As organizations that seek to do good, community foundations understand the problems and needs in their communities and address these needs by raising funds and awareness. However, beyond grantmaking and charitable opportunities, you can benefit your community—as well as the charitable field—by participating in the public policy process. As a leadership organization and a community expert, you have a powerful voice that can create far more impact than any one grant or program you offer.
Community foundations have traditionally shied away from public policy work for fear it might alienate donors or create an impression of partisanship. However, your work allows you to make a significant difference on issues you are already addressing through grantmaking. It also helps to maximize grantmaking dollars while creating lasting change.
In this brief, you will learn the basics of public policy and how your community foundation can get involved in the process. You will find answers to such basic questions as:
- What is public policy work?
- Can community foundations lobby?
- What rules must community foundations follow while lobbying?
Note: The IRS rules discussed in this paper are the federal tax rules and are not comprehensive. Congress and some states and regions require registration and disclosure of lobbying activities over certain thresholds and, at times, of donors funding those activities. Always check with your legal counsel before and during your engagement in public policy work.
Public Policy Work Defined
Public policy work is any legally appropriate activity that aims to affect or inform government laws, administrative practices, regulations, or executive or judicial orders. It comprises a wide range of activities, including:
- legislative lobbying
- administrative or regulatory advocacy
- judicial advocacy
- public interest research
- informing and educating legislators
- informing and educating the public
- community organizing
- educating voters and candidates
- accessing and disseminating public information
- facilitating and building partnerships
- forming coalitions
- negotiating among nonprofits and government
Although lobbying is only one form of public policy activity, it often gets the most attention because it can be the most effective way to change laws that affect the groups and people you serve.
In addition, lobbying is only a subset of advocacy, although the terms often get confused. Advocacy is active support for an issue—the act of pleading or arguing for something. It includes any activity that supports or opposes an overall cause or issue. Lobbying, however, is more narrowly defined under federal tax law as certain attempts to influence specific legislation. Specific legislation includes a bill or draft legislation that has been or will be introduced in any legislative body such as a city council, a state legislature, or Congress. There are two types of lobbying:
- Direct lobbying: when the community foundation calls or meets with a legislator or legislative staff to express a view on specific legislation. It can also include communicating with the general public on a ballot measure or initiative when the general public is deciding whether or not the measure will pass.
- Grassroots lobbying: when the community foundation urges the general public to make contacts with a legislator or legislative staff expressing a view about specific legislation. Grassroots lobbying also includes a call to action, which might be any of the following: encouraging others to contact their legislators or staff; providing contact information for the legislators or staff; providing a mechanism (e.g., a postcard) for the recipient to contact legislators or staff; or specifically identifying which legislator(s) will vote on the legislation.
- In what ways can public policy work benefit our foundation and our community?
- What public policy work are we currently engaged in?
- Do we understand the lobbying and advocacy rules? Have we consulted our legal counsel?
- What current public policy strategies work well for us and our work?
- Do we have resources available to take on more public policy work?
- Who within our community foundation is in charge of public policy work?
- How do we select which issues to focus on? Do our public policy activities help us achieve our vision and mission?
- How do we keep the board informed of and involved in our public policy work?
- How do we keep donors, prospects, and key opinion leaders informed and involved?
Frequently Asked Questions
Why should community foundations care about public policy?
Public policy work requires strategic leadership—an ability to convene a broad cross-section of people to work on an issue—and access to resources to support the work. Most community foundations are advocates for improving their local communities and are therefore in the right position to lead this work.
Lobbying and public policy work benefit the community and can benefit your foundation. For instance, it can
- raise awareness of your mission
- mobilize members, volunteers, donors, and board members
- attract favorable media attention
- establish and expand government investment in important social programs
- reform laws and regulations that govern the operation of your foundation and the evaluation of its operation
- benefit the citizens of your community beyond any one direct service program
Can community foundations lobby?
Community foundations, like all public charities, may lobby as long as lobbying is an insubstantial part  of the foundation’s activities. Unlike private foundations that are generally restricted from lobbying except on those issues affecting their own tax-exempt status, community foundations may lobby to the same extent as other public charities.
What IRS rules concern community foundations and lobbying?
As stated above, community foundations may lobby as long as lobbying is an insubstantial part of the foundation’s activities. The IRS has established two different tests to determine whether lobbying is insubstantial. Your community foundation may choose which test will govern its activities.
The first test is called the insubstantial part test. This test is the default test that the IRS will apply when looking at the organization’s lobbying activities. While the IRS has never clearly defined the term “insubstantial,” most practitioners will tell you that about 5 percent of the organization’s overall activities is a safe level of lobbying. To determine the amount of lobbying, the IRS will look at several factors, including volunteer activities, money spent on lobbying, and the amount of publicity the foundation attributes to its lobbying activities.
The second—and in many cases the more advantageous—test is referred to as the 501(h) expenditure test. Under this test, the amount the community foundation may spend on lobbying is based on a sliding scale—with an annual $1 million dollar absolute cap on lobbying. Depending on the foundation’s budget, lobbying could permissibly constitute as much as 20 percent of the foundation’s total expenditures in a tax year. (For more information about this calculation, read Worry-Free Lobbying  [pdf], an Alliance for Justice publication.)
Why should community foundations opt for the 501(h) expenditure test?
The section 501(h) expenditure test allows community foundations to measure lobbying based on their expenditures rather than on their activities (which can be more vague). The 501(h) expenditure test has several advantages:
- Clear, dollar-based lobbying limits:The lobbying limit is calculated on a sliding scale based roughly on the community foundation’s expenditures in one fiscal year. Because the test is based on money spent on lobbying, the rule is, if it doesn’t cost the foundation any money, it doesn’t count against the foundation’s lobbying limit. For example, the time volunteer board members spend talking on behalf of the community foundation with town council members about current legislative issues doesn’t count toward the foundation’s lobbying limit because no foundation money is being spent.
- Clear definition of lobbying: Detailed regulations under section 4911 of the U.S. Tax Code explain what counts as lobbying and what does not.
- Sense of security: As long as the community foundation stays within its lobbying limits, its tax-exempt status will not be at risk. In fact, the community foundation would have to exceed its lobbying limits by 50 percent over a four-year period to place its tax-exempt status at risk.
To choose the 501(h) expenditure test, a foundation has to file the simple, half-page Form 5768 . Form 5768 can be filed at any time during the tax year and is effective dating back to the beginning of the fiscal year when it was filed. Once filed, the election remains effective indefinitely or until the community foundation chooses to revoke the election.
What are some tips to help community foundations start lobbying?
Here are some suggestions to help you get started:
- Consider making the election under section 501(h).
- Communicate clearly with legislators.
- Build local coalitions that support the particular policy or legislation.
- Be prepared with facts and figures to support your effort.
- Avoid lobbying beyond the permitted limits.
- Choose your issues carefully and on a nonpartisan basis.
- Don’t alienate your strong supporters.