501c3 Non-Profit Organization Funding Requests

When the City Can Provide Funds to a 501c3 Non-Profit Organization

Municipal governments are prohibited from making direct donations and in-kind contributions to non-profits under Article III, Section 31 of the Iowa Constitution. However, there are two situations in which public funds may be provided to a non-profit.

Economic Development Purposes

Economic development purposes as outlined in Chapter 15A of the Code of Iowa, specifically Chapter 15A.1(1)(a), 15A.1(1)(b), and Chapter 15A.2.

1. 15A.1(1)(a): Economic development is a public purpose for which a city may provide grants, loans, guarantees, tax incentives, and other financial assistance to or for the benefit of private persons
2. 15A.1(1)(b): For purposes of this chapter, economic development means private or joint public and private investment involving the creation of new jobs and income or the retention of existing jobs and income that would otherwise be lost.
3. 15A.2: Before public funds are used for grants, loans, tax incentives, or other financial assistance to private persons or on behalf of private persons for economic development, the governing body of the city that is dispensing those funds shall determine that a public purpose will reasonably be accomplished by the dispensing or use of those funds. Any or all of the following factors should be considered:
   1. Businesses that add diversity to or generate new opportunities for the city’s economy should be favored over those that do not.
   2. Economic Development activities that should attract, retain, or expand businesses that produce exports or import substitutes, or which generate tourism-related activities.
   3. Economic Development activities or use of funds that are targeted toward businesses that generate public gains and benefits, which gains, and benefits are warranted in comparison to the amount of the funds dispensed.

Contract for Services between the City and a Non-Profit

Government entering into a contract for services with the non-profit.

1. Agreements should be reduced to a written contract; the contract should be approved by a resolution of the council; and the purpose of the expenditure of the tax dollars in question should be clearly documented in the minutes.
2. The terms and conditions of each party to the contract should be plain, detailed, and unambiguous.
3. There should be clear language as to how much the city is paying, the schedule of payments, and what the city (or the public) is receiving from the non-profit in return. Overall, consideration should be balanced for each party and the city should seek the highest value possible for taxpayers.
4. When the city contracts with a non-profit and the non-profit is not providing a clear service directly to the city but rather the service is to the public, the public benefit will be the ‘consideration’, or benefit, the city receives under the contract. This consideration, how the public (as a whole) is benefitting should be made clear in the contract.
5. The total cost of the contract and required supporting invoices and/or documentation should be clearly defined. The city should ensure it is not overpaying for the product or services received. For example, if, under the contract, the non-profit is to provide X number of meals to homebound people, the contract should clearly state how the public is benefitting as a whole and clearly state what documentation is required to support the number of meals provided.
6. All contracts should include a requirement for the non-profit to account to the city for the public funds and how they are spent tomeet the state’s public purpose requirement. The form and frequency of that accounting should be clear in the contract.
7. The contract should be signed by a representative of the city and a representative of the non-profit.

Submitting a Request

To request funding from the City as a 501c3 organization, a funding request application must be submitted to the Finance Director on or before October 31st of each year. Upon receipt of an application, the application will be reviewed by the City's Finance Committee and then by the City Council. If the application is approved by the Council, funds will be allocated in the next available budget fiscal year.