Subject: Analysis of Senate Bill 12 (SB12) – Community Foundations and School Funding
1. Executive Summary:
Ohio Senate Bill 12 (SB12) aims to amend Ohio Revised Code sections and enact new sections to facilitate the use of community foundations by public schools (including community and STEM schools) for managing charitable funds and endowments. The bill allows these schools to create component funds within community foundations for gifts, endowments, and other charitable funds. It also clarifies the definition of “institutional funds” to include funds held by a community foundation for an institution. The intent appears to be to provide schools with more efficient and effective ways to manage and grow their charitable assets, while ensuring appropriate oversight and accountability.
2. Main Themes and Key Ideas:
- Empowering Schools Through Community Foundations: The central theme is enabling public schools (traditional, community, and STEM) to leverage the expertise and infrastructure of community foundations for managing their charitable assets. This includes gifts, endowments, and existing charitable funds.
- “To permit community foundations to create component funds of any charitable funds received by public schools and to classify some funds held by a community foundation as institutional funds.” (Page 1, lines 6-9)
- Component Funds within Community Foundations: SB12 focuses on the creation of “component funds” within community foundations. These funds are essentially subsets of the community foundation’s overall assets, designated for the benefit of a specific school.
- Section 3315.41 defines “component fund” as “an individual fund considered by the internal revenue service to be part of the exempt assets of a foundation, under which the foundation’s governing board has total control over all assets of the fund.” (Page 6, lines 153-157)
- Expanded Definition of “Institutional Fund”: The bill broadens the definition of “institutional fund” to specifically include funds held for an institution (like a school) by a community foundation. This clarifies the legal status and management requirements for these funds.
- “(2) ‘Institutional fund’ includes a fund held for an institution by a community foundation pursuant to section 3314.55, 3315.43, or 3326.53 of the Revised Code.” (Page 2, lines 31-33)
- Clear Criteria for Community Foundations: SB12 provides a specific definition of “community foundation” for the purposes of this legislation. It outlines requirements related to nonprofit status, geographical focus, grant-making activities, tax-exempt status, and public reporting.
- Section 3315.43(A) details the specific criteria for a foundation to be considered a “community foundation,” including being “a nonprofit corporation organized under Chapter 1702. of the Revised Code” (Page 6, lines 163-164) and being “exempt from federal income taxation under 26 U.S.C. 170(b)(1)(A)(vi) and 501(c)(3).” (Page 7, lines 174-176)
- Conditions and Limitations on Funds: The bill ensures that any conditions or limitations attached to the original gift or endowment are maintained when the funds are managed by a community foundation.
- “Any designation made pursuant to this section remains subject to any conditions and limitations to which the original gift or endowment was subject…” (Page 3, lines 69-71, also repeated in similar language for school districts and STEM schools.)
- Reversion of Property to the School: SB12 includes provisions requiring the community foundation to return the property to the school under specific circumstances, such as the foundation losing its community foundation status, being liquidated, or violating the conditions of the gift.
- “A community foundation that creates a component fund in accordance with this section shall return the property to the community school if any of the following circumstances exist…” (Page 4, lines 77-80, also repeated in similar language for school districts and STEM schools.)
- Specific Sections Affected: The bill amends sections 1715.51, 3315.10, and 3315.41 and enacts sections 3314.55, 3315.43, and 3326.53 of the Revised Code. (Page 1, lines 4-5) These sections pertain to charitable trusts, school district powers, and community/STEM school operations.
3. Key Definitions:
- Charitable Purpose: “any purpose the achievement of which is beneficial to the community, including the relief of poverty, the advancement of education or religion, the promotion of health, and the promotion of a governmental purpose.” (Page 1, lines 13-16)
- Institution: A person or governmental organization organized exclusively for charitable purposes, or a trust with terminated noncharitable interests. (Page 1, lines 17-22)
- Institutional Fund: A fund held by an institution exclusively for charitable purposes, including funds held by community foundations for institutions. (Page 2, lines 23-33)
- Community Foundation: Defined in detail in Section 3315.43, encompassing criteria related to organizational structure, geographical focus, grant-making, tax status, and public reporting. (Pages 6-7)
- STEM School: Science, Technology, Engineering and Mathematics school.
4. Potential Implications:
- Increased Efficiency: Schools may benefit from the professional investment management and administrative expertise offered by community foundations.
- Enhanced Fundraising: The association with a well-regarded community foundation could potentially attract more donations to schools.
- Greater Flexibility: Schools may have greater flexibility in managing and deploying charitable funds through component funds.
- Oversight and Accountability: The bill includes provisions to ensure that funds are used according to the donor’s intent and that the community foundation remains accountable to the school.
- Potential Costs: Schools may incur fees for the services provided by the community foundation, although the bill allows for payment of reasonable fees.
- Community Foundation Capacity: This bill will place additional burden on Community Foundations to properly manage the funds and adhere to the requirements outlined.
5. Questions for Consideration:
- What is the anticipated impact on community foundations in terms of workload and resources?
- Are the reversion clauses sufficient to protect the interests of the schools and donors?
- What safeguards are in place to prevent conflicts of interest between the community foundation and the school?
6. Conclusion:
SB12 represents an effort to modernize and streamline the management of charitable funds for Ohio’s public schools. By leveraging the expertise of community foundations, the bill aims to provide schools with greater access to professional investment management and administrative services, while maintaining appropriate levels of oversight and accountability. Further analysis and discussion are warranted to fully assess the potential benefits and challenges associated with this legislation.