Should grantmakers do more to encourage fiscal sponsorship arrangements?

Fiscal sponsorships mean that one group handles finances and operations for several nonprofits, like this group in Chattanooga is doing:

“The Children’s Home/Chambliss Shelter is managing the finances and operations of five other nonprofits in Chattanooga, overseeing everything from budget to payrolls to employee benefits.”

Some contend that foundations should do more to encourage these types of arrangements. More nonprofits may be willing to explore fiscal sponsorships if grantmakers start leading the way. From the Chronicle of Philanthropy, April 5:

“Most private foundations don’t really understand [fiscal sponsorship] and are wary,” [nonprofit adviser Jill] Blair says… “When grant makers shy away from supporting a sponsored project, that creates pressure for the sector to keep incorporating.” And that, she says, can lead to redundancy, with donors and foundations supporting multiple charities that do the same work: “We find 10 projects in the same city that don’t know each other.”

“It may end up being better for the sector to have many organizations under one infrastructure, rather than a thousand organizations with a thousand accountants,” says Ellen Friedman, executive director of the Tides Center, a fiscal sponsor in San Francisco.

But foundations have to be careful, too:

Foundations have reason to be cautious, says John Edie, Washington director of the consulting firm PricewaterhouseCoopers. If a sponsored project’s activities do not qualify as tax deductible, he says, the foundation’s grant would not count toward the 5 percent of their assets that foundations are required by law to give out each year.

“There’s sort of this perception that if you write the check to a charity, everything’s OK, but that’s not correct,” says Mr. Edie, former general counsel at the Council on Foundations, in Washington.

Read all about “Fiscal Sponsorship’s Unrealized Potential” from the National Network of Fiscal Sponsors.

Grantmakers, what’s your take? Tamara Copeland wonders, “Is this topic something that Washington Grantmakers should do a program on?” Is it much ado about nothing? Leave a comment and let us know what you think.