Wednesday, January 26, 2022

OA and fiscal sponsorship: Interview with SPARC’s Heather Joseph

Scroll down to go direct to the interview with Heather Joseph

The Scholarly Publishing and Academic Resources Coalition (SPARC) was founded in 1998 as a program area within The Association of Research Libraries (ARL). Since then it has gone on to become the world’s most influential open access advocacy group.

As SPARC’s activities grew, however, there were concerns that its success could jeopardise ARL’s tax-exempt status. In 2014, therefore, it signed an administrative agreement with New Venture Fund (NVF), a non-profit fiscal sponsorship organisation located in Washington, DC.

Although this change took place eight years ago, I have seen little or no commentary about it until recently (although I may simply have missed it).

At the end of last year, however, a disgruntled OA advocate pointed me to some tweets critical of SPARC and its association with NVF; and earlier this month I was alerted to a post published in 2018 that also seems to be critical of SPARC. (It is paywalled).

Dark money

Recent interest in SPARC’s relationship with NVF appears in part to have been sparked by news coverage of an unsuccessful bid for Tribune Newspapers by Swiss philanthropist and billionaire businessman Hansjörg Wyss.

Last year, for instance, the New York Times published two (paywalled) articles (here and here) about Wyss and his funding activities. Wyss donates to politically liberal and environmental causes in the United States through the Wyss Foundation, a charitable organisation he founded in 1998 and which has more than $2 billion in assets.

In its coverage the NYT noted that The Hub Project – an organisation started by the Wyss Foundation in 2015 – “is part of an opaque network managed by a Washington consulting firm, Arabella Advisors, that has funnelled hundreds of millions of dollars through a daisy chain of groups supporting Democrats and progressive causes.”

NVF would appear to be part of that network. As the NYT, put it, “The Hub Project it is not a stand-alone organisation for tax purposes, but is housed within two Arabella-managed non-profits, New Venture Fund and the Sixteen Thirty Fund, which pay Hub Project employees.”

In a second article, NYT noted that Arabella Advisors and the organisations it manages operate a funding model that uses so-called dark money. This sees donor money channelled through non-profit organisations like NVF, which in the US are not required to disclose their donors. Arabella’s network, said the NYT, is a leading vehicle for doing this on the left.

As I understand it, this allows funders to donate to a non-profit that then distributes the money to different groups without it being publicly known who the donor was. As part of this process Arabella Advisors provides administrative services to organisations like NVF, much in the way that NVF provides such services to SPARC. Unlike NVF, however, Arabella is a for-profit organisation.

The money channelled through NVF is not insubstantial. “Between 2007 and last year,” the NYT reported, “the Wyss Foundation donated roughly $56.5 million to New Venture Fund.” (This figure is based on tax returns and voluntary disclosures).

Neither NYT article mentions SPARC, but it is one of around 150 “projects” that have administrative agreements with NVF. In doing so they become part of a non-profit mother ship that confers non-profit status on them too.

Referred to as fiscal sponsorship this practice has been increasing in popularity in recent years. And it is a model that a number of open access organisations have begun to use.

What is not clear to me is how many OA advocates are aware that OA organisations have started to use fiscal sponsorship and, if they are, whether they fully understand how it works and are comfortable with it.

I confess I had myself barely registered the fact that SPARC had decoupled from ARL. And as I think will be apparent, I do not fully understand how fiscal sponsorship works, or the implications it might have for the OA movement if widely adopted by OA organisations and initiatives. I do, however, have some thoughts on it.

Wikipedia says this of the model: “Fiscal sponsorship refers to the practice of non-profit organisations offering their legal and tax-exempt status to groups – typically projects – engaged in activities related to the sponsoring organisation’s mission. It typically involves a fee-based contractual arrangement between a project and an established non-profit.”

I think it is worth repeating that while the groups it manages are non-profit, Arabella Advisors is itself a for-profit organisation.

Small organisations can undoubtedly benefit from outsourcing their administration in this way. However, Wikipedia points out that there are risks too. For instance, it says, “the benefits of immediate tax-exempt status and administrative support must be weighed against the lack of autonomy and fees typically charged by the sponsor.”

It seems to me that any OA organisation signing a fiscal sponsorship agreement that wishes to remain true to its principles ought really to make a special effort to be transparent about its finances and activities. The risk is that it could end up embracing a degree of darkness that belies its commitment to openness.

Two issues

As one of 150 projects managed by NVF, for instance, SPARC’s financial statements appear to be amalgamated into NFV’s public disclosure document – its 990 Form. In the process, SPARC’s financial figures are invisibilised, at least so far as the public eye is concerned.

The only financial information related to SPARC that I could find in NVF’s 900 Form is the salary of Heather Joseph ($313,068 in 2020). The word “SPARC” itself does not seem to appear anywhere in the 990 Form.

We could also note that SPARC does not publish a definitive list of the grants it co-sponsors. This is not a consequence of SPARC’s agreement with NVF, says Joseph, but the insistence of some funders that they remain anonymous.

A requirement of the contract that SPARC has signed with NVF, however, is that it is not made publicly available. While this might be for understandable reasons, it adds to a sense of opaqueness around SPARC’s activities and might cause some to wonder to what extent SPARC has retained self-determination.

Joseph insists that SPARC is still entirely independent. She also points out that the details of the arrangement SPARC had with ARL were not published either. However, SPARC is not the organisation today that it was when it was under ARL’s wing – that, after all, is why SPARC moved to NVF.

What is also not clear (to me at least) is why NVF needs to use for-profit Arabella Advisors to provide it with services that it itself provides to others. Again, there may be a good reason for this, but it surely further muddies the waters from a public perception point of view.

In short, I am not convinced that SPARC’s fiscal sponsorship arrangement with NVF (and, via NVF, its relationship with Arabella Advisors) is a good fit for an organisation dedicated to making the world a more open and transparent place, and which is now supporting those in the open access movement who want to take back scholarly publishing from for-profit organisations. However, more transparency from SPARC would surely help.

Essentially, I see two main issues. First, as noted, SPARC’s financial statements are not publicly available. While Joseph agreed to share with me the headline income figures for 2020 (below), we might wonder why it was necessary to ask for them. And we might wonder why SPARC does not publish its full financial figures on its website every year.

Here too Joseph points out that when SPARC was a program within ARL its financial statements were not posted online either. As such, she says, it is just a continuation of a long-standing practice and not contingent on its relationship with NVF. Personally, I am not persuaded by the long-standing practice argument – particularly given the OA movement’s demands that publishers provide ever greater transparency about their operations.

Second, in not publishing a comprehensive list of the grants it co-sponsors with NVF, SPARC might seem to be acting against the principles of openness that it espouses. True, some grants are disclosed, but what percentage of the total funds distributed this represents is unclear. Joseph says that the “vast majority of philanthropies that SPARC has received funding from” are happy to have SPARC publicly acknowledge them. What this means in practice would only be fully apparent if SPARC published a full, detailed list.

Joseph explains that SPARC has to be pragmatic about this because donors sometimes insist on anonymity. I take this to mean that if SPARC wants to receive money from such a donor it has to choose either to compromise on its commitment to openness, or forego the proffered grant. Some might feel that SPARC should not be compromising in this way. And while it may not be a consequence of SPARC’s agreement with NVF, it does raise questions about openness.

We might also wonder why any funder who wants to support an organisation whose raison d’être is to increase openness and transparency would insist on darkness. Call me naïve if you will.

It could be argued that, as a membership organisation, SPARC has no obligation to share information about its finances with the world. However, leaving aside SPARC’s professed support for openness, 50% of its income comes from grants rather than membership dues. It also enjoys the tax benefits of being part of a 501c3 non-profit. That suggests to me that there is an obligation on SPARC to publish its financial statements.

More importantly, perhaps, as an influential advocacy group, SPARC has had – and continues to have – a significant impact on the global research community. More specifically, it has played an important role in changing the way that scholarly publishing operates. Potentially, therefore, its lobbying activities are going to have an impact on every researcher in the world.

Moreover, these changes seem set to embed and, arguably, worsen the existing inequalities in the system – which I must assume is not an outcome a social justice group like SPARC would have predicted or wanted. 

Complicated

It does not help that the fiscal sponsorship model is complicated and (for me at least) difficult to understand. Even some of the nomenclature used appears not to be universally agreed upon, or clear.

Joseph (rightly as it happens) challenged my use of the term “subsidiary” when describing the relationship between Arabella and NVF, but she also rejected NYT’s description of NVF as an “Arabella-managed non-profit” – presumably to make the point that, even if it has outsourced all its administrative tasks and some/most (?) of its legal responsibilities, SPARC is still in control of its own fate.

I certainly don’t question what Joseph says but as the agreement with NVF is not publicly available we are not able to judge for ourselves how independent SPARC is today. We might also wonder whether, in its relationship with NVF (and thus Arabella), SPARC has positioned itself in a larger political landscape that some OA advocates may find unpalatable or alienating.

A key question I think is whether the scholarly community is aware of how fiscal sponsorship works, and, more specifically, of how the relationship between SPARC and NVF operates. If it is, is it comfortable with the arrangement?

When I put this to Joseph she replied, “Yes, I do believe our member community is aware of the arrangements.” However, this was surely an answer to a different question to the one I posed. I asked whether the larger scholarly community understands and is comfortable with the arrangement.

I contacted seven prominent OA advocates to put this question to them. Two did not reply, three said they were either unaware that SPARC had a fiscal sponsorship agreement or did not feel sufficiently competent or knowledgeable about the model to comment. The last said that he had received funding from NVF co-sponsored by SPARC and that since there is a clear governance process at SPARC, he presumes there is adequate oversight over SPARC’s spendings and donations.

Rick Anderson, University Librarian at Brigham Young University and a “chef” at the Scholarly Kitchen, takes a less sanguine view. “It seems to me that someone ought to ask SPARC, publicly, to explain why important elements of its financing are hidden from public view,” he said. “It may be legal, but that doesn’t make it okay.”

As noted, fiscal sponsorship seems to be growing in the OA movement. Amongst those who have opted for this model, says Joseph, are PREreview and Invest in Open Infrastructure.

I don’t know if the fiscal sponsorship arrangements these other projects have entered into are similar to the one SPARC has with NVF, but I do wonder whether the open access movement will end up being less open than OA advocates might have anticipated – unless those signing fiscal sponsorship agreements make a special effort to be transparent.

Curious about these matters, I took to Twitter earlier this month to ask whether the agreement with NVF was publicly available. Heather Joseph responded and agreed to speak to me. The Q&A below is the outcome of our subsequent email interchange. 

The interview begins …

Heather Joseph

RP: In 2014 SPARC ceased being a program area within ARL in order not to jeopardise ARL’s tax-exempt status and signed an administrative agreement with New Venture Fund (NVF), a fiscal sponsorship organisation located in Washington, DC. I don’t think the details of that agreement have ever been made public. Why not? How would you describe the arrangement SPARC has with NVF, and what are its benefits to SPARC?

HJ: When we were making the decision for SPARC to move from ARL, we looked at a range of different options (creating a stand-alone organisation, merging with another group, etc.) and decided that going with a fiscal sponsor was the best route.

As you know, fiscal sponsors are non-profit organisations that provide fiscal, legal, and administrative services (for a fee) to organisations that engage in charitable activities. NVF was the best fit for a variety of reasons including cost, services, and mission alignment.

There are quite a few advantages of having a fiscal sponsor, particularly if you are a small organisation (SPARC had only 4 FTE when we made the move). Because they provide services across a large number of projects (NVF currently provides services to over 150 projects), it lets us take advantage of economies of scale on everything from health insurance to retirement benefits to legal services we simply couldn’t do on our own.

It also allows SPARC staff to focus on mission-critical activities and leave the bulk of legal, human resources, accounting, and administrative tasks, etc. to NVF.

An added draw for us was that NVF also provides SPARC with a large community of other social justice organisations and initiatives, and we’ve benefited greatly from being a part of it.

And – you are correct, the agreement was not posted publicly; given the wide range of sensitive issue areas their projects cover, it’s NVF’s policy not to do so.

For what it’s worth, we didn’t post our annual operating contracts with ARL either.

BTW: the use of fiscal sponsor organisations is on the increase in the open movement; in particular Code for Science & Society is emerging as a popular choice – their projects include PREreview, Invest in Open Infrastructure, Research Software Alliance, among others.

RP: On Twitter recently you said, “New Venture Fund is our fiscal sponsor (help us w/ HR, compliance, and other back-office support).” Can you say more about this and how much SPARC pays to NVF annually?

HJ: Sure thing. NVF handles the bulk of SPARC’s administrative / legal / financial / compliance tasks. Specific examples include: 

  • Human resources management – manage employee payroll, benefits, legal compliance and obligations
  • Compliance/system management – comply with all required state and federal reporting for vendors/consultants earnings, employee timekeeping/earnings, lobbying efforts, tax reporting, etc. 
  • Draft and review contracts with vendors and consultants
  • Process vendor payments and expense reimbursements
  • Provide all financial reports
  • Provide support for grant proposal/review/reporting

Basically, they do all of the “back-office” things that ARL used to do for SPARC. If you have any additional questions about what services NVF provides to SPARC, just let me know. Also – you might find their FAQ about the services they provide a useful reference.

The fee that we pay NVF varies from year to year depending on a whole host of factors including grant funding, number of employees and contractors, etc. Our fees have ranged from 8% to 9% of our total expenses and are negotiated annually.

Our annual contracts with NVF are subject to approval by the SPARC Steering Committee, which is elected by our members. 

A project of the New Venture Fund

RP: So SPARC is not an independent organisation but a project within NVF. However, I would think that people are likely to assume that it is part of NVF and ask why it therefore needs to pay for NVF’s services.

HJ: That’s right. SPARC operates as a project of the New Venture Fund. That is the standard nomenclature for most fiscal sponsorship arrangements.

SPARC pays NVF a fee for their services – like any other fiscal sponsor relationship. NVF provides expertise and efficiencies so the SPARC staff can focus on mission-critical activities and leave the bulk of legal, human resources, accounting, and administrative tasks, etc. to NVF.

It’s important to note that while SPARC is not a separate legal or fiscal entity, our mission, strategy, operating priorities and decisions are all made by SPARC leadership, which includes the Executive Director (me), our senior management, and our Steering Committee. NVF has no input into our elections or strategy.

RP: Why is SPARC not an independent non-profit itself?

HJ: When we first made the move to NVF, we honestly weren’t sure how long the arrangement would benefit SPARC, so we have also taken all of the preliminary steps needed to register to become a discrete 501c3 if and when it is to our financial and operating advantage.

But for now, the arrangement is working really well. Having access to the deep bench of expertise at NVF has helped us as we’ve grown; particularly in the areas of grants management and HR.

Every year, when we review our expected operations for the upcoming year with NVF, we consider whether to stay with NVF, look for a different fiscal sponsor, or become a standalone 501c3.

NVF is fully aware of this – they regularly incubate and spin-off projects – so there’s no pressure or sense of obligation to stay. If it stops working for us, SPARC will make a change.

RP: Where are the financials for SPARC kept? Are they audited? Does SPARC pay taxes?

HJ: NVF maintains the financial records for SPARC and all of SPARC’s funds are held by NVF in a restricted fund designated only for SPARC’s use. NVF financials (which includes SPARC) are audited annually.

As a 501c3 non-profit NVF (and by extension, SPARC) is exempt from paying state and federal taxes.

RP: What happens to any surpluses that SPARC generates?

HJ: In general, SPARC does not have material operating surpluses/deficits. Any annual surpluses, typically from carried-over grant funds, are held by NVF in restricted funds designated only for SPARC’s use.

The use of all SPARC funds is at the sole discretion of SPARC’s leadership, the SPARC Steering Committee (i.e. group of elected SPARC members), and the Executive Director, and are subject to SPARC’s Use of Funds Policy, which is posted here.

SPARC’s Income

RP: Does what you say mean that the individual accounts of SPARC are not published anywhere and so the details cannot be known or viewed by the public? And because of the agreement with NVF you are not free to publish them on, say, SPARC’s website?

HJ: We routinely update our Steering Committee (again, as elected representatives of our membership) on our financials, but don’t post our financial statements online. This long-standing practice is a continuation of how we operated under ARL; NVF doesn’t prohibit us from doing so.

RP: Are you able to give me the total figures for SPARC’s income and the grants it has awarded for, say, the last tax year?

HJ: Yes. SPARC’s final 2021 financials are not yet available, but here are our 2020 numbers: 

            Contributed (Grant) Funds:    $1,631,549

            Member Dues:                        $1,433,797

            Events/Conferences:               $   166,940

            Other Income                          $     19,476

            —----------------------------------------------------

            Total Revenue:                        $3,251,762

RP: Are there details of any of the grant awards and grant-making that involves SPARC that you can point me to?

HJ: As you likely are aware, funders allow for varying levels of disclosure in their grant agreements. Here are some current SPARC grants that are public: 

RP: For the sake of clarity, can you confirm that no complete list of all the grants that SPARC has received or the grants that it has awarded is made publicly available anywhere (although, as you say, the details of some are made public)? Roughly what percentage of a) SPARC’s grant income and b) its grant making activity is not made public?

HJ: We do inform our Steering Committee of all grants as they are awarded; and we also give our full membership a heads-up (usually through a direct email or the monthly Member Communication) as appropriate. We have not posted a public listing of grants.

The percentage of SPARC’s income that grants comprise varies slightly from year to year; in 2020 grants made up right around 50% of our total revenue; we’ll be right around that mark again for 2021.

RP: As I understand it, you earned $354,304 in total compensation from NVF in 2016 ($334K from salary alone, the rest in bonus), more than the President of NVF. Since then, your salary seems to have decreased. Have you taken a reduction in pay? If so, why?

HJ: My salary has deliberately been kept at the same level for the bulk of the duration of our relationship with NVF ($313k). I do not receive bonuses. The “Other Compensation” line reflects NVF’s reporting of other benefits (like FSA accounts), changes in withholding taxes, etc.

The change in what looks like my base compensation after 2016 is due to changes NVF made to the way it reports and provides retirement benefits.

RP: Who exactly is your employer? What does your pay stub say?

HJ: New Venture Fund is my employer and that is reflected on my pay stub.

RP: Does SPARC have any relationship with ARL anymore? Does it receive any funding from ARL?

HJ: SPARC has maintained a good, collaborative relationship with ARL. We’ve got many overlapping interests and missions, and the vast majority of ARL members are also SPARC members.

The Executive Director of ARL is a standing, non-voting member of the SPARC Steering Committee, and ARL regularly invites SPARC to update their Board of Directors to ensure programmatic alignment.

ARL is also an affiliate member of SPARC, and pays SPARC the standard $6,750 annual membership fee for that membership. That’s the only funding we receive from ARL.

Arabella Advisors

RP: As I understand it, NVF is a non-profit subsidiary of Arabella Advisors LLC, which is a large for-profit enterprise.

HJ: I don’t think this is an accurate characterisation. My understanding is that NVF contracts with Arabella for a variety of services (much like SPARC contracts with NVF).

It’s pretty common for fiscal sponsor organisations to have contracts with for-profit service providers. If you have more specific questions about their arrangement, I’d encourage you to contact NVF directly.

RP: Yes, thanks for clarifying that. NVF is better described as an “Arabella-managed non-profit” I guess. So Arabella is a for-profit that provides services for the non-profit NVF. I note the funding system used by both Arabella and NVF has been characterised as one utilising what is referred to as “dark money”. Certainly, I have seen reports in the New York Times saying as much, e.g., here and here. What do you think of the practices outlined in the two NYT articles and what are your views on the implications for SPARC?

HJ: I don’t think it is accurate to say that NVF is an Arabella-managed non-profit. Arabella provides a variety of services to NVF (and to other non-profit fiscal sponsor organisations) on a fee-for-service basis – which the NVF 990 reflects.

And I’ve seen both of the articles you reference. The “dark money” issue is about transparency preferences of donors. As we know first-hand at SPARC, many grant-making organisations and donors prefer not to be named. That definitely presents challenges for SPARC; as you rightly point out below, as an organisation advocating for open access to knowledge, we work hard to be as open and transparent as we can be.

But we also have to balance the pragmatic realities of the grant-making world with that desire. Fortunately, the vast majority of philanthropies that SPARC has received funding from are more than happy to have us publicly acknowledge (and thank!) them.

Both NVF and Arabella work with groups that have very different political considerations and different levels of sensitivity on this point – which I think is appropriate. But again, if you have any questions, I’d encourage you to reach out to them directly.

RP: Do you think the scholarly community understands how the relationships between Arabella, NVF and SPARC works and, if it does, do you think that it is comfortable with SPARC’s relationship with NVF?

HJ: Yes, I do believe our member community is aware of the arrangements. The relationship with NVF was fully vetted by our Steering Committee back in 2014 before we signed the agreement.

The agreement, which is renewed annually, is reviewed and signed off on by all Steering Committee members each year.

RP: I thank you for providing me with SPARC’s headline financial figures for 2020. But I feel bound to say that while SPARC argues for “openness” and “transparency” its finances appear to be predominantly opaque, not least over where its money comes from and where it goes. Do you think there is a contradiction here?

HJ: SPARC’s operations are not opaque. Our reporting practices are fairly standard across North American non-profit organisations – including those of most colleges and universities.

In all of SPARC’s work we aim to be as transparent as possible with our members and the broader scholarly community. However, there are areas where the decision on public posting is not solely up to SPARC.

RP: Thank you very much for answering my questions.


4 comments:

Anonymous said...

Thank you for this! I myself only discovered one or two years ago that SPARC and its child projects (like OAbutton aka OAworks) are unincorporated entities hosted by NVF.

One problem with such arrangements, touched briefly in the interview, is that there is no accountability for such unincorporated entities. There are no bylaws. Saying that "SPARC leadership" makes decisions is a tautology. Most people are probably just fine with thinking that, in the main, SPARC is a one-person show run by the wonderful Heather Joseph, and the rest are details.

Anonymous said...

Nonprofits of all flavors, shapes, and sizes (and missions) have used fiscal sponsor organizations for decades. Your lack of understanding and passionate voice present a dangerous combination for project leaders trying to navigate going from being fiscally sponsored within universities to being fiscally sponsored in nonprofits as opposed to for-profit incubators and venture-capital programs. Often the tax, HR, legal, and financial aspects of forming an independent nonprofit or LLC tank founding directors because of the time and cost sink. Fiscal sponsors are a great way to stay mission focused when starting out. Please consider deleting this post as it may end up harming more than it helps. You're a thought leader and with that role comes responsibility.
- Dismayed and Concerned

Kristen Ratan said...

I think perhaps you are correct that you don't understand fiscal sponsorship, Richard. It's a very common practice. I've both launched a project under a fiscal sponsor to avoid the hoops of starting a brand new 501c3 (a sometimes onerous and costly process) and served on the Board of another fiscal sponsor. Donations are often made anonymously. Donations made to one project within a fiscal sponsor have nothing to do with a separate project. Fiscal sponsors, like many for profits and nonprofits, partner with or vendors of all types for various operational or administrative functions. This feels like you're looking for something that isn't there.

Richard Poynder said...

Thanks for commenting, Kristen. You are right: I said that I do not fully understand how fiscal sponsorship works, or the implications it might have for the OA movement if widely adopted by OA organisations and initiatives.

You say it feels like I am looking for something that isn’t there. I am not sure what you mean but, as you will know, my main focus was on SPARC’s fiscal sponsorship relationship with NVF. In thinking about this, two questions occurred to me. First, why does SPARC not make its financial statements publicly available? That is, I wondered why, given its insistence that publishers become more transparent, it is not more transparent itself.

Second, why does SPARC not publish a comprehensive list of the grants it co-sponsors with NVF. I am not sure I am persuaded by your argument (as I understand it) that because fiscal sponsorship is a very common practice, and because donations are usually made anonymously, we should not question the practice of funder anonymity – again, given SPARC’S insistence that publishers become more transparent, why does it not become more transparent itself?

You say, “Donations made to one project within a fiscal sponsor have nothing to do with a separate project.” Yes, that is presumably what Heather Joseph means when she says that “all of SPARC’s funds are held by NVF in restricted funds designated only for SPARC’s use.”