September 15, 2008

To 501(c)(3) or Not to 501(c)(3): Who's Asking the Question?

To 501(c)(3) or not to 501(c)(3)? I was with a group of funders recently who got into an interesting debate about this 501(c)(3) question. We were talking about "getting real" about grassroots grantmaking - what staff resources, technical assistance resources, and knowledge resources are needed to work effectively as a grassroots grantmaker?

The conversation, which I thought could veer into group hang-wringing about the perils of trying to do too much with too little, instead turned into a discussion about the appropriateness of 501(c)(3) status for grassroots groups. We had two camps represented in this discussion. One was the 501(c)(3) status equals power and more capacity camp. The other was that grassroots groups should not pursue a 501(c)(3) designation until they graduate from beginner group to more advanced group.

I hear this discussion a lot, and for a while now, have been trying to figure out what is really going on when funders talk about 501(c)(3) status for grassroots groups. Sometimes I hear anxiety about working with groups that do not have the designation. The assumption might be that grants to 501(c)(3) organizations are safer investments - that grant money will be well managed, projects will happen as outlined in the grant proposal, and reports will come in on time when a 501(c)(3) is in the picture. Sometimes it's about sustainability - that the 501(c)(3) status is an indication that a group has been around for a while and will be around for a while longer. My experience is that time on the ground and a network of more experienced peers ease these anxieties.

I hear about too many 501(c)(3)'s. To that I say "so what?" And also "why might that be?"

Other times I hear about what a group needs and doesn't need - and this is when I get a bit nervous.
  • A grassroots group doesn't need a 501(c)(3) designation and therefore should not have one.
  • A fiscal sponsor can provide all that a grassroots group needs.
  • A grassroots group should not unduly burden themselves with the organizational infrastructure "stuff" that comes with having a 501(c)(3) designation and should trust someone else to handle all of that.
Grassroots Grantmakers, the national network of funders who are investing in resident-initiated and resident-led work in urban neighborhoods and rural communities, doesn't have a 501(c)(3) designation - by choice. We work with a fiscal sponsor - by choice - and have done so for almost ten years. And as the organization's Executive Director, I have a keen sense of the trade-offs of having/not having a 501(c)(3) designation. As an organization, we revisit that choice NOT to seek a 501(c)(3) designation periodically and weigh the pros and cons. We very well could choose to begin the 501(c)(3) designation process this week or this month or this year. Or we might stay as we are. But we'll decide.

That's how it was in my own neighborhood too. At some point, we decided that we wanted a 501(c)(3) designation. And we got one. Our world didn't change much, but it did indeed change. And it wasn't as much about the designation as it was about the process of deciding with eyes open and good information. It was also about knowing that we had to accept the responsibility of a little higher level of self-management so we could be sure that we could keep the designation that was so much work to obtain. We had not received a grant at that point, so this wasn't about grants. It was more about our developing sense of our own power, what we were trying to achieve, and where we saw our organization in the pecking order of the world around us. This was after we had been around in some form or another for fifteen years.

I'm not by any means suggesting that all grassroots groups should pursue 501(c)(3) status. Or that pursuing a 501(c)(3) status is an indication that a group is "growing up". What I am suggesting, however, is that funders should stay away from that question - and most questions that come from assumptions about what a group needs or doesn't need. There are, after all, many ways to get to the same end, and it is the group itself that must make its path. Assuming that fiscal sponsorship is a viable option for providing grants to groups that don't have the 501(c)(3) designation (and the impetus for seeking 501(c)(3) status is not permission to put a proposal on a funder's desk), the most appropriate role for a funder, in my opinion, is to be sure that grassroots groups have access to good information about the pros and cons of 501(c)(3) status, encouragement to revisit the 501(c)(3) question from time to time, and permission to say "yes" or "no" to the 501(c)(3) pathway without fear of judgment or funding repercussions.

For me, this question about 501(c)(3) status is an example of one of the challenges that face funders who are engaged in grassroots grantmaking. When it comes to getting real about what is required to be a grassroots grantmaker, it seems that so much goes back to the tag line that we adopted for our national network - "we begin with residents". When we care so much and are working so hard at the "doing" of grassroots grantmaking, it can be challenging to maintain that "we begin with residents" stance. But with the 501(c)(3) question, it does indeed all begin with residents. And it is the resident-led groups that we are funding who get to decide.

This is my take on the question. But I'd love to know what you think. Do you think it is appropriate for a funder to weigh in on the "to 501(c)(3) or not to 501(c)(3)" question with their grassroots grantees? And how do you see the "we begin with residents" value fitting into this question? Let's use this opportunity to talk more about "getting real" about the work of grassroots grantmaking.

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