Fiscal Sponsorship Is On the Rise, Allowing Groups That Aren’t Nonprofits to Accept Donations
The last 20 years have seen larger growth in the field than the previous 50, and demand for fiscal sponsors has surged since 2020.
In 2020, MTV and a number of other companies and nonprofits launched Vote Early Day, a “civic holiday” with thousands of events around the country where people could cast their ballot or make a plan to vote ahead of election day.
“We had seen that when people wait until the last hours of an election, they so often will run into problems like long lines, busy schedules, and last minute problems that can stop them from sharing their voice,” says Bryce Bennett, the group’s executive director.
Bennett had led nonprofits before and understood the amount of administrative work it takes to run an organization. With Vote Early Day, much of the organization’s back-office infrastructure was taken off his plate — the group is not an independent nonprofit. From the start it was set up as a fiscally sponsored project, meaning that financial accounting, payroll, human resources, and more was handled by a supporting nonprofit entity, first the New Venture Fund and now the Tides Center.
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In 2020, MTV and a number of other companies and nonprofits launched Vote Early Day, a “civic holiday” with thousands of events around the country to promote voter engagement and early voting.
Bryce Bennett, the group’s executive director, had led nonprofits before and understood the amount of administrative work it takes to run an organization. With Vote Early Day, much of the back-office infrastructure was taken off his plate, as the group is not an independent nonprofit. It was set up as a fiscally sponsored project, meaning that financial accounting, payroll, human resources, and more is handled by a supporting nonprofit entity, first the New Venture Fund and now the Tides Center.
“It’s certainly been a benefit for me and for the whole organization to have the ability to really focus on the program and to make sure that as much time as possible is focused on the impacts that we’re looking to create for voters,” Bennett says.
Fiscal sponsorship is a significant and rapidly growing part of the nonprofit world, according to a new report from Social Impact Commons and the National Network of Fiscal Sponsors. The report and experts involved in the sector indicate that the rise of fiscally sponsored projects appears to be both a response to the bureaucratic complexity of establishing and running a nonprofit and the increasing professionalization of the field. It’s being used as a way to pool resources, incubate new ideas, and provide oversight to organizations that are not yet charities.
The last 20 years have seen larger growth in the field than the previous 50, the report found, and demand for fiscal sponsors has surged since 2020. Seventy-one percent of survey respondents said demand for their services increased during the pandemic, and many are experiencing growing pains. The model, which has been around since at least 1959, when the Massachusetts Health Research Institute in Boston began offering a form of fiscal sponsorship for public and community health research efforts, has gained currency as a simpler way to organize charitable work at a time when the pandemic, racial reckoning, and other local and national concerns such as education and the environment are motivating people to quickly mobilize for social change.
The arrangement comes in many forms. Some sponsors centralize back-office support like accounting, human resources, and sometimes assistance with fundraising and leadership development for groups that don’t have nonprofit status. Others offer a purely financial relationship in which the sponsor receives the tax-deductible funds on behalf of a group that does not have charity status and passes the funds along. Most take a fee, which can vary widely depending on the sponsor and the services offered.
Everyone’s doing fiscal sponsorship a little differently, says Andrew Schulman, a consultant who works both with fiscal sponsors and the projects they support. “There’s very little black and white.”
The 100 fiscal sponsors that responded to the survey, conducted during 2022 and 2023, collectively managed more than $2.6 billion in charitable assets and represent more than 12,000 projects. And that’s just the tip of the iceberg. The survey was sent to 696 known sponsor organizations, but the report’s authors estimate there may be thousands of fiscal sponsors active in the United States today.
It’s challenging to quantify the scale of this corner of the nonprofit world, and the new report is the first of its kind in more than 17 years to measure fiscal sponsorship growth. Unlike donor-advised funds, which are defined and regulated by the IRS, any 501(c)(3) can be a fiscal sponsor. The IRS Form 990, does not ask organizations to identify as fiscal sponsors, and many groups that provide fiscal sponsorship don’t publicly identify that way. They may offer sponsorship in a limited way or use different terminology to describe that work.
Among the report’s findings:
- Nearly three quarters of respondents began offering fiscal sponsorships since 2000, with half starting their sponsorship program after 2010.
- More than half of those launched since 2000 had a local or regional focus, while 38 percent had a national reach and 9 percent supported international projects.
- Sponsors are expanding beyond basic back-office support. Finance, human resources, legal, insurance, and compliance are still among the most offered by 73 percent of respondents, but many sponsors are also offering capacity-building development support (61 percent) and financial advice (49 percent).
- The report also found that fiscal sponsors and their project leaders were more demographically diverse in terms of race, gender, and other factors than the general nonprofit sector, based on data collected by Candid.
Fiscal sponsorship can be a sustainable alternative for organizing charitable work over the long haul, says Thaddeus Squire, co-founder of Social Impact Commons and an author of the report.
With 1.8 million nonprofits and counting in the United States today, “we just do not have the boots and hands or the finances to build independent infrastructure for all of those missions,” Squire says. “We really see fiscal sponsorship as a way of permanently rethinking the infrastructure of our sector moving forward.”
‘A Tool That Has Come of Age’
The fiscal-sponsorship business model has been in existence at least since the late 1950s and has followed the growth trajectory of the broader nonprofit sector.
As it gained traction, sector leaders like John Edie, the former vice president of the Council on Foundations raised concerns about how the arrangement could be misused. Those concerns led Greg Colvin, then a lawyer at the San Francisco-based firm Adler & Colvin, to write a book on how to do it legally. Fiscal Sponsorship: 6 Ways to Do It Right, first released in 1993, helped legitimize the model.
Since then, the field has become more professionalized, says Eric Gorovitz, a lawyer at Adler & Colvin. “It’s a tool that has come of age,” he says. “It’s basically removed or greatly reduced the barriers to entry for people who want to do charitable work.”
Staff at fiscal sponsors serve as a backstop, approving projects and helping ensure the people doing the work don’t run afoul of the law. As the registered charity, fiscal sponsors report their finances on the Form 990 in aggregate. But fiscally sponsored projects don’t face the same disclosure requirements as their nonprofit sponsors. Some projects choose to disclose information like revenue while others do not.
“Often the drive for transparency is connected to projects’ fundraising efforts,” Gorovitz says. “Some projects are more transparent than they are required to be because it’s good for their work. In other cases, maybe it’s good for their work not to be as transparent.”
Though rare, there have been a few instances of fiscal sponsors collapsing because they didn’t manage the money well, Colvin says.
In 2012, for example, the International Humanities Center in Los Angeles didn’t collect enough unrestricted assets to manage its costs, which resulted in nearly 200 small organizations being unable to access donations bound to their own projects. In response, the state of California passed legislation requiring sponsoring organizations to carry liability insurance as a protection for the groups they support.
“It’s rare and it’s catastrophic to the projects when it happens,” Colvin says. “Sometimes it does come, frankly, from excessive growth without growing the management capacity to keep up with it.”
Sponsors Strained as Demand Grows
In recent years, many nonprofits that serve as sponsors have been strained as they’ve struggled to keep up with demand from new and growing projects.
Twenty-eight percent of survey respondents reported that they temporarily suspended or stopped accepting new projects during the survey period. Of those, 80 percent cited lack of operating capacity as the main reason.
Even large sponsors have been stretched. In 2020, the Tides Center took a pause from accepting new partners to ensure it could adequately provide support as the volume of transactions grew, says Lisa Jackson, executive director. Tides, which reported more than $506 million in assets in 2021, currently supports 128 projects and employs around 800 people through those projects.
“The number where we are now is, in part, a reflection of kind of saying, Whoa, whoa, we need to make sure we can adequately continue to serve at this rate of growth,” Jackson says. “If our capacity is struggling, there were lots of other folks in the space who were literally stopping altogether.”
Smaller, regional sponsors have faced similar challenges.
RVC Seattle, which works to strengthen organizations led by and serving people of color in the Seattle area, partners with 17 organizations, offering them a mix of administrative, fundraising, and management support.
During the pandemic, RVC Seattle also made an effort to slow down. “We just could tell that we were adding too many people too fast, and they were growing pretty fast,” says Roshni Sampath, an RVC Seattle co-executive director. “We needed to take care of our current partners a little bit more in depth, get some of our processes and systems up, and also get our own staffing ahead of the game.”
Most fiscal sponsors can’t sustain their operations from the fees they collect from the projects they support, says Schulman, the consultant. While more grant makers are open to funding fiscally sponsored projects, the new report notes that philanthropy’s understanding of the business model and its impact is limited.
Squire, with Social Impact Commons, describes grant maker attitudes as “curious but not yet convinced.”
“You’ve got funders that are really out there trying to embrace the model, and then you’ve got funders that are still saying, What’s fiscal sponsorship?” he says. “It’s a pretty broad spectrum.”
Not Just for Small Groups
While fiscal sponsorship can be a great avenue for small, grassroots groups, many large-scale, big money projects turn to sponsors as well.
Fiscally sponsored projects are often launched in response to an urgent need or policy opportunity, says Lee Bodner, president of New Venture Fund, which supports around 130 projects. With the pandemic, racial-justice uprisings, and other civic engagement opportunities around a major election year, “2020 was like a perfect storm,” he says. “There was a lot of need and so donors responded.”
New Venture Fund saw an influx of nearly $1 billion in donations that year, up from $450 million in 2019. The group regularly attracts contributions from some of the wealthiest donors and grant makers.
“We have been right in the middle of the growth of the field,” Bodner says.
While both Tides Center and New Venture Fund support many projects with a progressive bent, Colvin, the former lawyer, is adamant that there’s no left-right political bias in the use of fiscal sponsorships. He points to former House Speaker Newt Gingrich’s use of the arrangement back in the 1990s. And groups like DonorsTrust, which primarily serves as a donor-advised fund for conservative philanthropists, also offers sponsorship services for select groups today.
“The mechanism for raising tax-deductible money that may be used for projects that don’t already have their own 501(c)(3) status is used across the board,” Colvin says.
Fractured Atlas, for example, supports thousands of arts and culture groups. Heluna Health backs hundreds of public health programs. And regional or community-based sponsors, which the new report suggests are growing the fastest, support diverse causes in their backyards.
It can take months or even years to get 501(c)(3) status, and setting up the systems and governance structures of a nonprofit can take time.
Rewiring America was founded three years ago to reduce greenhouse-gas emissions by promoting residential electrification. The group is sponsored by the Windward Fund, which supports conservation and climate-focused projects.
Its early work helped inform the policies and investments in the Inflation Reduction Act, and today the group is focused on research, policy, advocacy, and education to help communities go electric.
“Without fiscal sponsorship and operational support, we would not have been able to scale as quickly to meet these urgent challenges,” Cammie Croft, Rewiring America’s chief of staff, wrote in a statement.
Incubating a Growing Organization
Some organizations enter fiscal sponsorship with the understanding that it’s temporary.
That’s the case for Transforming Research Into Action to Improve the Lives of Students, or Trails, which began as a University of Michigan research effort in 2013.
The group’s founder, Elizabeth Koschmann, was looking at how to bridge the gap between youth mental health research and practice. While cognitive behavioral therapy and mindfulness were emerging as promising solutions to youth anxiety, depression, and other mental health issues, many kids were having trouble accessing those services. Trails began to pilot its mental health programs in two Ann Arbor schools.
By the time Nikole Constas joined in 2018 as chief of staff, Trails was expanding and outgrowing its arrangement with the university. Then in 2020, as youth mental health problems surged because of the pandemic, the group was well positioned to present its model as a solution. But it didn’t have a business or operations arm to spin off from the university as an independent nonprofit.
“For the most part, our team were clinical psychologists, therapists, or social workers,” Constas says.
Staff interviewed a handful of potential fiscal sponsors and ended up as a project of Tides Center. The arrangement was intended to be short-term while Trails beefed up its team, raised more money, and developed a strategic plan.
Technically, staff of fiscally sponsored projects are employed by the sponsoring organization, so the arrangement also allowed Trails’'s staff of more than 80 to take advantage of the cost savings of group benefit rates.
But today Trails’s budget has grown to nearly $20 million, making it among Tides Center’s largest projects. The mental health organization is now working in schools across Michigan and is in the process of expanding to several other states. As a result of this growth, it is working to incorporate as an independent nonprofit.
“Tides has played a really pivotal role in helping us be able to take advantage of this moment and help more kids,” Constas says. “They have helped to do exactly what they intended to do with us, which is to get us cruising towards more impact.”
Reporting for this article was underwritten by a Lilly Endowment grant to enhance public understanding of philanthropy. The Chronicle is solely responsible for the content. See more about the Chronicle, the grant, how our foundation-supported journalism works, and our gift-acceptance policy.