ○ Cost allocation rate for core services (and any other fees). Generous support for the work of Social Impact Commons has been provided by: Asta Petkeviciute, Chief Financial Steward asta@socialimpactcommons.org Josh Sattely, Chief Legal Steward josh@socialimpactcommons.org Thaddeus Squire, Chief Commons Steward Thaddeus@socialimpactcommons.org http://socialimpactcommons.org Further Reading Working collectively is not an option - It’s an imperative. Alliance Magazine, March 5, 2024 Fiscal Sponsorship Is On the Rise, Allowing Groups That Aren’t Nonprofits to Accept Donations The Chronicle of Philanthropy, November 27, 2023 Fiscal Sponsorship Field Scan 2023 Social Impact Commons, November 2023 Management Commons and the Future of Fiscal Sponsorship Social Impact Commons, Fall 2023 About Social Impact Commons We support through solidarity Social Impact Commons is a 501(c)(3) with a cooperative governance structure… ➔ As a Type I Supporting Organization, we support our Member Organizations with services and other shared resources. ➔ Our Member Organizations, in turn, nominate and elect our board, ensuring that those we serve have an essential stake in the resources we develop and share. Supporting fiscal sponsors of all models and life stages–with a focus on those committed management commons principles–philanthropies and philanthropy-serving organizations, and individual nonprofit practitioners. Theory of Change What we need to... >> Shift the narrative of our sector. We must shift the mindset and paradigm of our sector away from the assumption that stand-alone formation and operations are the only or more valorized approach to doing social sector work. >> Build the capacity of the field. We need more management commons, more consistently applied and effective practices, and more overall capacity to manage demand for shared infrastructure. Providing tools and services Tools Forms & Templates - Fiscal Sponsorship & Transfer Agreements - Common Management Legal Forms - Financial Templates & Forms - Policy and Procedural Templates Workshops & Trainings - Fiscal Sponsorship 101 for Sponsors/Funders - Legal, Compliance, & Finance Workshops - Board Training & Orientation - Risk Management Training Discounted Products - Sage Intacct Multi-entity Accounting System - Multiple Employer Retirement Plan - Job Board & Tool Library Services Program Design & Development - Inclusive Visioning & Strategic Program Design - Governance Design & Support - Program Implementation Advisory Support - Custom Management Tool Creation Financial & Compliance Management - Portfolio Analysis & Financial Scenario Planning - Financial Management Policies & Practices - Interim CFO & Legal Advisory Support - Financial Systems Assessment & Implementation Assessment & Technical Support - Program & Management Evaluation - Board Assessment & Coaching - On-call Advisory & Leadership Coaching - Policy & Practices Co-creation Healthy Management Commons Assessment Tool Leading research and advocacy