A local artist has asked for us to become a fiscal sponsor (act as a “pass-through” organization). Is this something a public library can do?
A "pass-through" is when a 501(c)(3) organization agrees to let a non-501(c)(3) use its tax status to accept grant money. It’s a not uncommon arrangement; in fact, some 501(c)(3)’s are actually set up to do it so smaller and less established organizations can benefit from grant money.
Since it can give access where access would otherwise be denied, a pass-through can be a very helpful and equitable thing. But sharing a tax status is like sharing a milkshake: you can do it—and it's a sweet gesture—but it comes with risks.
What are those risks, and how can they be handled?
At the bare minimum, any public library considering serving as a pass-through must have a written, board-approved policy for doing so, and the policy must include:
- How does serving as a pass-through serve the library's mission and long-range plan, and how do they select pass-through affiliations that stay within that purpose?
- What is the admin fee for serving as a pass-through (usually no more than 10%)? NOTE: the admin fee is essential for a public library since it cannot offer the accounting and other services associated with being a pass-through without being remunerated at least at cost.
- Does the library have the accounting and administrative capacity to safeguard the money and monitor that all funding requirements have been met before it is disbursed (since failure to meet them can require a claw-back)?
- The contracts for the grant must be kept for 6 years.
- The library's accountant should be consulted before any pass-through is approved, so it can be assured that the library can properly account for the funds.
- The library must keep in mind that a failure to meet the requirements of the grant could impact future funding from state/federal sources AND being associated with funding from a source (even just as a pass-through) could bar the library from obtaining funding from the same source for its own project.
There are risks to both state and federal legal compliance, as well as contract compliance for an individual grant, if these items are not addressed properly. For this reason, many NFPs just say "NO" to requests to be a pass-through.
A related but separate solution to this type of need is the library serving as the grantee and bringing in the potential "partner" as a subcontractor (or "sub-awardee"). In that scenario, the library applies for the grant and then sub-contracts with the person/org who will do most of the work. (This relationship is usually written right into the application for the grant).
Bottom line: if the library wants to offer services as a pass-through for mission-aligned organizations, it can, but it should have a written policy and be ready to spend administrative time 1) monitoring the grant terms and 2) accounting for the grant. Once a policy is in place, requests can be evaluated, and pass-through relationships can be governed in accordance with it.
Still not sure if your library should do that? Here’s a litmus test:
If a library is not prepared to have its staff spend around ten hours of admin time (or more) on it each fiscal year, then the answer should be a "we do not have the policy or capacity to grant this request". If the library feels like the project is worthy enough, it could then offer "however, the library will consider applying for the grant directly, with your organization as a subcontractor."
I hope this is helpful!