The nonprofit sector did not come about by accident; it was molded by the actions of people who wanted to preserve and develop the role of the charitable sector in public life. The following six important moments in the history of nonprofits helped shape the “third sector,” and the function of private philanthropy in America.
1867–The Peabody Education Fund
The Peabody Education Fund is regarded as the first modern significant independent foundation, created to pool the resources of a number of funders to support charitable activities. Its main purpose was to integrate both poor whites and ex-slaves into southern state society, foster both intellectual and industrial education, and “foster regional reconciliation.” The fund started with $3 million in its coffers and continued to receive donations. Eventually, the fund distributed about $4 million across the region, aiding with the building of schools, offering scholarships, and training teachers. Many public leaders were elected to run the fund throughout its history. Some of its trustees went on to form the General Education Board in 1902.
In the 1910s, the Peabody Education Fund merged with the Slater Fund, which was created late in the previous century to improve and support the education of African Americans. Eventually, in 1937, the Slater Fund joined with two other foundations to form the Southern Education Fund.
1914–The Cleveland Welfare Council
The Cleveland Welfare Council was the first federated fund, also known as a united fund or community chest. A federated fund collects and manages donations, and distributes them to its member organizations. The objective is to reduce the competition between charities, thereby building a sense of community among those involved in charitable activities.
In 1900, the Cleveland Chamber of Commerce implemented this idea by taking responsibility for endorsing organizations and agencies that sought funding. By 1914, almost all of the welfare organizations in Cleveland had joined together, forming the Cleveland Welfare Council.
1917–The Revenue Act of 1917
In 1917, the US Income Tax Law was passed, which allowed tax payers to deduct charitable contributions from up to 15 percent of their income tax payments. This part of the law was instituted to help fund the country’s participation in World War I, and was passed by Congress to encourage private philanthropy. Starting in 1936, corporations could also claim deductions for their charitable contributions.
1949–The Council on Foundations
Founded in 1949, the Council on Foundations is an extant nonprofit association of grant-making corporations and foundations. It was started by Edward L. Ryerson, a steel executive in Chicago, and was funded by individual community foundations. Originally, it was called the National Committee on Foundations and Trusts for Community Welfare. The board of 22 members included representatives from social service organizations like the YMCA, community chests, and community trusts.
Today, the organization boasts more than 2,000 grant-making foundations around the world. It offers a variety of programs and initiatives that seek to provide support and resources to professional philanthropists.
In the debates surrounding the Tax Reform Act of 1969, basic questions and criticisms were reintroduced about the role of private philanthropy in the U.S. To address these questions, several prominent leaders and public figures decided to convene a commission at the suggestion of John Rockefeller III. The Rockefeller family donated $200,000 to the fund, along with other private donations from individuals and organizations. With initial funding, the Commission on Private Philanthropy and Public Needs was convened.
Also known as the Filer Commission, after its leader John Filer who was chairman of Aetna Insurance, the group commissioned 85 studies and convened a series of meetings over a period of two years. It issued a report in 1975 consisting of 240 pages of data and recommendations. The report discussed a “third sector” apart from government and business—a sector of private funding and support for hundreds of thousands of organizations and institutions. This third sector would play an important role in American life, according to the report. The Filer Commission proposed many recommendations and rules as to how this sector can be sustained and kept at the highest levels of integrity.
Independent Sector was founded in 1980. It is a coalition of nonprofits and foundations whose staffs range from hundreds of thousands to less than ten. Its purpose is to network together many philanthropic professionals and leaders, and offer information and leadership development to people in the charitable sector.
To help further its missions to bring about positive change, Independent Sector assists the charitable sector by lobbying to impact public policy. Through its networks, philanthropic workers can further their own professional development and become better informed about holding their organizations to high standards of ethics and accountability.
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Council on Foundations, About The Council
Philanthropy Roundtable, Public-Policy Reform
Learning To Give, Key Dates and Events in American Philanthropic History 1815 to Present
Marquette University Law School, The Charitable Contribution Deduction: A Historical Review and a Look to the Future