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Local Government Collaborations Part 1 - Fiscal Sponsorship

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In this article, I’ll talk to you about the first of two potential collaboration options for local government. The first type is a fiscal sponsorship, the second type is project planning and implementation collaboration that I will cover in my June blog post. If you’re a local government, these two articles will provide you with some additional options for finding and qualifying for grant funding opportunities that are limited to IRS-approved 501(c)(3) nonprofit organizations.

Fiscal Sponsorship Collaboration

The National Council of Nonprofits has published this definition of fiscal sponsor:

A nonprofit organization that provides fiduciary oversight, financial management, and other administrative services to help build the capacity of charitable projects. 

What does this mean for local government? I interpret it to mean that if you identify a grant funding opportunity and local governments are not eligible applicants, but 501(c)(3) nonprofit organizations are, then you’ll need to partner with an eligible grant applicant to function as your fiscal agent (aka fiscal sponsor).

It is important to understand how the Council defines building the capacity of charitable projects. This means that the funding you plan to apply for requires you to relieve the needs of indigent, ill, helpless persons, or animals.

What Does Not Fit the Definition of Charitable

  • First responder equipment (fire and police). This type of project directly benefits government employees.
  • Signage to welcome visitors to your community. This type of project directly benefits tourism.
  • Public works projects. This type of project directly benefits the community-at-large with streets, garbage, recycling, and water and/or sewer infrastructure.
  • Computer upgrades for a city or county department. This type of project directly benefits government employees.
You would definitely need to build an ironclad statement of need about the indirect benefits to the indigent, ill, helpless persons or for animals.

What Does Fit the Definition of Charitable

  • Purchasing smoke detectors in community centers operated by local government. This type of project benefits low-income senior citizens and high-risk youth who are at your facilities daily.
  • Purchasing window air conditioners for the elderly living in older occupant-owned homes that only have non-working antiquated evaporative coolers or no cooling systems in regions where summer temperatures reach triple digits and the elderly persons have died from heat exhaustion. This type of project benefits low-income, high-risk elderly homeowners.
  • Purchasing community garden equipment and supplies for neighborhood associations that are planting communal gardens on vacant city lots. This type of project benefits low-income residents, elderly fixed-income residents, and poor families with children that are living in food deserts (no fresh fruits or vegetables within walking distance of their neighborhood).

Ironing Out the Details

Who is the grant applicant? If the funding source does not list local unit of government as an eligible grant applicant, call or email the funding source’s contact person and ask if you can apply as a local unit of government. If the answer is no, then ask if you can have an eligible nonprofit partner apply as the grant applicant and fiscal agent.

What does this mean? It means that your nonprofit partner will receive the grant monies, and if awarded will be responsible for overseeing your implementation of the grant-funded project. It also means that your nonprofit partner will deposit the grant award funds into their bank account and disburse funds for your project on an agreed upon schedule.

Will the fiscal agent expect to be compensated for their oversight and managing the funds and the resulting reporting? In most cases, any agency acting as a fiscal agent will require a signed agreement (memorandum of understanding or agreement) detailing their role and your local unit of government’s role in carrying out the funding’s purpose. This administrative fee can range from 5% to 10% of the grant award and is legal and allowable from the funder’s viewpoint.

What happens if one or both of the collaborative partners do not fulfill their roles? Both of you are in default with the funder and have a lot of explaining to do. Grant monies may have to be paid back to the funding agency. Your failure to fulfill the commitments written in your grant application is the first step to grant seeking suicide.

Futher Resources for Understanding Fiscal Sponsorship Collaboration

  • The Foundation Center (GRANTSPACE) – This website provides a Q & A formatted list of everything you’ve ever wanted to know about fiscal sponsorships.
  • National Network of Fiscal Sponsors – This website contains resources for identifying the right types of fiscal sponsors
  • Nonprofit Law Blog – This blog shows you the red flags related to fiscal sponsorship
  • 596 Acres – this is a collaboration with New York City and 596 Acres (a community-based nonprofit)                                                 


Local Government and Nonprofit Collaboration for Better Quality of Life