Community foundations: getting in on the ground floor: developing these philanthropic organizations can be a smart way for a bank to serve its home town. Involvement also can be a plus when it comes to improving name recognition and bolstering business for your institution.

A community foundation is an organization that collects money, places that money in endowments, and then uses the earnings from those endowments for the favorite charities of local donors--hopefully forever.

For financial institutions, there are several benefits involved in helping establish such foundations. These rewards include: helping to build the wealth and stability of the communities they serve, building relationships with leaders and affluent members of the community, increasing name recognition and awareness of bank services throughout the community, and managing the funds of the foundation.

The Bank of Fayetteville in Fayetteville, Ark., (assets: $276 million) was instrumental in launching the Fayetteville Community Foundation, the idea for which started with a bank trust officer. The bank supported the idea for several years before the foundation was officially launched in 2004.

Fayetteville is one of those communities that residents care about deeply. As bank president John Lewis explains, "We came to realize that our clients feel more comfortable giving their money to a local foundation--with a local board of directors--so they are assured that their giving goes directly to the community they love, in the way that they direct it."

In addition, says Lewis, banks are ideal partners for helping launch a community foundation because:

* They have the technical and legal expertise to advise the foundation on topics such as how to set up the foundation, how to invest and how to make grants.

* They have the experience and contacts in the community to know who the right candidates are for the positions of executive director and board of directors.

* They have the clout and contacts in the community To advise foundations on how to best market themselves and raise funds.

* They can provide much-needed office space and equipment to the foundation.

* They can provide administrative and bookkeeping support.

* They may be able to convert old trusts into funds for the foundation.

Getting started

As with most new ventures, it takes someone with a passion to start a community foundation. This often is someone who loves the community, or who has lived there a long time and wants to make a difference in a way that has a lasting impact. Such an individual often becomes the foundation's catalyst. Once that person is identified, the next steps are to:

Form an organizing committee. The success of a new community foundation is facilitated by the formation of an organizing committee. The organizing committee is an ad-hoc community group committed to bringing the community foundation into existence. Start by identifying a small group of committed community leaders. Depending upon the size of the community, this means between 10 and 20 people.

When building your organizing committee, you should look for the following characteristics:

* Wealth (either personal wealth or access to wealth).

* Wisdom.

* Ability and willingness to work.

* Commitment to the community.

* Willingness to raise money.

* High visibility in the community.

* High personal ethics.

* Willingness to give money relative to personal circumstances.

Incorporate and apply for tax-exempt status. Community foundations are established as 501 (c)(3), nonprofit corporations. Incorporation can often happen quickly, but the tax-exempt status usually takes months to be granted. It's therefore critical to file these papers immediately. It took the Fayetteville Community Foundation three months to receive its 501 (c)(3) tax-exempt status.

Appoint the board of directors and executive director. It is important to choose your board wisely. Fayetteville currently has 25 directors on its board. The organizing committee selected directors based on their professional expense, involvement in civic affairs and understanding of community issues. Plan to appoint the first board within six months after the commitment is made to form the foundation.

Write a vision statement, a mission statement and a strategic plan. These documents, created by the organizing committee, are the fundamental tools of the foundation. They help establish guidelines for the types of donors and types of charitable activities the foundation seeks to support. A vision statement is a short, vivid and compelling description of where the organization wants to be in the future. A good vision statement serves to motivate the organization's board and staff, as well as its donors and clients. A mission statement guides a foundation's daily decisions and short-term goals--serving as its "yellow brick road." A strategic plan precisely defines your foundation, identifies its goals and financial projections, and establishes how it is going to achieve its goals.

Announce the foundation and its board of directors. Part of creating an impact in the community is publicizing the existence of your foundation, most often through news releases, speeches and other awareness builders.

Capitalize operating funds. In order to be successful, a community foundation that is just starting up must focus on capitalizing its first five to seven years of operating costs before building any philanthropic assets. This operational money gives the foundation enough time to get organized and to build sufficient philanthropic assets to sustain itself for the long term.

The Fayetteville Community Foundation is well on its way to being a permanent Institution for both the community and those who live in it. Says Lewis, "The proof for me that this is what our community wants lies in the fact that we have almost completed raising all of the operating funds--considered by most to be the hardest money to obtain since the entity is not widely known or established. We have gone to a number of people asking for contributions and nobody has turned us down. This shows me that the concept is both valid and valued."

Getting established, gaining momentum

Once the initial steps are completed, the community foundation can start to build momentum and raise philanthropic assets. In general, the goal of the foundation should be to achieve a minimum of $10 million in funds, preferably endowments. This level of funding will provide a modest base support for operations using a 1- to to 2-percent administrative charge against those funds.

It's important that the development of philanthropic assets focus on a full range of services to donors, including donor-designated funds in which the donor may specify the organization or organizations he chooses to receive the earnings from endowments in perpetuity. In addition, the foundation should consider the creation of several broad categories or field of interest funds that will attract donors with more modest contributions into a pool to support a broader range of beneficiaries. These beneficiaries could include a youth fund, a fund for the arts, or a fired to support a specific town or community.

New foundations also create funds that are not endowments, but that allow donors to spend funds and replenish the accounts a according to their charitable goals for a particular year. Many donors seek the assistance of the foundation to identify programs and projects in their areas of interest. Smart foundations provide potential donors with the kinds of options that they seek.

Worth the effort

The excitement of a community foundation becomes contagious for everyone involved. People want to be a part of something larger than themselves that truly makes a difference in their communities and in the lives of others. With proper planning--and a successful launch--a community foundation's growth can be exponential, acting like a magnet to bring money into the community. The result: a win-win outcome for everyone in the community!

As Lewis put it: "It has been a lot of fun doing something positive for the community. We have a great community and are excited about making it an even better one!" Lewis offers some parting words of wisdom for banks looking to help start a community foundation: "Look to create a community foundation for your community, not just for your bank. We have encouraged other banks in the community to get involved with the foundation and have people from other banks sitting on the foundation's board of directors."

Community Foundations Can Work Even in Small Rural Communities

About 10 years ago, Jack Mahuron, newly retired from being president of a bank, was searching for ways to help his community when he met up with David Beck, Ginger Morris, Jean Wilson and Carmelita Jeans.

These four individuals were looking to launch the Washington County Community Foundation in Indiana. Mahuron became so excited and passionate about their mission, that he joined the team and took on the executive director role for the foundation.

Being in the banking industry, Mahuron quickly understood the potential of the community foundation as a tax-exempt, independent, publicly supported philanthropic organization established and operated as a permanent collection of endowed funds for the long-term benefit of Washington County.

After sharing his passion for the foundation with National City Bank, Indiana (assets: $42 billion), the bank quickly stepped in to help. To help launch Washington County Community Foundation, the bank went to court and convinced a judge to convert about $700,000 in old trust accounts into endowments for the foundation. Next, National City Bank offered to let the foundation use its office space and office equipment (fax, copier, etc.) And, as a final show of rapport, the bank agreed to donate $5,000 a year to the foundation.

Ten years later, in this small community of 5,500 people (27,000 in the county), the Washington County Community Foundation now has $7 million in assets.

Helen Monroe is CEO of Endowment Development Institute, Vista, Calif., an organization that assists individuals and organizations in starting and growing their own community foundations. Telephone: [phone]; website: www.endowment.com