Foundations: A Potential Source of Funding For Charities? Highlights

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1 Vol. 2., No October 1995 Foundations: A Potential Source of Funding For Charities? Michael H. Hall - Director - Research Laura G. Macpherson - Research Associate Highlights The charitable purposes of foundations cluster in three areas: Welfare, Education and Health. 54% of Private Foundations and 43% of Public Foundations have revenues of less than $50,000. Among foundations tracked by the Centre, 80% of grants are for less than $5,000. Of the grants tracked by the Centre, 64% of all grants and 71% of all grant monies are given in the areas of Health, Education and Social Services. Ongoing reductions in government funding to the charitable sector are forcing organizations to look for alternative sources of revenue. Foundations are often considered to be a potential source of new funding. This Bulletin provides a profile of Canadian foundations and their grantmaking activities. Based on the analysis presented, it is argued that the potential for foundation funding varies among charities according to the size of grants they seek, their regional location and the type of work in which they are engaged. Following Revenue Canada definitions, charities are considered to be foundations if their primary function is to disburse funds, and charitable organizations if their primary function is to receive funds. Foundations are further classified into two categories. Public Foundations raise funds to carry out their own programmes and activities or to fund other qualified recipients. Private Foundations usually receive money from one source and disburse funds to qualified recipients. Our information comes from two sources. The first is the database used for A Portrait of Canada's Charities. It provides 1993 estimates of the revenues, regional location and

2 stated major purpose of all Canadian registered charities based on the Public Information Returns that they file with Revenue Canada. The second source of information is the database that the Centre uses to produce the Canadian Directory to Foundations and The Grant Report. The Centre tracks the grants made by 944 foundations. They are primarily private foundations but also include public foundations that do not engage in large amounts of public fundraising. Grants made by U.S. foundations with a record of giving in Canada are also included. Foundations that give donations to a single entity or give only scholarship awards and grants to individuals are excluded. For the purpose of this bulletin, we examine the data on grants made in The bulletin is divided into two sections. The first details organizational characteristics of Canada's foundations: the amount of revenue at their disposal, their location, and their stated purpose at time of registration as a charity. Next, patterns of foundation funding are examined. Foundations According to Revenue Canada Organizations considering foundation funding should be aware that the revenue that foundations have at their disposal may not be as large as expected. Foundations are also more likely to be located in some regions than others. In addition, there is not a close correspondence between the charitable purposes of foundations and those of charitable organizations. Revenues. The financial support that foundations are able to provide depends to a large degree on the size of their revenues. As reported in A Portrait of Canada's Charities, Private Foundations received $1 billion in revenues (primarily from donations and investment income). Public Foundations received $4.7 billion (primarily from donations and government). By way of comparison, the charitable organizations who look to foundations for funding received almost $81 billion in revenues. As Figure 1 shows, most foundations have only modest revenues. More than half of Private Foundations and over 40% of all Public Foundations have revenues of less than $50,000. Only 20% of Public Foundations and 12% of Private Foundations have revenues that exceed $500,000. Given that granting ability depends largely on revenues, only a relatively small number are able to provide substantial funding to charitable organizations. Regional Location. Access to foundation funding may also depend upon the region in which a charitable organization is located. Looking at the number of foundations in each region per capita (i.e., for every 100,000 residents), Figure 2 shows that there are substantially more Private Foundations in Ontario than in other regions of the country. Atlantic Canada, in contrast, has the fewest Private Foundations. Public Foundations are

3 fairly evenly distributed across all regions except Ontario which has fewer per capita than other regions. Although foundations do not necessarily restrict their funding within a given region, it is advantageous for charitable organizations to be located where there are relatively large numbers of foundations. Foundations and charitable organizations located in the same region are more likely to have a shared understanding of regional needs and to be familiar with one another. Both factors increase the potential for obtaining foundation funding. Stated Purpose. The charitable purpose of a foundation provides an indication of the types of charitable activity it will fund. Although foundations may fund work in a variety of areas, they are more likely to fund areas that correspond to their charitable purpose. However, there is not a clear correspondence in the purposes for which foundations and charitable organizations have been established. Revenue Canada classifies charities according to their stated purpose at time of establishment. As Table 1 shows, Private Foundations have been established most often in the areas of Welfare (35.8%) and Education (23.7%). Public Foundations show somewhat more variety of purpose: 23.5% have been established in the area of Health, 22.8% in Welfare and 19.5% in Education. The purposes of foundations do not parallel the purposes of charitable organizations, as Table 2 shows. For example, 45.8% of charitable organizations are in the area of Religion compared to only 9.1% of Private Foundations and 11.1% of Public Foundations. On the other hand, a larger percentage of foundations have been established in Welfare than is the case for charitable organizations. Also, the percentage of Public Foundations involved in the area of Health is larger than the percentage of charitable organizations involved in this area. Granting Activity Charitable organizations should also understand the granting patterns of foundations. Detailed information about grants is not available for all foundations. However, the Centre's foundation database provides some insight into the funding patterns of an important group of foundations. The foundations tracked by the Centre made 27,915 grants for a total value of over $282 million. Over 80% of the grants were for amounts of less than $5,000. However, these small grants accounted for only 34% of the total value. The Centre maintains detailed information on grants of $5,000 and over. They comprise less than 20% of the total number of grants but account for 66% of the total value of all grants. The size, regional distribution and area of interest of grants of $5,000 and over are outlined in the following section. Size of Grants Valued at $5000 or More. Figure 3 shows that even among grants of $5,000 or more, most are modest in value. Although 73% are for amounts less than

4 $25,000, they only account for 21% of the total value of all grants. A small number of larger grants account for the bulk of grant revenues flowing to organizations. Only 6% of the grants are for amounts of $100,000 or more, but these account for over half of the total value of all grants. Regional Distribution of Grants of $5,000 or More. These grants do not appear to be equitably distributed among regions of the country. An equitable distribution of funds would result in regions receiving funding that was proportionate to the size of their population. As Figure 4 shows, the percentage of grant money that Ontario receives (43%) is larger than its percentage of the population (37%). Western Canada and Quebec have the same percentage of the value of grants as they do of the population. However, Atlantic Canada receives only a third of what would be expected on the basis of population. Area of Interest of Grants of $5,000 or more. One of the most important factors for charitable organizations to consider is the extent to which foundations provide grants in their particular area of interest. Foundations are more likely to provide grants in some areas of charitable activity than others (see Figure 5). Grants are made primarily in three areas: Social Service (27.5%), Health (19.7%), and Education (17.3%). In terms of the total value of grants disbursed, 27.1% are in the Health area, 23.0% in Education, and 21.2% in Social Services. Only 14.1% of the grants that the Centre tracks were made in the area of Religion. However, as Table 1 shows, religion is the most common stated purpose of charitable organizations. Conclusion The potential for obtaining funding from foundations to replace lost government funding is greater for some charitable organizations than others. First, most foundations have only modest revenues and most grants are for small amounts. Second, some regions have more foundations to provide funding than others and there does not appear to be an equitable distribution of grant funding across regions. Third, there is not a close correspondence between the charitable purposes of foundations and the purposes of charitable organizations. Some charitable organizations may find a shortage of foundations interested in their activities. Those that seek funding in the areas of Health, Social Services or Teaching may find more opportunities for funding than those who seek funding in other areas. References Sharpe, D. (1994). A Portrait of Canada's Charities: The Size, Scope and Financing of Registered Charities. Toronto: Canadian Centre for Philanthropy.

5 van Rotterdam, R. (Ed). (1995). Canadian Directory to Foundations: 1994/95. Toronto: Canadian Centre for Philanthropy. van Rotterdam, R. (Ed). (1995). The Grant Report: Foundation Granting Activity in Canada. Toronto: Canadian Centre for Philanthropy. Figure 1: Distribution of Foundations by Size of Revenues Figure 2: Regional Per Capita Distribution of Foundations

6 Table 1: Stated Purpose of Charity Public Foundations Private Foundations Charitable Organizations Welfare Health Education Religious Comm. Benefit Other Group Total Figure 3: Distribution of Grants of $5,000 and Over

7 Figure 4: Regional Distribution of Grants vs. Population

8 Figure 5: Percentage of Total Value of Grants and Total Quantity of Grants by Area of Interest

9 Education 27.1% (19.7%) Health 7.0% (8.8%) Other 7.6% (11.2%) Arts/Culture 14.1% (15.3%) Religious 21.1% (27.5%) Soc. Services 23.0% (17.4%) *Numbers in brackets indicate the percentage of the total number if grants in each area Canadian Centre for Philanthropy