The board of directors of the Morgan Hill Community Foundation, which has raised and donated nearly $400,000 to local causes since its inception 10 years ago, recently found out the organization has been out of compliance with federal regulations that make it a tax-exempt nonprofit.
The implications are mixed for the varying community groups that work with and benefit from the MHCF, but none are in danger of being “cut off,” MHCF Board President Earl Liebich said. Some will have to go through more paperwork when applying for funding or other services provided by the MHCF, others will simply have to sign new agreements and some who have already fulfilled their purpose will likely dissolve their organization.
But overall, the dozen or so smaller community organizations that depend on the MHCF for accounting services or insurance coverage don’t have to worry, and the non-compliance won’t threaten the MHCF’s annual spring grant award cycle next year, according to Liebich.
“We’re not discontinuing funding” to existing MHCF programs, Liebich assured. “What we’re basically doing is bringing ourselves into compliance.”
Donations are still tax-deductible.
Specifically, the board is in the process of “restructuring” its agreements with existing community organizations who are members of the MHCF through the foundation’s “alliance program,” Liebich said.
These organizations include the Morgan Hill Sister City Committee, Morgan Hill Dog Owners Group, Teachers Aid Coalition, Morgan Hill Community Garden, the Friends of the Morgan Hill Senior Center and six others, according to the MHCF website.
“In some cases, the organizations are probably not going to exist anymore,” because they formed in the first place only to complete a one-time project that is completed, and others might choose to become independent 501(c)3 (nonprofit) organizations, Liebich said. The current structure of these alliance relationships is at the root of the MHCF’s non-compliance with IRS and 501(c)3 regulations, Liebich said. This non-compliance dates back 10 years.
“As a 501(c)3, the foundation needs to have total control over money donated and money granted out,” Liebich said. “Right now that is not the case because some of these organizations have their own checking accounts, and the foundation has no control over what’s going in and out.”
The MHCF has not been notified or cited by the IRS for the infractions, Liebich said. Rather, the board of directors discovered the discrepancies and created a task force to correct the violations proactively. Board members learned about the violations after consulting with staff of the Silicon Valley Community Foundation, which offers investment services and fiscal advice to the local foundation, and after discussions with other community foundations.
As a result, the task force came up with new application and agreement forms that are “much more comprehensive and oriented to the services provided to the groups by MHCF,” for existing and future alliance members, Liebich said. The MHCF has worked with the Silicon Valley Community Foundation, to devise the new forms and process.
“The MHCF has no choice but to get its house in order relative to the laws and regulations under which it is allowed to operate as a nonprofit,” Liebich said.
The future of the alliance organizations is complicated because their relationships with the MHCF and their current nonprofit standings are a mixed bag, Liebich explained. Some – such as the San Pedro Trail Volunteers who recently raised money to install a bench at the percolation ponds in east Morgan Hill – have outlived their purpose and will likely dissolve.
The Nikano Trust, a privately run fund dedicated to senior services in Morgan Hill, will likely become an endowment in order to satisfy the MHCF’s nonprofit requirements.
“It’s just a different agreement,” Liebich said, but the fund will still support senior services.
And some already have their own 501(c)3 nonprofit status, but will still be asked to sign new agreements if they want to remain MHCF alliance members. One of these is the Morgan Hill Community Garden, which does its own fundraising efforts but relies on the MHCF for insurance coverage, according to Community Garden President Sherrie Wren.
Wren and representatives of other organizations currently affiliated with MHCF as alliance members were not aware of the foundation’s legal woes when contacted this week. But all agreed the MHCF has had a profound positive impact on Morgan Hill over the years.
“The Community Foundation has been a wonderful asset to the community, and I’m sure they’ll work through this well,” said former mayor Dennis Kennedy, who is involved in the Morgan Hill Sister City committee.
The City of Morgan Hill has a tight relationship with the Sister Cities Committee, which has established and fostered sister city partnerships with foreign cities in Italy, Mexico, Ireland and Turkey. But the City has not donated money to the MHCF in recent memory, City Manager Steve Rymer said.
Still, the groups offer public benefits to the City. For example, the Dog Owners Group has helped develop the City Dog Park; the Friends of the Senior Center has improved services for seniors offered at City facilities; and the Community Garden leases City property in order to provide residents with gardening opportunities, Rymer explained.
The MHCF’s Philanthropy Day is an annual ceremony recognizing local philanthropists and their efforts to improve the community. At the Nov. 9, 2012 Philanthropy Day, the MHCF awarded Community Solutions with a $10,000 grant, according to the MHCF website.
Other recent fundraising successes by the MHCF and alliance members touted on the website are a $8,800 grant awarded by the Friends of the Senior Center to the Centennial Recreation Center in October 2012, and $5,000 worth of grants awarded to six local nonprofits as part of the MHCF’s annual spring grant cycle. These grants were awarded to the Community Law Enforcement Foundation, Learning and Loving Education Center, Wildlife Education and Rehabilitation Center and others. The grant program is not in danger for next year, Liebich assured.
The MHCF typically begins accepting grant applications from interested local nonprofits in March of each year.
“Our goal is to be bigger and better, and in compliance,” Liebich said.
• Morgan Hill Dog Owners Group
• Morgan Hill Wind Symphony
• San Pedro Trail Volunteers
• South Valley Athletic Foundation
• Teachers Aid Coalition
• Morgan Hill Sister City Committee
• Morgan Hill Library Foundation
• Volunteer Morgan Hill
• Morgan Hill Community Garden
• Friends of the Morgan Hill Senior Center
• Rachel’s Challenge of Morgan Hill
