Fiscal Sponsorship - A Brief History and Possible Future

A Brief History

Fiscal sponsorship is a “new-old” field, just beginning to attain maturity as a field. There are approximately 300 self-identified fiscal sponsors according to a directory maintained by the San Francisco Study Center. Many have achieved notable scale, and there is a large and ever-growing knowledge base of practice. This progress aside, the field of fiscal sponsorship--the ecosystem as a whole--has only recently begun to develop its own collective and capacity building infrastructure.

Fiscal sponsorship dates to 1959, when the Boston organization known today as TSNE MissionWorks started a practice of sharing backbone support with multiple semi-autonomous missions--what would become called comprehensive “Model A” fiscal sponsorship. During this time the practice spread, largely to afford access to smaller, nonprofit, organizations serving marginalized communities that were frequently excluded from government funding and institutional philanthropy. Tides in San Francisco, Urban Affairs Coalition (UAC) in Philadelphia and others with now multi-decade histories started in this formative era.

In 1993 Greg Colvin published the first edition of his landmark book, Fiscal Sponsorship: Six Ways to Do It Right. His text has enjoyed several new additions and remains a go-to resource, but there is still not an extensive literature on the field.

It would be more than 40 years before the field’s trade association, the National Network of Fiscal Sponsors (NNFS), was founded in 2004 with support from the W.K. Kellogg Foundation. The first (and still only) field scan of the fiscal sponsorship landscape was commissioned in 2006 by Tides Center from LaFrance Associates, “Fiscal Sponsorship Field Scan: Understanding Current Needs and Practices”. The IRS issued its first ruling concerning fiscal sponsorship in 2012. Despite these advances, most other areas of human activity today, from dairy farming and social investing to knitting and model train collecting, have vastly more supporting resources for practitioners than the fiscal sponsorship field.

A Possible Future

Collectively, fiscal sponsorship as a field is poised to be a platform to help solve some of the most pressing problems of our time. As hubs for diverse, independent missions, fiscal sponsors can be a vanguard for the change our sector so urgently needs.

Yet we estimate that fiscally sponsored activity represents less than 2% of the nearly $2 trillion dollars spent annually by the nonprofit sector. According to the Study Center’s data, most sponsors today are located in major metropolitan areas, and predominantly on the East and West coasts. Rural areas and most of the interior states appear woefully underserved.

A map of the organizations listed in the San Francisco Study Center directory.

The opportunity to expand the field today lies in the potential for fiscal sponsorship, if practiced well, to move the nonprofit sector along two principal paths of transformation.

(1) Equity, Diversity, and Social Justice: Fiscal sponsors can remove many of the barriers to engaging in social purpose missions, creating more immediate and affordable access to nonprofit infrastructure. A fiscally sponsored project that has yet to raise a single dollar can plug day-one into a sponsor and enjoy the benefits of experienced managers, tax-exempt corporate infrastructure, insurance, and professional administrative staff. Inherent in the fiscal sponsorship model is a kind of pay-for-success approach that lessens or eliminates financial barriers to entry and fixed costs. Projects allocate a fractional percent of each dollar they bring in to the resources they share with their sponsor--paying as they go in proportion to their need. Fiscal sponsors can also be a forever solution to sustaining these backbone resources, allowing the keepers of mission and vision more time to do their vital work.

Otherwise, the barriers to entry and ongoing operation of nonprofits are substantial, which is why more than 80% of all nonprofit leaders today are white. Traditional, independent nonprofit infrastructure is designed for the privileged. If we are to make significant progress on the many urgent fronts of social, racial, and economic justice in this country we must make the tools and resources of the tax-exempt sector available to all. Fiscal sponsorship can place us more firmly and aggressively on that path.

(2) Efficiency, Sustainability, and Impact: Fiscal sponsors can offer greater efficiency and “savings” in back-office operations, allowing more financial and time resources to be tasked to programs and services. Recently Social Impact Commons conducted a study of 475 arts and culture organizations operating below $2 million in budget in Southeastern Pennsylvania using the robust longitudinal data set of SMU Data Arts. We found that the organizations in this cohort spent between 17% and 27% of revenue on the same support that a comprehensive fiscal sponsor, such as CultureWorks Greater Philadelphia, can offer for between 9% and 12% of revenue--a savings of roughly 10%. This may seem like a small number, but on volume, it represents about $5 million in administrative savings just for this study group alone.

Concerning sustainability, our sector is fragmented and fragile, which presents a constant threat to sustainability and impact. There are about one million independently formed nonprofits in the U.S. today. Eighty-eight percent of them operate below $500,000 in budget; 97% operate below $5 million. It is arguable that organizations don’t start to attain optimal efficiency until they reach between $5 million and $10 million in budget. It’s a matter of ratio, proportion, and scale of overhead costs to program delivery. This means that 97% of the sector is likely spending more on back office than it needs to (at least 10% more!), leaving billions in program and service dollars sequestered. Moreover, we know from the Nonprofit Finance Fund’s annual nonprofit health surveys that between 40% and 50% of the sector has less than 30 days cash on hand, which means that a large portion of our sector is very fragile. Contrary to popular assumption the 88% of organizations that are small, perform more than 85% of the overall program delivery for the sector. (It’s not the 12% that are doing all the lifting.)

So, in sum, the organizations doing the most work are the least efficient and most threatened with insolvency on a daily basis. Fiscal sponsors, as engines of resource sharing and collective capacity building, can help us reposition the vast landscape of small organizations for greater efficiency, sustainability, and impact.