The Canadian charitable sector is facing significant challenges. The “charity gap” between the growing demand for services and the sector’s capacity to meet those needs is widening.

Two primary factors contribute to this crisis. Contributions to charity are falling, both on a per capita and percentage-of-income basis. As well, as the country’s population grows, so does the demand for services, which further strains an already overburdened sector.

This gap has been expanding for more than a decade, leaving millions of Canadians struggling. We need to act with greater urgency.

One promising approach that would require no public funding and is supported by the majority of stakeholders is the creation of a self-financed, self-governed social sector fund, along with a related social sector fund agency, to develop and implement strategies aimed at strengthening the sector as a whole.

Resources are there but not the will to act

The issue is not a lack of empathy or resources. Canada has millions of charity employees and volunteers, as well as more than $150 billion in investment assets held by grant-making foundations.

What’s missing is the allocation of even a small fraction of these funds in smarter, more effective ways, despite no shortage of studies, papers and conferences aimed at strengthening the sector.

This is largely because the charitable sector is not structured or incentivized to innovate. Many organizations are resistant to change, fearing repercussions from their funders. There is a power imbalance that tilts heavily in favour of wealthy foundations, leaving operating charities and the millions of people they serve with little agency.

Additionally, the sector is fragmented and siloed, lacking the co-ordinated approach needed to foster collaboration and systemic change.

To address this issue, we need policy-driven, systemic reform. This requires a simple act of leadership from policymakers in Ottawa.

A new social sector fund

To ensure a stable, predictable source of funding,  grant-making foundations should be required to make small mandatory annual contributions to this new social sector fund. These contributions would be based on the value of each foundation’s investment assets at the end of each fiscal year and would be collected alongside their annual T3010 filing with the Canada Revenue Agency (CRA).

If that rate were set at one-quarter of one-tenth of one per cent (0.00025), it would generate about $37.5 million annually when applied to the $150 billion in foundation assets.

These contributions would be negligible for most foundations — a “rounding error” as many describe it — but would provide a dependable source of funding for sector-wide initiatives. This contribution should be eligible to be counted as part of each foundation’s annual disbursement quota, so it would not increase their financial burden.

There would be zero cost to the public purse and the fund would be free from political influence because it would be administered by a new social sector fund agency, which would be directly responsible for the allocation of these resources based on a new strategic plan that it would develop for the sector.

The mission of the agency would be to strengthen the entire social sector. It would be designed to be transparent, democratic and inclusive.

The agency’s governance model could include representatives from provincial non-profit sector agencies (e.g., ONN, IONS), peak organizations (e.g., Imagine Canada, Community Foundations of Canada), social innovation organizations, marginalized communities, the corporate sector and other thought leaders.

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The agency would be governed by a board of directors, elected by its members, with the board responsible for hiring an executive director and overseeing the allocation of funds.

To prevent conflicts of interest and ensure long-term sustainability, the agency would receive funding only from the social sector fund, not from foundations, businesses or government.

This model is not unprecedented

We already have a similar approach in the tire recycling program, where big companies (e.g., Canadian Tire, Goodyear) collect a small fee on the sale of each new tire. This fee is then directed to the Canadian Association of Tire Recycling Agencies (CATRA), a third-party organization that manages tire recycling. This can be a model for the charitable sector.

The proposed social sector fund would have many benefits.

It would provide the sector with the resources needed to scale impact. It would give charities greater independence from political pressures, enabling better long-term planning and innovative initiatives.

In addition, it would lead to improved efficiency, stronger compliance with CRA regulations and ultimately greater public trust in charities. This would create a cycle of higher grants, better impact measurement, and qualitative benefits such as enhanced inclusion, diversity, transparency and accountability.

The social sector fund could be used to support a variety of initiatives, such as:

• Develop a strategic plan for the sector, similar to the one in Australia.
• Run national campaigns to encourage more Canadians to donate, much like ParticipACTION encourages physical activity.
• Create a library of best practices and tools for measuring impact, similar to the What Works Network in the U.K.
• Conduct ongoing research into sector trends, needs and outcomes.
• Provide support for the digital modernization of charities, as identified by a recent CanadaHelps study.
• Develop and pilot new mission-driven models.
•  Support policies to better empower social enterprises and for-benefit corporations.

Good policy is driven by good politics. The proposed social sector fund and agency represent a win-win solution. They offer a way for the federal government to show support for the charity sector without imposing any cost on taxpayers, while also addressing the sector’s pressing needs.

Studies commissioned by GIV3 have demonstrated strong support for this idea among taxpayers and operating charities.

It’s time for the federal government to act. We cannot afford to do nothing.