Valerie Horton
Need
• a grant requires fiscal agent with 501(c)(3) status
• an informal committee needs to pay an independent contractor
• a group of ILL librarians want to hold a conference and need to collect registration fees and pay for the event
Benefit
• cementing ties with partner library service organizations
• expanding capacity to serve consortium membership
• accessing website reservation systems and payment management systems
• providing fiduciary oversight
• collaborating to serve the mission and public relations goals of participating organizations
As a 501(c)(3) The Colorado Library Consortium (CLiC) can provide fiscal services to other groups under the Internal Revenue Service (IRS) rules for fiscal sponsors. Grantspace.org defines fiscal sponsorship as “a formal arrangement in which a 501(c)(3) public charity sponsors a project that may lack exempt status. This alternative to starting your own nonprofit allows you to seek grants and solicit tax-deductible donations under your sponsor’s exempt status.”
At this writing, CLiC handles the financial arrangements for over 20 groups, some informal and some more established. The consortium is seen as neutral territory where diverse groups can have access to administrative services at a minimal cost. If a group of libraries is planning an event, the consortium can provide a place where all participating libraries contribute as equal partners instead of having one library serve as the lead. To make use of this fiscal rule, the IRS requires that CLiC work closely with the group holding the event. Typically this means that one of the organization’s regional consultants sit on the planning group and that there is a contractual relationship that spells out each party’s role.
Why would an outside group wish to enter into a fiscal sponsorship with a 501(c)(3)? Some groups aren’t sure they have the long-term viability to obtain and maintain their own 501(c)(3) status. Many informal groups find it easier to let an established consortium serve as the fiscal entity when they are planning a continuing education event. CLiC provides not only fiscal control but a registration system, contract negotiations and signing, conference planning assistance, and a website if needed. One example in Colorado is a group of librarians who have held over 30 interlibrary loan conferences. A long-standing group like this one may at some point wish to form their own 501(c)(3), but it may also wish to use CLiC’s services to test the waters before deciding to go it alone. Other organizations that use CLiC’s fiscal services include Colorado Libraries for Early Literacy, several regional conference groups, the special populations committee, and the State Library.
Another reason to seek 501(c)(3) fiscal sponsorships is to be able to submit a grant application. With grants, the consortium must be willing to be an active player in the entire grant process in order to meet the IRS fiscal sponsor rules. According to IRS rules, organizations that enter into a fiscal sponsorship relationship should be aware that the 501(c)(3) parent organization is legally responsible for all activities of the group. An example of a short-term grant project was a federal grant sought by a University of Colorado Libraries group that decided to digitize the Colorado Sanborn Fire Maps. The organization partnered with CLiC during the digitization, training, and website-establishment process. After all these tasks were completed, the group ceased to exist, and the University retained the digital project under its management.
Most organizations that allow fiscal sponsorships must have the arrangement approved by their governing board. When entering into a relationship, a memorandum of understanding can spell out what is required of each group and provide a clear distribution of assets if the partnership ends. The Colorado Resource Center has compiled a set of questions to consider before going into a fiscal sponsorship, which can be found at www.crcamerica.org/wp-content/uploads/2012/08/Fiscal-Sponsor.pdf.
There is some risk involved in a fiscal sponsorship arrangement. Legal responsibility for an event or project may fall on the fiscal sponsor, while full control may fall outside the consortium’s control. Signatories to agreements on behalf of informal groups may be subject to personal liability risk due to lack of insurance and corporate standing. It is wise to verify insurance coverage under such arrangements. Financial responsibility may fall on the sponsor when a project ends up in the red.
Finally, what’s in it for the consortium? If the missions of the group are similar to the consortium’s interest, then both entities often can advance their goals more effectively by working together. For the consortium, the public relationship value of the partnership can be invaluable. For example, CLiC does not have the time or resources to provide extensive training in early childhood development, but by partnering with a group of experts in this area, they can make an important impact at minimal cost in resources. Finally, if every group of librarians in the state were to form nonprofit organizations, it could create serious confusion and perhaps, detrimental competition. Overall fiscal sponsorships have served the consortium well by helping to cement the consortium’s reputation as a valuable contributor in many areas of librarianship in the state.