The Hidden Crisis That's Holding Back Maine's Most Promising Nonprofits — And How Fiscal Sponsorship Might Help

Picture this: A group of passionate Mainers identifies a critical community need. They design an innovative program, rally volunteers, and start making real impact. Donations begin flowing in. Local media takes notice. Everything seems to be going perfectly — until it isn't.

The founder, who started this initiative to serve others, now spends sleepless nights wrestling with tax compliance, payroll systems, and grant reporting requirements. The mission-driven work that sparked their passion gets buried under a mountain of administrative tasks they never signed up for.

Sound familiar?

The Maine Way: All Heart, Insufficient Infrastructure

In my three years as the executive director of the Onion Foundation, I've continually been amazed by Mainers' abilities to spot community needs and jump into action. We don't wait for permission or perfect conditions. We roll up our sleeves and get to work.

But as these grassroots initiatives gain momentum and start attracting supporters, they hit what I call the "infrastructure wall." Suddenly, the very success they've worked so hard to achieve becomes threatened by back-office requirements they're ill-equipped to handle.

Data management, compliance reporting, payroll processing, IT support — these aren't just administrative nuisances. They're parts of the engine that keeps mission-driven work running smoothly. When handled poorly (or ignored entirely), they can derail even the most well-intentioned efforts.

To get to the bottom of this issue, we partnered with five other foundations to commission a comprehensive study of fiscal sponsorship in our state. The findings reveal a critical gap that's quietly undermining some of the state’s most promising community initiatives:

Maine has remarkably few fiscal sponsors, and none operating at meaningful scale. Yet our research shows that countless organizations — from scrappy startups to established nonprofits — could benefit immensely from these partnerships.

Working with Pivot Point researchers Carol Kelly and Joanne Joy, we conducted 20 in-depth interviews and surveyed more than 250 nonprofit leaders from across Maine to identify how fiscal sponsorships can help solve this critical problem.

The Fiscal Sponsorship Solution

Fiscal sponsors are 501(c)(3) tax-exempt organizations that receive charitable contributions on behalf of another group or project. They provide administrative oversight and assume legal and financial responsibility for the sponsored organization's activities, often including additional operational services. This arrangement allows sponsees to receive tax-exempt donations and grants while maintaining compliance with federal and state requirements.

Fiscal sponsorships aren’t just for brand-new initiatives that haven't yet achieved 501(c)(3) status. Our research shows that even established nonprofits are partnering with fiscal sponsors to free themselves to focus on what they do best, while ensuring their operational foundation remains rock solid.

Fiscal Sponsorship Barriers We Need To Address

Our research uncovered several concerning obstacles related to all parties involved in a fiscal sponsorship:

• Potential sponsors: Many organizations currently provide fiscal sponsorship as informal favors to one or two groups. They're operating without proper fee structures, adequate capacity, or clear agreements. Some are eager to professionalize their approach but lack the knowledge and resources to do so effectively.

• Potential sponsees: Misconceptions abound. Some believe (incorrectly) that using a fiscal sponsor will hurt their chances with funders. Others struggle to find sponsors aligned with their mission or are reluctant to pay fees for services they don't fully understand.

• Everyone: There's widespread confusion about the different types of fiscal sponsorship and which model makes sense for specific situations. Without this clarity, neither party can craft an effective agreement or maximize the partnership's benefits.

What Funders Are Doing Right Now

The good news? Maine's foundation community is already taking action. At a recent Maine Philanthropy Center convening, funders committed to several immediate steps:

• Clarifying our policies: We're making it explicitly clear that we welcome and encourage fiscally sponsored projects

• Improving our processes: Many of us are now meeting with both sponsors and sponsees during the application process to ensure clear communication and strong agreements

• Addressing fee misconceptions: Contrary to what some believe, we depend on applicants to determine appropriate costs rather than setting ceilings on fees

Most importantly, we're encouraging organizations to include either indirect costs or fiscal sponsorship fees in their project budgets. These services have real value and real costs that sustainable organizations must account for.

The Path Forward: Building Maine's Fiscal Sponsorship Infrastructure

This fall, we're reconvening with interested funders to develop concrete action plans. We’re considering::

• Educating and matchmaking: We’ll work with Maine Association of Nonprofits and Maine Philanthropy Center to create comprehensive educational resources and potentially a platform to connect sponsors with sponsees.

• Piloting services: Several foundations, including the Onion Foundation, are interested in supporting a small cohort of fiscal sponsors in developing professional business plans. We want to help them determine how to offer services at scale, what capacities they need to build, and what fees they should charge to ensure sustainability.

• Strengthening the ecosystem: By supporting this pilot cohort, we'll learn about the true costs of fiscal sponsorship, demand for various services, and how to structure these partnerships for mutual benefit.

Why This Matters for Maine's Future

Fiscal sponsorship isn't a silver bullet for every nonprofit challenge, but it could be a giant step toward strengthening our state's nonprofit ecosystem. When mission-driven organizations can focus on their programmatic work within a secure operational foundation, everyone benefits.

The communities they serve get more effective programs. The organizations themselves avoid burnout and build sustainable operations. And funders can invest in initiatives with confidence, knowing they have the infrastructure to succeed long-term.

Whether you're a nonprofit leader, a potential fiscal sponsor, a funder, or simply someone who cares about our state's nonprofit sector, your voice matters. Share your thoughts with me at diana@onionfoundation.org. I'll make sure your insights reach the broader funder community as we work together to build a stronger nonprofit ecosystem for Maine.

Because at the end of the day, when Maine's nonprofits thrive, our communities thrive, too. And that's something worth investing in.