I grew up professionally in the 501(c)3 world. It was “the” aspirational model. At the time, in the late 1960’s/early 1970’s, I don’t think anyone foresaw the enormous growth of these NFP’s in the arts, or the concomitant problems this growth would cause.
To get to a place where arts entities can freely consider alternative organizational models, it’s essential to learn why the 501(c)3 model became the standard.
For one, it had so much to offer: independence, identity, and tax-deductibility. Additionally, this model was adopted by foundations and government funding entities as required, in order to receive grants. These funders specifically stated (and continue to state) that they would not make grants to organizations under fiscal agency. The reasons for this restriction were understandable at the time. Fiscal agents were often unstable themselves, frequently purported an artistic point of view, and generally charged what was perceived as too high a percentage of budget for services rendered. Funders understandably wanted insurance that their funds would be used responsibly, and also wanted to encourage organizations to stabilize, grow and thrive.
Fiscal agency appears to be emerging as a viable alternative now, as many have addressed the historical issues associated with them. It’s not the only solution, but one of many possibilities for arts entities to consider. With its administrative benefits come risks, as the fiscal agent is subjected to many of the same potential unstable elements as any independent NFP. However, in considering the fiscal agency option, an arts organization or artist can assess the agent’s track record, historical stability and conditions for “membership.” But in order for this option to even be considered seriously, foundations and government funders must rewrite their guidelines for this alternative to be considered.
My future postings will explore additional alternatives to the standard NFP.
You used the acronym NFP, what is it? I work for an organization whose acronym “NFP” means Nurse Family Partnership and its a nonprofit organization.
Sometimes, it seems as if organizations are created as nonprofits so that they don’t have to be fiscally accountable. However, should $’s be the driving focus of an organization’s credibility, particularly those who seek to provide services and the arts to low-resource communities. Everybody likes the “ARTS.” And when groups are left out of the pot because they may not have the resources, then grants and charitable contributions are necessary.
Unfortunately, many funders are still denying funding to those who use fiscal agents. For my organization, it is extremely prudent to use one as they provide accounting services and insurance, which saves us at least $2,000 a year. That equals our current budget. They provide many other services as well. It is a ridiculous conceit that larger organizations and funders have that small organizations are like children that have to be pushed out of the nest onto their own. Is this a reflection of too many working mothers in the field? Who knows. It is in some ways cruel, in other ways inappropriate. Not everybody who has a worthy project should have to be a 501C3 holder. That means a lot of paperwork which a working artist should not have to do. But then, all foundations seem to do is increase paperwork. It makes them look busy, and so they impose it on others. The whole field needs a top-to-bottom review by some sensible people who are not in the field, and thereby tainted by its insular mindset, by corporate pressures, jargon, or the peculiar training acquired in arts professional degree programs. They may, in fact, be the worst single factor in all this.
I’m interested to see what other alternative models James has. But the fiscal sponsorship model seems good and I agree with the Baron that more funders should consider its adoption.
I agree that the NFP (Not for Profit) model is being exploited (overused), and that a healthy alternative is fiscal sponsorship; Although I hope new more creative models start to be implemented, specially for the arts.
I work for an arts organization that provides Fiscal Sponsorship and I cannot tell you how many of our “projects” become 501(c)3’s before having proper structures or being ready. They often leave just because they no longer want to pay the fees or because they want access to grants that to be honest they don’t have a chance to get – 501(c)3 or not.
It is sometimes infuriating to hear this projects say “your fee is too high”, 10% whcih gives them structure and freedom, a fee that covers ALL administrative costs, including bookkeeping and grant management, which if they are to take (hiring the same staff structure) ends up being about the same or more. Their solution? Making their entire staff volunteers! How can you add value to what you do if you treat it as a hobby?!
I hope that art organizations find new ways to operate and new models, because volunteer workers, overworked and underpaid employees, and clueless 501(c)3 administrators is not the way. And then we wonder why we struggle as a field.
Anyone who has worked for a nonprofit knows that fiscal accountability is even more important for nonprofits than for for-profit entities. Not-for-profit (NFP) status entails a great deal of financial paperwork, all of which is open for scrutiny under the Freedom of Information Act (federal) and state sunshine laws. For-profits, especially those that are privately held and/or sole proprietorships, can hide fiscal shenanigans any number of ways.
The reason there are so many NFPs is because that’s the only type of structure donors will give to. Didn’t need an article to tell me that.
Fiscal agency is not a financial institution? I’m afraid this article is over my head!
How does fiscal agency and fiscal sponsorship differ?
Apologies — I have used them interchangeably.