Following the great discussion at our February board meeting, I have been doing more research into our eligibility for grant funding and whether 501(c)(3) status would make a big difference in that regard. It’s been a few years since I have immersed myself in the grant writing world, and a lot has changed! There are great resources for finding grant programs out there, although most of them require paid subscriptions. Also, most of the major grantors that I looked into now allow applications not just from 501(c)(3) organizations but also from other tax-exempt organizations more broadly construed. I don’t believe this to have been the case a decade ago. The McKnight Foundation says that “applicants must be classified by the Internal Revenue Service as tax-exempt, non-profit organizations,” of which I believe us clearly to be one as defined in IRC 170(c)(1). The Bill & Melinda Gates Foundation lists under eligible entities, “a state, a possession of the United States, or a political subdivision (e.g., a local government), agency or instrumentality of the foregoing,” which again seems clearly to include public libraries. These are just a couple of examples, but it appears that the landscape is much more open than I remembered.
To further clarify, I took a deeper dive into the IRS discussion of the tax-exempt status of public entities and found the following:
“Due to misunderstanding about the Chapter 42 restrictions on private foundations, governmental units often have difficulty obtaining foundation grants. This misunderstanding relates to the taxable expenditure provisions and distribution requirements, and may cause governmental units to seek 501(c)(3) exemption unnecessarily.”[1]
To me, this is an argument both for and against establishing a foundation for the library. In one brief paragraph, the IRS points out that governmental entities simultaneously have a hard time getting grants from foundations but also don’t need 501(c)(3) status to do so. Perhaps the reason for the opening up of the landscape is that people are becoming increasingly aware of the nuances of federal tax status.
Further illustrating the diminished need for 501(c)(3) status for receiving charitable donations, I have spoken with some directors at other libraries who have successfully utilized the 501(c)(3) status of The Fund for Illinois Libraries for receiving restricted funds. We already have an account with Illinois Funds and can easily make financial transactions through them. This allows us to channel contributions through a 501(c)(3) with very little red tape and no additional cost. While a library foundation might make this a more direct connection between the library and its 501(c)(3) presence, the benefit of that connection over what currently exists is again minimal, in my opinion.
All of this is to say that having 501(c)(3) status might open us up to slightly more funding than we are currently eligible for, but I think the difference would be minimal. However, there is another major reason that I think tips the scales in favor of pursuing a library foundation.
During our discussion in February, a few trustees mentioned that they might not have been willing to serve on the board if they had known that there were obligations to engage in fundraising activities. While advocacy for the library is a key component of being a trustee, fundraising doesn’t have to be. If major fundraising activities like our Library Comes Alive event last Fall are going to become a regular thing, having a foundation in place to facilitate those events provides an easy avenue for interested Trustees and community members to be involved with those activities without placing a default fundraising responsibility on all Trustees. Those who are interested in fundraising can participate in the foundation. Those who aren’t interested in fundraising can continue to be Trustees without the expectation that they’re going to be primary fundraisers for the library. It would prevent the possibility of scaring off new Trustees who don’t want to be involved in fundraising. Conversely, it would allow for the participation of residents who would be interested in doing fundraising but who aren’t interested in being Trustees. I think that’s a win-win in terms of participation in fundraising activities. I think that having a foundation to act as the fundraising arm of the library would provide a framework that would allow trustees and residents to more easily participate in those activities if they want but also to allow them to work with the library without implicitly committing to fundraising if they aren’t interested in doing so.
I have included some examples of bylaws of existing library foundations in this month’s packet, if anyone cares to peruse them. I don’t think the process of establishing a foundation is particularly daunting. Though fundraising isn’t my strongest suit, I’m happy to help get a foundation started and to help facilitate its effective operation in a manner similar to the library’s current relationship with its Friends organization.
Recommendation: I don’t think any formal action is needed on this topic one way or the other. If there is interest in continuing to pursue a foundation, I think interested individuals should start meeting to discuss incorporation, bylaws, and other details. Those who aren’t interested can continue being great trustees, as they always have been. And if there is no strong interest, we can let the idea go entirely.
[1] 1990 IRS EO CPE Text, Topic E. “Instrumentalities.” Retrieved from https://www.irs.gov/pub/irs-tege/eotopice90.pdf on March 1, 2024.