Why are millions of dollars flowing through a two-person Lexington news outlet? A look at the newsroom’s unorthodox business.

The Lexington Observer, like other local news startups that have sprouted in Greater Boston, has a bare-bones reporting team to cover town government, schools, and business openings: just one editor and one reporter covering a population of 34,000 people.

Its public tax filings, however, suggest a much larger operation. The news organization has handled millions of dollars in donations in recent years, something many small nonprofit newsrooms could only fantasize about.

Only a small share of the Observer’s operational revenue comes from local donors and ads. The outlet instead survives largely on fees it collects by helping other news organizations across the country raise money.

While the “Local News Hub” program has helped the Observer pay for its own local reporting at a time when news outlets are in search of new revenue streams, some of its leaders are questioning whether it should continue. Running the program is a significant amount of work, and some of the burden falls on Lauren Feeney, the Observer’s executive director, who also oversees local coverage. Plus, the goal of the Observer is to serve the community of Lexington, and several of its leaders believe its business should reflect that.

“The Local News Hub is incredibly important,” Feeney said. “But ideally, the Lexington Observer would be supported locally.”

The program works like this: Cofounder and board chair Nicco Mele, who previously served as director of Harvard University’s Shorenstein Center and has served on nonprofit boards, raises money from foundations that want to support local news. Feeney, who previously worked at The Intercept and New York PBS station WNET, helps to find and vet the newsrooms that ultimately receive the funds.

The outlet also serves as the “fiscal sponsor” for three organizations — meaning, the Observer accepts funds on behalf of the organizations, which cannot directly receive tax-free donations because they are not nonprofits.

From 2023 to 2024, expenses at the Observer climbed from $640,000 to nearly $5 million a year later, the bulk of which represented funds passing through the outlet.

Foundations often rely on intermediaries to help fund small and local organizations. And organizations that want to take in tax-free donations but cannot because they don’t have a nonprofit status typically turn to nonprofits to be their fiscal sponsor.

But the Local News Hub is, on its face, a strange offering for a hyperlocal newsroom. Consider that its peers, including Brookline.News, Cambridge Day, and The Belmont Voice, usually scrape by on donations, grants, and advertisements to fund limited staffs. Brookline.News took in $440,000 in revenue and The Belmont Voice reported $659,000 in 2024 — mostly from local benefactors.

The Observer’s executives said they saw a unique opportunity to help bring in cash while also supporting local news more broadly.

“You see other nonprofit or local newsrooms do other weird things to make money. This just happens to be ours,” Mele said. “It’s an outgrowth of the unique people who live in Lexington.”

Mele cofounded the Lexington Observer in 2021 with the goal of reporting on Lexington at a time when the legacy newspaper, the Lexington Minuteman, was diminished.

The outlet relies heavily on freelancers and volunteers, sends out a weekly newsletter, and has a small presence on Facebook, Instagram, and Bluesky. Its coverage lately has focused on public school layoffs and the anniversary of the Battle of Lexington, and Feeney said its biggest story has been covering the Lexington High School building project.

As the Observer was making inroads with the local community, it saw another opportunity to support other burgeoning newsrooms — and to make money.

With grant funding from the charitable arm of Melinda French Gates’s firm Pivotal, the Observer began regranting funds to other newsrooms, including The Nevada Independent, a statewide digital news outlet.

Mele said he spent several years discussing how local news needed more funding support.

“At some point Pivotal was interested in these topics and reached out to discuss a pilot project around funding local newsrooms,” Mele said. “That’s how the Local News Hub was born.”

In total, the Observer has taken in at least $8.8 million in grants from philanthropic groups such as the Bright Future Fund and the Santa Barbara Foundation. It then regranted the vast majority of those funds to other organizations such as the investigative newsroom Searchlight New Mexico and the Arizona Center for Investigative Reporting. The Observer has made at least $700,000 in fees from the Local News Hub since 2023, representing 61 percent of its operating income over that period.

It has also become a fiscal sponsor for the Texas magazine Stranger’s Guide, Wisconsin radio network Civic Media, and Minnesota-based state newswire organization Public News Service.

Kevin Davis, a lecturer at UC Santa Barbara who previously served as CEO of the Institute for Nonprofit News, said it makes sense for news organizations to be sponsored by the Observer because of the experience of Mele and Elizabeth Hansen Shapiro, an Observer board member who previously served as CEO of the National Trust for Local News.

“They’re bringing real knowledge to the table,” Davis said.

Because of its size, the Observer doesn’t accept grant applications, but rather selects recipients on its own. Mele said he is not currently seeking to serve as the fiscal sponsor for any additional newsrooms.

The program got large enough that Mele took a salary in 2024, though the Observer reported this as $224,000 for only five hours of work per week.

After the Globe asked about the salary and the hours worked, Mele said the reported salary was inflated because it “erroneously includes reimbursements from expenses.” He said the hours were listed as the typical amount for board members, but didn’t reflect his actual hours worked, which were closer to full time. He said the Observer was working to correct the tax filing.

For comparison, the editor of Brookline.News made $105,000 and the CEO of the New Bedford Light made $130,000 in 2024, according to public tax filings.

Nonprofit experts said the work of regranting and fiscal sponsorship doesn’t come without risk.

From an accounting perspective, “the biggest issue is transparency,” said Nancy Chun Feng, a Suffolk University professor of accounting and business law. Fiscal sponsorship, she added, is an “efficient model, but requires careful governance to avoid blurred lines.”

Some of the details about the Local News Hub were not previously disclosed. Until the Globe asked about six- and seven-figure grants that the Observer received for the Local News Hub, they were not included on the Observer’s website. That seemingly violated the Observer’s own donor transparency policy, which said that it “make[s] public all revenue sources and donors who give $5,000 or more per year.”

Mele said that he “just never really got around to it,” but has since updated the site with current donors that have given more than $5,000 to the Local News Hub, the three current organizations it fiscally sponsors, and financials that differentiate operations for the Observer and the Local News Hub.

Some of the Observer’s leaders want to move on from the Local News Hub, with the hope of leaning more on its neighbors. Some of the options that Mele, Feeney, and the board have discussed are merging with a local movie theater or taking over a coffee shop, taking inspiration from media-owned cafes in Marfa, Texas and Camden, Maine.

“The way I think about it is just that this is a way to get some money in the door to start the Observer. It kind of took off,” Mele said, adding that he has less time to oversee it now that he has another full-time job as cofounder and CEO of Warchest, a company that offers software for political campaigns. “Now, we got to get back to the main work of the Observer.”

Others at the Observer think the outlet should expand the Local News Hub.

Cameron Hickey, an Observer board member, sees an opportunity to grow the business and help encourage the type of newsroom it’s building in Lexington in other communities.

“When you’re creating infrastructure for others, it gives you some leverage to increase the opportunities for what you think is better for the world,” said Hickey, who also serves as CEO of the National Conference on Citizenship. “I don’t think it is what the Observer set out to do. But I think it is an opportunity worth expanding on.”

Ultimately, the Observer wants its coverage and business to reflect the town. Feeney said the outlet has been holding informal backyard gatherings to hear more from the community, with a goal of turning some attendees into regular donors.

One of those donors, Town Meeting Members Association leader Sarah Higginbotham, said she sees no issue with the Observer’s dual lines of business.

Higginbotham, however, is eager to see the outlet expand in other ways. She’s enthusiastic about community spaces where she could meet other financial supporters of the paper.

“The idea that democracy requires a local source of news is so important,” Higginbotham said. “I would love to see this as a way to bolster how we connect with each other and talk to each other.”

Aidan Ryan can be reached at aidan.ryan@globe.com. Follow him @aidanfitzryan.