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Seeing Opportunities To Diversify Revenue

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I was recently drawn to the story of Rock School for Dance Education in Philadelphia opening a retail dancewear store out of their location. They spent $150,000 renovating a space that used to contain two offices into a street level store space. The director of the school noted most dancewear stores stock up to $150,000 in pointe shoes alone and they haven’t reached that level of stock quite yet.

Business Insider had an interesting video in December about the London based pointe shoe maker that supplies the NYC Ballet and the staff at the ballet that maintains the stock.

Rock School made the decision to open the store based on success they have had selling to their own internal constituencies and the fact that a number of longstanding dancewear stores had closed. Those stores had not only supplied the dance community, but also the intricately costumed participants of Philadelphia’s Mummers Parade.

They saw an opportunity to diversify their revenue stream in what they anticipate to be increasingly challenging financial times.

“There’s this perfect storm of already having a successful boutique, seeing the need in Philadelphia, and the potential for a new revenue stream to enable us to do our good work,” he said.

[…]

As a nonprofit, the goal is not to make money, but to cover expenses including maintenance of the buildings. It can be a struggle, says Stark.

“We are anticipating that struggle could get more challenging with what we’re seeing in some of the proposed changes on a federal level,” he said. “We want to be ahead of that, and we don’t want to wait until there’s a problem. We want to proactively step forward and have a solution so that we can keep doing our good work.”

[…]

“Really we’re trying to monetize our asset to support our mission and to support the scholarship and the outreach programming that we do,” he said.

Source

One City’s Cultural Budget Cut Exceeds Actual Culture Budget Of Multiple US Cities

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A story I was watching throughout December was the threat of Berlin cutting its funding for arts and culture. Right before Christmas, the city did indeed cut funding by $130 million which represents 12% of funding.

A lot of arts professionals in the US are probably thinking their city’s arts and culture budget isn’t anywhere near the $130 million being cut. In fact, many would feel blessed if their city had $1.3 million culture budget. So to a certain extent arts and cultural funding in Germany may still be the envy of much of the world.

This said, a lot of employment contracts aren’t being renewed and exhibition plans are being scrapped in Berlin. The laws associated with funding in Germany don’t allow private support to make up the difference.

German museums without private funding face particularly steep challenges, with fixed costs around operating collections consuming around 80 percent of budgets in many cases, leaving many exhibitions and auxiliary programs vulnerable to cancellation.

Some experts have pointed out that public museums in Germany aren’t legally able to rely on private philanthropy the way peer organizations in the U.S. and other parts of Europe do, making their futures, compared to international creative hubs less certain.

Source

An article earlier in December on Deutsche Welle looking at the impending cuts in Berlin raised the same question about whether Germany would be home to creative hubs any longer even as the city of Chemnitz, a 2025 European Capital of Culture, face budget cuts.

The eastern state of Saxony also faces a critical budget situation, with serious consequences for the cultural landscape of museums, theaters and orchestras. Hillmann said the theaters in Zwickau, Freiberg, Annaberg-Buchholz, Görlitz-Zittau and even Chemnitz — which will be a European Capital of Culture in 2025 — fear for their existence.

Source

Much as in the US, the chair of the German Stage Association, Lutz Hillmann, cites the work theaters in Germany are doing in the public sphere, moving beyond just presenting performances to become public gathering spaces and provide services to youth. Likewise, the role of culture in promotion democratic discourse in a time of divisive social dynamics was also raised.

Olaf Zimmermann, managing director of the German Cultural Council, takes the same line. “Right now, cultural venues are urgently needed to debate current issues, to offer places for democratic discourse, to stimulate reflection or simply to create cohesion,” Zimmermann wrote in the most recent issue of the association’s publication.

Source

Audiences Generally Cut Back On Drinks Before Admission Tickets

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As always, Colleen Dilenschneider and the folks at IMPACTS provided some attention worthy data in July regarding perceptions of the value of paying for museum and performing arts tickets. Basically, are the tickets worth it?

One of the things they found is that people expect to pay less for exhibit based and performing arts experiences in 2024 than they did in 2019, There is a lot nuance to this result according the Dilenschneider on her colleagues. First of all, this response is based on what people remember paying for their experience in pre-pandemic 2019. As you might imagine, they note that memory is imprecise and so comparing what they expect to pay this year compared to what they remember paying five years ago isn’t going to provide the most accurate results. In fact, data about what was spent in the first two quarters of 2024 tends to be higher than what they said they planned to spend.

The other thing to know is that people aren’t planning to cut back on admission tickets, but rather the other activities surrounding the central event. What IMPACTS terms off-site spending:

As of Q2 2024, the top area where folks recall spending money in relation to their visit is admission. Still, we do not see that admission costs are a top barrier to attendance to cultural organizations. So, to continue our work as data detectives, we’ll want to observe where other changes have taken place.

[…]

Folks are spending more on parking, admission, and onsite retail, and they are spending less on the other aspects surrounding the cultural experience.

Nowadays, despite rising food costs and restaurant prices, cultural participants plan to spend less (and actually do) on food and beverage. In 2019, performing arts patrons were more likely to grab a dinner before the show and perhaps drinks afterwards. Now, however, the data suggest that patrons may be more likely to only do pre-theater drinks, or perhaps skip the fancy bottle of wine for a single glass or choose a more affordable fast casual option than a Michelin-starred meal. These choices reflect consumers’ decisions to “trade off” or “trade down” when it comes to making their cultural-related spending choices. Fortunately for many cultural organizations, these “trades” thus far seem to primarily affect offsite spending (and indicate less sensitivity to onsite consumer behaviors).

Of course, these results are associated with people who actually made the choice to participate in an experience. A fair part of the article is devoted to a conversation about the general pessimism people in the US especially feel about the economy. Ticket prices are fairly low on the list of cost related barriers to visitation compared to concerns about the economy, prices, inflation, investment, personal finances, etc.

Small City Or Small Arts Org, Getting Grants Is Tough

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According to a recent piece on CityLab, smaller cities and towns have much in common with smaller non-profits when it comes to applying for grants.  They both have great need but lack the staff and resources to effectively compete for grants.

Citing the case of Jackson, MS which has been in a state of distress since 2022 when their water infrastructure failed due to flooding, the article quotes the former chief administrative officer, Robert Blaine about their lack of capacity to secure grants:

Robert Blaine, now at the National League of Cities, said one of many issues that impeded the city’s efforts to fix its water crisis was its inability to compete for and win grants due to a lack of staff to complete applications. “We really, really needed the funds, but we didn’t have the competency, we didn’t have the capacity to be able to apply for it,” he told Streetsblog in 2023.

The article mentions there is a lot of funding available from the federal government that isn’t getting spent due to this lack of capacity. Many non-profits are stepping up to help by offering training to cities about how to go about securing grants, most of which require a lot more data than most non-profit arts and cultural organizations are required to gather. Some non-profits have assembled former employees of different federal agencies or former municipal grant writers to provide advice and read drafts of grant proposals.

Additionally, the Inflation Reduction Act provided funds for technical assistance to help states and municipalities complete grants including funds to gather the required data in addition to writing the grant proposal. Since it benefits states to have their cities secure funding for projects, some states also provide technical assistance.

Though it sort of sounds like the “you need experience to get a job, but you can’t get experience without a job,” paradox to be required to write a grant to get the funding to hire people who are good at writing grants. I did appreciate the flow chart on the Colorado grant writing assistance program that shows that if your application is denied, you can modify and resubmit. Also, they appear to commit to reviewing applications within 14 days so cities will be able to maintain some momentum. I think a lot of non-profit cultural entities wish that sort of do-over opportunity was available to them with their own grants.

According to a staff member of one of the non-profits helping cities write grants, there is a similar situation to arts and culture non-profits where those with the most direct interaction with communities in need of assistance are often those without the capacity to secure the grant funding they need:

“I always look at the grant world like a spectrum,” said Relf. “At one extreme, you have organizations that know how to write grants, and they win grants, but they’re not really in the community doing the work. And then you have these organizations that have a heart for the community. They’re there every day. They just don’t have the capacity to write the grants.”

Guaranteed Basic Income Programs Seem To Benefit Those With Concrete Goals

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Long time readers know I tend to pay attention to news about guaranteed basic income programs, particularly those that have artists as a target group. Thanks to a CityLab link to a story on Los Angeles’ recent foray into providing guaranteed basic income, there is more data about what approaches are most effective. This program didn’t target artists as a group, but it has some good insights.

Like most stories on the subject, there were many heartening stories about the successes people had and continued to experience after the program ended. However, this article also mentioned those who were doing well while they were receiving the $1,000 month funds, but once the program ended found themselves faced with living in their cars. Anecdotally, at least those who had problems after the funding ended weren’t spending that much differently than those who continued to thrive. (i.e. the biggest spurge spending was on rather modest once a week meals)

What seems to be the differentiating factor is whether people had concrete goals they wanted to achieve prior to receiving the monthly payment:

Participants that do achieve a measure of economic mobility, she said, are those who already had concrete goals or plans.

“What happens with guaranteed income is that it smooths that income volatility … and it creates predictability,” Castro said. “When you have that floor, that scarcity starts to go away. And we know that it calms the mind, it calms the spirit, and it creates space for people to re-imagine an alternative future, or to maybe take steps toward a goal that they’ve always had but have not been able to actualize.”

Abigail Marquez, general manager of L.A.’s Community Investment for Families Department, which ran BIG:LEAP, called guaranteed income “one effective strategy” for ending generational poverty in L.A. Such programs must be paired with workforce development, economic development and housing strategies, she said.

Knowing this, one concern I would have is that guaranteed basic income programs not gradually evolve guidelines similar to foundation grant programs where candidates for receiving the money have to provide evidence of having goals they are pursuing and just need a little bit of help gaining stability. Unfortunately, it is easy to imagine this happening because the folks putting up the money want to hear success stories and know their funds are being used effectively. Little by little, the unrestricted use nature of guaranteed basic income can become a little more restricted.

On the other hand, I feel like guaranteed basic income for artists becomes an even better idea since artists generally always have projects in mind they want to pursue. Though I am sure there are some who would say some of those projects aren’t as practical as the goals people in the L.A. Times story were working on.

Competition Among Donor Advised Funds Is Constricting Charitable Giving

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I am always interested in news about how donor advised funds (DAF) are operating. On the whole, their use hasn’t gone as intended and they have reduced, rather than increased or incentivized charitable giving.   A few weeks ago Vu Le linked to an article that examined how the differences in the way DAFs are promoted is an indicator of whether they are distributing or sequestering funds. (emphasis original)

National sponsors that spend more time talking about donor benefits on their websites have more assets, take in a much higher proportion of noncash contributions, and pay out grants at much lower rates than sponsors that spend more time talking about charitable giving.

[…]

But our analysis predicts that a hypothetical national sponsor with a strong emphasis on charitable grantmaking on their website would pay out at 53 percent, while a hypothetical national sponsor with a strong emphasis on donor benefits would pay out at just 2 percent. And those lower payout rates have ripple effects when it comes to the buildup of assets: Our model predicts that the highly charity-focused sponsor would have assets of just $34 million, whereas the highly donor-focused sponsor would have assets of $2.7 billion.

Something to note is that the analysis focuses on national sponsors of DAFs rather than regional and local sponsors. The author of the piece, Helen Flannery, notes that since national sponsors tend not to have the specific focus, whether it be geographic region or cause, they often need to work harder to make a case for people to arrange their giving through them. Flannery seems to suggest that the those that tout financial benefits to the donor are able to make a more compelling case than a more charitably focused sponsor without a specific focus.

Flannery calls for a more specific evaluation and regulation of DAFs on an individual basis rather than looking at the aggregate giving of sponsors since the really generous ones tend to make the parsimonious ones look better due to averaging.

The analysis we present in our paper quantifies this phenomenon. It measures the degree to which sponsors have financialized what was originally intended to be a nonprofit instrument, and it measures just how intense the competition has become among the very largest DAF sponsors in this country.

Another Effort At Efficiently Crunching 990 Data

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Thanks to the Non-Profit Law Blog’s weekly curated link list, I learned that there is a new collaborative working on a way to provide a clearinghouse for raw, clean, and standardized nonprofit tax data gathered from Form 990 filings.

While that may not sound like it is relevant to your daily life at all, being able to easily access that day will make researching non-profits much easier, hopefully resulting in data which will support better decision making.

Drew McManus painstakingly extracted data from 990 filings from 2005 to 2022 for his annual Orchestra Compensation Report project on Adaptistration. He would frequently grumble about the fact that the data was not available in a machine readable format that would make that data so much easier to process and shift through. If I recall correctly, his go to source was the Pro Publica Non Profit Explorer which is contributing their data to this new clearinghouse.

Having good data about things like compensation can help advance equity and inclusion goals. The Association of Performing Arts Professionals (APAP) is engaged in an Art Compensation Project for some of these very reasons.

Better data crunching capabilities can also facilitate the study of differences by region and discipline for revenues, expenses, impact of private vs. public & government based grant making, etc.

Given that there have been so many groups who have attempted to serve as a clearinghouse for 990 data, the biggest question perhaps is whether this new collaboration can make it work better than in the past.

Give A Kid A Culture Voucher And They Buy Books As Well As Experiences

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I have been keeping an eye on the cultural voucher programs various European countries employ to encourage young people to get out and engage in different experiences. The program differ in detail. There are some that provide rail passes to allow people to explore different geographic areas, including outside their own countries. Others are focused on arts and cultural experiences within the country.  I have written about Germany’s KulturPass before, but I recently caught a story about the most recent round of the program.

According to a recent article, as of August 9, in terms of units purchased since this year’s KulturPass program began on June 14, books and other printed materials have lead the way by far.  Then cinema tickets, concerts and theater, museums and parks, musical instruments, audio media and then sheet music.  In all, about 200,000 units have been purchased in the last two months. About 136,000 German 18 year olds have activated the passes worth €200 (US$219)

In terms of amount spent, concerts and theater lead the way given the greater cost. “….at something around or above €12 million (US$13.2); books follow with so €11 million (US$12.7 million); and cinema tickets follow in third place with €461,000 or more (US$505,900).”

Lest you think Germans are particularly bookish with 49% of voucher funds being used to purchase tomes, Italy has seen similar results with their pass.

“…Italy’s corresponding “18App”—the original “culture voucher” for young citizens in Europe. There, in 2021 specifically, the publishers association reported that 18-year-old Italians were spending 80 percent of their €500 vouchers on books during January and February of that year.”

Obviously, there may be differences in the design and implementation of the pass in Italy that encouraged larger purchases of books. The fact these numbers come from a period 10 months into the Covid pandemic when there were reduced opportunities for other activities likely influences the numbers as well. However, these programs are good examples of a tool to provide bottom up funding to provide a little stimulation to arts and culture organizations.

Australia’s Last Poet Laureate Was A Convict?

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Big news out of Australia where the first national arts policy since 2013 was announced.  In addition to commitments of funding to specific entities and organizations, arguably the most significant element of the policy is a commitment  “….to protect First Nations knowledge and cultural expressions, with a particular brief on cracking down on fake art that plagues the $250m-a-year Australian Indigenous art market.”

Other elements of the plan include the establishment of a poet laureate position which last existed during the country’s convict era,  a state of the arts report to be issued every three years, and the establishment of  “a quota for expenditure on Australian content by multinational streaming platforms such as Netflix and Stan..” The amount of this quota is rumored to be about 20% and The Guardian article quotes people who are concerned streaming platforms may pull out of the country if they are required to produce Australia based content.

It happens that I saw a piece on Vice last night before I saw The Guardian article. Vice asked Australian artists what they thought about the plan.  Many felt the money was going to the usual suspects and advocated for a universal basic income plan for artists.

Others felt that the arts were unfunded in proportion to their footprint:

“The arts sector will get $286M over four years, or $72M a year. The fossil fuel industry gets $11.6B a year in government subsidies. Australia’s arts sector employs about six times as many people as the fossil fuel sector.

The requirement for locally generated content was cause for hope for some:

“I started to lose hope in local content knowing that reality TV filled up much of our “Australian” quota on broadcast networks. The possibility of streaming services now being made to spend 20% of their budget on original, local content honestly makes me feel hopeful and excited to pursue my career on my home turf.”

A Look At Who’s Managing Foundation Funds

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For the third year in a row, the Knight Foundation has conducted a survey of the top 55 charitable foundations with the intent of measuring the diversity of those managing the assets. Of the 50 eligible to be measured, (five do not have funds under active management or engage in other approaches which don’t meet study criteria), 15 declined to provide a response to the survey.

Knight Foundation was disappointed in the lack of transparency. I had written about the problem of donor advised funds essentially sequestering charitable gifts with no obligation to to distribute them. Some of those on Knight Foundation’s list of non-responders are set up in this or similar arrangement.

Knight Foundation had examined their own practices about 12 years ago and appalled by what they found, set out to diversify the companies that handled their investments.  Reading the report, you may be disappointed to learn that 81.9% of the top 50 charitable foundations funds are invested with firms primarily owned by white men. However, at 18.1% charitable foundations are veritable role models in the investment world at large where the industry average is 1.4% invested with diverse owned firms.

Knight Foundation isn’t simply pursuing this policy to provide a fairer distribution of assets under management to diverse owned firms. They have seen that diverse owned firms engage in more diverse investment strategies avoiding “group think” approaches which may result in unhealthy concentrations of assets in problematic companies and industries, but this investment approach by diverse owned firms is no more risky than non-diverse owned ones.

That study, and the two in the series that proceeded it, found no statistically significant difference in risk- adjusted returns between diverse-owned and non-diverse-owned asset management firms. Put another way, despite no performance advantage, firms primarily owned by white men manage 98.6% of the over $80 trillion under management in the United States. And that $80 trillion represents more than three times the entire GDP of the United States.

 

IRS 990 Backlog Hampering Non-Profit Giving and Transparency

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ProPublica recently reported that the IRS has yet to release nearly a half million non-profit tax records. You may be wondering why that is something you should be concerned about. In fact, the lack of records release has some pretty significant implications for transparency and charitable giving. Drew McManus has been painstakingly combing through records since 2005 to assemble his annual Orchestra Compensation Reports.  I believe among the reasons why he didn’t have a 2022 edition examining the impact of the pandemic during the 2019-2020 fiscal year was partially due to the lack of 990 filings available for review.

Additionally, many individuals, corporations and foundations use the filing data to make giving decisions.

“This is having an impact on nonprofits, fundraising, donors … and charity regulators,” said Cinthia Schuman Ottinger of the Aspen Institute, who coordinates a group of practitioners who work with nonprofit tax data (ProPublica is a part of this group). “The whole ecosystem suffers when there are delays of this kind.”

Michael Thatcher, the CEO of Charity Navigator, said the end of the year is a crucial time for charitable giving.

[…]

And, he said, “it’s not just the donors that are upset by this.” Many organizations want their latest information out there as well, especially if their finances have improved or they’ve done significant work in recent years. “They want to show that to the world, and guess what, when you go to Charity Navigator, you’re seeing two-year-old information.”

Many of the missing filings could help shed light on how organizations — and the nonprofit sector as a whole — have fared during tumultuous years marked by a pandemic, economic upheaval and large infusions of federal relief dollars.

Courtney Aladro, a charity regulator for the Massachusetts attorney general and NASCO board member, said that regulators across the country use the IRS repository of documents to confirm or corroborate the information that charities submit to their states….

“Those are some pretty important years because of some of the difficulties over the last few years,” Aladro said. “The use and expenditure of COVID relief funds, for example. It’s pretty important for charity regulators and law enforcement to monitor that, and not having that information will make it more difficult.”

The IRS has been hampered by underfunding and understaffing which has lead to both delays in release and embarrassing release of tax information that was not supposed to be released. A recent bill passed by Congress will seek to modernize systems and hire more staffing, but it could be years before the problems are ironed out.

Comp Tickets Are Not Cost Free Transaction

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Last month Drew McManus had box office manager Tiffin Feltner make a guest post on his Adaptistration blog on the topic of comp tickets.   It has taken me about three weeks to stop grinding my teeth long enough to make a post of my own on the topic.  You will see a lot of posts about optimizing ticket prices based on various criteria and I think those assume people have a handle on their comp ticket policies. But let me tell you, in my experience there are a lot of people out there you think would know better who have absolutely bonkers approaches to comp ticketing.

Feltner notes that about 40% of comps go unused. I wondered if that is a nationwide statistic or just what they have observed in terms of the venues they serve. Reports I have pulled from my ticketing system often show much greater rates than that.

Organizations I have worked at have ticketed events for rentals of our own venue as well as served as a community ticketing hub providing service to other organizations at their venues. Many times they are not only comping tickets for individual events, but providing comp subscriptions which results in a large number of empty seats for the entire year.

There are so many issues that arise because of comp ticketing decisions. First, because organizations like to comp tickets and subscriptions to important guests, they place them in large, consecutive groups in the closest rows. Which means if people don’t use the comps, you can have a nearly sold out event where the first 10 rows are virtually empty and those in attendance are packed like sardines in the back of the venue.

Then there are other cases when the event is sold out in the ticketing system and the client can’t get a special last minute guest in because they distributed the house seats held back for this purpose days earlier. Then of course, when the show starts there are a bunch of empty seats because so much of the house had been comped.

We have run into situations where the client decides a ticket holder has forfeited their seat by not showing up five minutes before, without ever having communicated that policy. (Because it didn’t exist until just now.) Sometimes the ticket holder shows up to find their seat occupied, sometimes that bullet is dodged.

Then there have been times the client tells us they have confirmed a ticket holder is not attending, asked us to assign the ticket to someone else, and then put a sign on the seat reserving it for a third person.

Not only are poorly considered ticketing policies bad optics and create poor customer relations, most of the time the ticketing staff ends up as the target of blame for these bad decisions–often by the people responsible for making these bad decisions. This is what makes me grind my teeth because all these bad feelings and awkward situations could be avoided with a little forethought and policy discipline.

In their guest post, Feltner suggests using a card that can only be redeemed on the night of the show as a solution to the comp issue. That is similar to an approach my staff has used with clients where we suggest unassigned blocks of seats strategically placed in places with good sightlines. These blocks can be assigned as needed when it is known what VIPs will be attending. This allows for better placement and assignment of seats prior to an event date.

However, there needs to be strong comp policy guidelines in place so that there isn’t a gradual creep back to 1/3 of the seats being comped well in advance.  If your venue scans tickets, you are probably able to pull a no-show report broken down by ticket category that can provide insight into how many of the comps are being used which can inform tweaks to the ticketing policy.

While I am advocating for a robust comp ticket policy, this is not to say that you shouldn’t be offering comp tickets. There are a lot of reasons why free admission is a bad idea, but it can be useful to achieve targeted goals. As Feltner mentions, it is important to have some sort of tracking mechanism in place to evaluate whether you are achieving those goals.

One thing to consider if you are offering comp tickets as a sponsorship or donor benefit is to ask the recipient if they plan to use the tickets. In my experience, a fair number of people provide support because they believe in the organization’s work, but don’t necessarily intend to redeem the benefits that come with the support.

Not only does that allow those seats to be filled, but it also allows a greater portion of their donation to be credited as tax deductible because they are not receiving material benefit. However, this benefit needs to be refused immediately at the time of the donation. You can’t ask people in December after you have had 8 events occur and then retroactively provide credit for unattended shows. If they do decide to attend one event at a later time, you can always comp them in then and make an appropriate adjustment to their donation credit.

Donor Advised Funds Receive More Giving Than Public Charities

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Earlier this month Vu Le of the Non Profit AF blog linked to a piece reporting that Donor Advised Funds (DAF) had surpassed charities as recipients of charitable revenue.  The problem with this, as I have previously written, is that unlike public charities which are required to spend at least 5% of their funding each year, donor advised funds have no such requirement but the donor gains the tax benefit of making a donation.

In other words, the government is subsidizing giving that is not necessarily providing any charitable benefit. From the Inequity.org article:

Of particular concern are DAF sponsors that are affiliated with for-profit Wall Street financial corporations. As we have documented, these commercial DAFs provide enormous publicly-subsidized tax benefits to their high-rolling contributors while actively encouraging the warehousing of charitable wealth. And commercial DAFs have been growing explosively.

In fact, the largest commercial DAF sponsors now take in more money each year than our largest public charities.

The article has an animated graphic illustrating how over time DAFs have occupied six of the top ten recipients of charitable revenue, displacing United Way Worldwide from its top spot to number four.

There has already been some discussion about how the required minimum 5% annual distribution by charities was a low bar to meet, especially since some of the charity’s administrative expenses and activities can count toward the 5% expenditure rather than purely distributed as grants.  So the fact that so much more money is being directed toward DAFs than ever before with no requirement that it be distributed is of growing concern.

All That Is Philanthropy Is Not Gold

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I have been following Lucy Bernholz, a self-described philanthropy wonk, for ages it seems. She writes the blog Philanthropy 2173 and is a senior researcher at Stanford’s Center on Philanthropy and Civic Society.  When I saw an interview with the AP about a how philanthropy isn’t all about money, I took a closer look.

And before I get into my post proper, if you are interested in hearing more, she is participating in a Zoom conversation on the topic on November 4 @4pm ET

Basically she says that there is more to philanthropy than giving money, though you wouldn’t know it from the way the news outlets and most non-profits focus on what billionaires are doing with their money. Or for that matter, the round up requests you get when you buy your groceries.  The result is that our understanding of non-monetary methods of philanthropy are pretty much stifled. Alternatives aren’t just volunteering and donating blood and organs. It can be donating genetic material for disease research or giving photographs to organizations which document historical events like the Japanese internment during World War II.

When Bernholz was asked about how tax law has impacted philanthropy, she gave the following response:

A: It never came up in our conversations. Only when we brought it up. What’s fascinating about that is only 8% of Americans bother to take the charitable tax deduction on their tax return. Now, tax policy is pretty much the only policy idea the philanthropy industry has any interest in. They’re serving 8% of the population. And I know that 8% is not Mark Zuckerberg. It’s not Pierre Omidyar. It’s not Laurene Powell Jobs. They’ve all said: “We don’t care about the tax benefit. We’re gonna do an LLC, because that gives us more control and more anonymity.” So there’s some 8% who care. In poker, they’d call that a tell. If and until the nonprofit and philanthropic industries start advocating for really rich people to pay their taxes, I think the view of that whole industry as a wealth preservation mechanism is quite justified.

It was surprising to learn that only 8% of Americans take the deduction. Gallup polling has shown about 80% of Americans donated every year pre-Covid. Granted, not everyone may donate to a level at which it makes sense to claim the deduction, but surely more than 8% donate above that threshold.

We frequently hear that the U.S. government subsidizes non-profits by allowing that deduction, but it appears the subsidy isn’t as great as we may think if so few claim the deduction.

Bernholz mentions that many wealthy people have eschewed tax deduction and formed LLCs to distribute funds to maintain tight control. But there is also increased prevalence of donor advised funds (DAF) which do provide a deduction without any mandate to distribute the funds to charities, and therefore an heightened level of control as well. If you consider that a portion of that 8% claiming deductions may have never reached a charity because it is parked in a DAF that hasn’t distributed, the government is subsidizing non-profits even less than we might imagine.

Seats Are Open, But So Are The Doors For More Diverse Stories

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On Friday one of my colleagues at work is flying to NYC to see Springsteen on Broadway, the show that re-opened earlier than pretty much all the others. She purchased the tickets months ago when they first went on sale.

Unfortunately, it doesn’t appear most people share her level of optimism. A CNBC story reported that even the most popular titles are seeing very soft sales.

Although tickets have been on sale for months, neither “Wicked” nor “The Lion King” – the top two highest-grossing musicals in history – sold out their first week of performances. “Hamilton,” which historically sold out months of performances within minutes, also has plenty of opening week availability. Between September 14, 2021, and June 5, 2022, only one performance of “Hamilton″ is sold out.

A Forbes article projects some potential doom and gloom for the production of the show Pass Over, which has been getting a lot of great press. In fact, there is a suggestion in a couple articles that they moved up the date of their opening to last Sunday in order to take advantage of the the good press they have received.

This is somewhat unfortunate for the production of Pass Over because in addition to the high quality and expectations, there are a lot of good portents associated with the show. For one, it is the first show by a Black playwright to appear in the August Wilson Theatre since the venue was named for the esteemed Black playwright in 2005. (A lot of “about time” comments on social media noting that it took 15 years for that to happen).

According to a Reuters piece, Pass Over is among a number of upcoming shows which are being supported by first time Black investors.

However, seven new plays have been announced for this fall, all by Black writers. Some are being financed by first-time Broadway investors, including co-founder of television network BET, Sheila Johnson, who is putting money behind the play “Thoughts of a Colored Man.” Johnson and celebrity chef Carla Hall are also investing in a new musical called “Grace” about Black culinary history.

Actor Blair Underwood and former basketball player Renee Montgomery are investing in the stage play “Pass Over”, a modern twist on “Waiting for Godot.”

“There is various new money that is coming into Broadway, and that money is extraordinarily helpful and it is also diverse money, which is also very interesting and new,” said Brian Moreland, producer of “Thoughts of a Colored Man,” opening in October.

Whether we like it or not, money has a big influence in terms of what stories get told so this can be a positive indication for greater representation in whose stories get told and who is involved in telling those stories.

Keep Your Eyes Open For NEA American Rescue Plan Grant Webinars

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While everyone is waiting for their Shuttered Venue Operating Grant (SVOG) application to be processed, you should be taking a look at the National Endowment for the Arts American Rescue Plan (ARP) funding. The NEA just held a webinar today about it, but most states and regional arts organizations are having one for their members. Americans for the Arts is having one on July 6.

In a nutshell, the reason why you want to apply for this is because there are far fewer restrictions than usual on the program. The only broad categories that they won’t fund are capital improvements and project grants. Usually all they fund are projects. They still don’t provide funding to individual artists.

They will pay for operational costs like salaries and non-capital equipment.  You can apply even if you have an SVOG grant pending or have received funding from other programs like PPP or EIDL.  You just can’t apply for reimbursement of the same expenses covered by another program. So if other funding covers salaries until December 31, you would need to apply salaries from January 1 onward to the ARP grant. The funding can be applied across two years which allows some time to regain momentum lost during Covid.

They have a PDF prepared with all the information you will be expected to provide. Note that everyone has the deadline of August 12, 2021 to submit a short form application on Grants.gov, but then organizations whose legal identity begins with A-L will apply through the separate NEA applicant portal August 19-25 and those with names beginning M-Z will apply August 27-September 2.

My guess is that they are trying to avoid a lot of the snafus which plagued the SVOG program.

Take a look at the information and find a webinar to attend. As you might imagine there is a ton of interest in these programs. I received an email about 2-3 hours before the webinar started that they had reached capacity with registrations and keep trying to get in if you are initially blocked so I queued up 20 minutes early in the hopes of being admitted.

Arts Incubators Can Offer A Different Type of Education

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An article from Oregon Arts Watch about an arts incubator program, Tulatin Valley Creates  rolled across my feed this week. The article inevitably talked about how the program helped artists apply for Covid relief from various entities across the span of the last year.

What I was interested to see was artists talking about how participation in the incubator helped them re-evaluate their work and employ a new approach.

Julian Saporiti who graduated from Berklee School of Music drew a distinction between the training received in degree programs and in the incubator:

“That’s different from education programs that focus on individual virtuosity,” he says. “The incubator classes were very much emboldening participants, with the aim being to spread that collaborative approach to the rest of the community.”

One artist, Emily Miller, said that conversations in the incubator lead her to broaden her approach.

“What I realized during the incubator and looking at it from different perspectives is that I had to keep redirecting conversations away from the same narrative we hear about ocean plastic — whose fault is it? How can we solve it? The incubator helped me get from that point to, ‘OK we understand this problem — now where are we going?’ I want people to focus on creative transformation, and how they can apply it in their own lives — even if they have nothing to do with ocean plastic.” The changes she’s making as a result broaden her project’s relevance to more people.”

Another participant, Jamie Cromier, went in planning to open a gallery but her thinking evolved after recognizing a number of factors:

“…she decided instead to partner with people in the community who were already working in that area, and to focus instead on what she was passionate about: not the administrative work of founding and running a gallery (while raising three children), but instead helping them make art that served mental health. She wound up creating art boxes that would go out to people with mental health issues who could use them to create art.”

I appreciated the fact that the incubator program has a process which is helping people think and reflect on their plans and practice. Hopefully there are other programs out there having similar outcomes.

Shuttered Venue Operators Grant Program Opens April 8

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If you have been looking at the Shuttered Venue Operators Grant program information page as I have suggested, you may have seen it says the applications will open in early April,

However, there is a new button on that page that takes you to the application portal which informs you things are scheduled to kick off on April 8. You can sign up there to get additional notifications.

 

 

If you haven’t done so already, now is the time to register for a DUNS number (or research what your number is), register for SAM.GOV, and check out any webinars your state arts council, state small business administration resource or trade/discipline service organization may be offering.

There are FAQs and Checklists on the Small Business Administration webpage, but you are gonna have questions.

SVOG Program Updates Coming Fast Now

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While I am pretty sure people are following the developments of the Shuttered Venue Operators Grant program pretty closely and are probably getting regular updates from their state and industry service organizations, I figure it doesn’t hurt to put reminders and updates out there myself.

Especially since all the updates I have been getting from service organizations haven’t pointed out some important distinctions between the FAQs the Small Business Administration is putting out on a weekly basis now. (Likewise, assume I am not pointing out the distinctions that are important to you and read through them!)

For example, about a week or two ago they started posting check lists of materials you should be collecting in advance of the opening of the application period which appears to be on track to happen in early April. The latest version of the check list can be found here, but since they are updating between Thursdays-Sundays, if you are reading this after March 18 you are better off going to the main page.

The same goes with the regular FAQ document. The passage of the American Rescue Plan has caused sections of the FAQ to be removed in the March 12 version.

For example, the March 5 version had this question:

6.Can an entity apply for a PPP loan now and decide later on the loan if it did not receive an SVOG? At what stage is a PPP loan considered “received”?

but it is now replaced with:

6.*No longer relevant / deleted per the American Rescue Plan being signed into law.

Though if you scroll down, you will see a couple new points of information have been added to that section which address PPP loans and SVOG funding:

21.*How will receiving a PPP loan affect an eligible entity’s SVOG award?

22.*If a portion of my PPP loan was forgiven, will that affect how much of the loan amount is deducted from my SVOG?

As before, anything that has been updated since the last FAQ has an asterisk. But you should through everything thoroughly in case you missed an update.

Among the latest updates are answers to questions about whether the payout will be lump sum or multiple payments. Answer – it depends on a number of factors. See page 16

Should you use fiscal year 2019 or calendar year 2019? – You can use either, but if you apply for the supplemental funding phase you need to use the same time frame.

There was also a new entry answering questions about whether sponsorships should be counted as earned revenue since donations are not counted as such. The answer is different for commercial and non-profit performing arts entities:

Because it represents payment made in exchange for a service (i.e., recognition or advertising), sponsorship payments (such as naming rights) received by for-profit entities will be considered earned revenue. Like the treatment afforded memberships and fundraising events, sponsorship payments received by non-profits will be considered part earned revenue and part gross revenue. In such cases, the sponsorship payment amount a non-profit receives that represents a fair market value for services in exchange (i.e. promotion, free admission, use of facilities) will be deemed earned revenue and the portion of the sponsorship payment that exceeds that amount will be deemed a contribution and thus gross revenue…

Latest Shuttered Venue Grant FAQ Provides Increased Detail

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While I am sure a lot of performing arts venues have been closely paying attention to news about Shuttered Venue Operators Grant (SVOG) program designed to help arts organizations impacted by Covid shutdowns, you probably wouldn’t have expected a major update to a government department’s FAQ document to be rolled out on a Sunday.

There was a major update to the SVOG FAQ on Sunday.

It isn’t difficult to identify what information is new because anything that didn’t appear in the February 12 update has a * next to it.

This version answers a lot of questions I have heard asked in webinars, including specific information about the eligibility of performing arts venues run by university, state and local governments. Similarly, there is detailed information which apply to museums.

The February 28 version also provides new definitions for a lot of terms like museum, promoter, regular programming, theatrical producer, performing arts organization operator, cover charge, mixing equipment, lighting rig, sound engineer, etc.

The question of what constituted fixed seating came up a lot in webinars I attended because it is a significant requirement to receive funding in some instances. In this version they added the following information:

*Would heavy bleachers pushed back against the wall when not in use but never removed from a theater qualify as fixed seating?

Yes. Any cumbersome seating not easily or regularly removed from a theater will be considered fixed.

While there is a requirement that people be paid fairly in the legislation, earlier versions of the FAQ explained that volunteer labor did not exclude a venue from apply if the staff managing the venue were paid. This means that many community theatre organizations may also be eligible for SVOG funding.

The FAQ that illustrates this best is probably the following, which also appeared in earlier versions:

If a venue’s box office is staffed by volunteers is it eligible to apply? Yes. Among the criteria included in the live venue operator or promoter definition is a requirement that a qualifying venue must engage at least one individual to perform at least two of the following roles: sound engineer, booker, promoter, stage manager security personnel, and box office manager. The Economic Aid Act does not reference any hired box office staff other than a box office manager and does not absolutely require even that position. As such, the use of volunteers to staff a venue’s box office would not preclude it from being eligible to apply for an SVOG.

There is also some oddly specific questions that makes me think the legislation was intentionally written to provide eligibility to a corporate entity.

Does a live venue operator who qualifies as an “eligible person or entity” remain eligible for an SVOG if that live venue operator has a minority investor (less than 51% ownership) that has more than 500 employees, locations in 11 or more states, and locations in 2 or more countries? Is that the only ownership/control-related grounds for disqualifying someone?

Yes. The Economic Aid Act speaks only of majority ownership and control in the context of the disqualifying conditions related to being listed on a stock exchange or to the geographic scope of operations and number of employees. There are no other control requirements in the statute.

If you hadn’t researched SVOG funding or didn’t think you qualified, the latest version of the FAQ should provide a greater degree of clarity than any previous version. (Though the additional detail may dash the hopes generated by the previous vagueness.)

Applying For Save Our Stages Money, Keep Close Watch On The Site

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I am hoping that all of you who work at a performing arts venue in the United States are like me and have been getting seven or eight emails a week making you aware of a webinar on the Shuttered Venue Operators Grant program aka Save Our Stages funding.

While it is difficult to know exactly all the information you will need to assemble, you definitely want to make sure your organization is registered with SAM.gov. Any grant from the federal government, regardless of which department’s website/system you apply through will require this registration and it can take up to two weeks to get verified. Since the application windows are only two weeks long, based on the amount of your losses, you don’t want to be waiting for your registration to clear.

You will need to know your DUNS number as part of the registration on SAM.gov so applying for/researching it could be another step in the process.

While the date when the application window opens hasn’t been set (as of this writing), information on the Small Business Administration site is constantly being updated so you almost have to make checking the program page a daily ritual.

For instance, the FAQ update for the SVOG program which came out February 5 had some significant updates from the FAQ that went out nine days earlier on January 27.

In January, the information for Museums was:

Museum Operator
1. Is a museum partially funded with state dollars eligible to apply?
Yes. While there are specific eligibility rules for entities owned by state or local governments, the receipt of funding from a state government does not affect its eligibility.
2. Is a museum that received CARES Act funding eligible to apply?
Yes. Per the Economic Aid Act, receipt of CARES Act funding does not disqualify an entity for SVOGs.

In the February 5 version it reads:

Museum or Movie Theatre Operator
1. Is a museum or movie theatre with a multipurpose room with movable seating eligible to apply?
No. The Economic Aid Act specifically requires fixed seating for qualifying amphitheaters of museums and motion picture theatre operators and makes no allowance for temporary, removable, modular, convertible, or other non-fixed seating arrangements. As such, museums and motion picture theatre operators cannot satisfy this requirement with other forms of seating. NOTE: There is no fixed seating requirement for other types of eligible entities.
2. Is a museum or movie theatre with outdoor fixed seating eligible to apply?
Yes. The Economic Aid Act does not require qualifying venues to be indoors. If the venue meets the applicable eligibility requirements, it should be eligible to apply for an SVOG.
3. Is a museum partially funded with state dollars eligible to apply?
Yes. While there are specific eligibility rules for entities owned by state or local governments, the receipt of funding from a state government does not affect its eligibility.
4. Is a museum that received CARES Act funding eligible to apply?
Yes. Per the Economic Aid Act, receipt of CARES Act funding does not disqualify an entity for SVOGs.
5. Is a drive-in movie theatre without fixed seating eligible to apply?
No. Per the Economic Aid Act, a motion picture theatre operator must have at least one auditorium with a motion picture screen and fixed audience seating, so a drive-in movie theatre is not eligible to apply for an SVOG.”

Number 5 was an individual answer in the January version and got wrapped in with museums, but the other additions are new content. If you are thinking about applying for this program, keep an eye on the website so you can be as prepared as possible in advance of the application period.

Germany Would Like You To Perform With Confidence

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Big thanks to Rainer Glaap who sent me a link to a news report that Germany has created a $2.5 billion cancellation fund that would allow event organizers to plan shows in the third and fourth quarter of 2021 with some confidence by promising to cover any Covid related losses. They are also working on funding to mitigate against losses due to capacity restrictions.

Scholz said that the federal government would like to reimburse all costs “which were made in optimistic expectation and cannot be realised due to corona restrictions” for events in the second half of 2021. “Otherwise the pandemic will be over at some point, but there will be no concerts. And so the whole machinery with the many self-employed soloists and musicians gets back on its feet,” he added.

Scholz says he is also working on a funding program to support cultural events that are financially impacted by capacity restrictions enforced due to coronavirus, as well as hybrid shows.

Apparently Austria implemented a similar program in October and ended up putting it into practice a short time later:

The protective umbrella was put to use sooner rather than later when Austria went into lockdown on 3 November. The lockdown was lifted today, however leisure facilities and cultural institutions will not be permitted to reopen.

Similarly motivated to stimulate cultural activity, the article reports that Denmark had provided subsidies for organizing socially distanced events in September and October.

The insurance and subsidy approaches both provide interesting models for the Save Our Stages effort in the US. I suspect other countries have arrived at additional plans that would be equally viable and worth exploring.

It’s More Than Just Naming A Minster of Culture And Other Measures To Help Creative Industries

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To continue where I left off from yesterday’s post about the UNESCO document, Culture in crisis: Policy guide for a resilient creative sector, the next section addresses providing support for cultural and creative industries in the wake of the Covid epidemic. Whereas the policies covered in yesterday’s post were more targeted toward helping individual artists and organizations, this section is more focused on broader sectors. This part of the document has seven separate sections, but I don’t intend to take screenshots of them all.  Some of the proposals aren’t as relevant to non-profit arts organizations so I will summarize rather than going into detail.

The measures proposed in this section include: Accelerated payment of aid and subsidies; Temporary relief from regulatory obligations; compensation for business interruption losses; relief from taxes and social charges; stimulating demand; preferential loans; strengthening infrastructure and facilities.

Since I am writing from the bias of a U.S. based non-profit, some of these measures aren’t as significant as others.  Accelerated payment of aid is basically the suggestion to pay disbursements on grants already in place rather than waiting for final reports or the completion of services in order to allow organizations to remain liquid and finish all that stuff.

Relief from regulatory obligations as described in the document are focused on broadcast networks. I am not sure there are a lot of regulations in the U.S. that are inhibiting organizations from staying liquid and aren’t important for protecting workers and participants (i.e. those that deal with employment, health and safety, supervision of children in camps).

Similarly, relief from taxes doesn’t impact a lot of non-profit arts organizations. In some locations where the organization is making a voluntary payment to local government to support infrastructure, some discussion about payment is probably worthwhile. For those organizations that pay local/state sales tax, getting that removed in a time when tax receipts are way down is probably an extremely difficult conversation.

The preferential loans section is a valuable proposal, but the content of that section can be summarized as: The loans should be made, but the banking sector has insufficient understanding of the variations in creative organizations necessary to evaluate them for creditworthiness for loans so the banks need to be trained first.

Compensation for business interruption loss of course is a big issue, especially in terms of insurance paying claims. This section definitely is definitely worth reading since it is so relevant and balances the concerns of both government and industry.

Stimulating demand is a really interesting section and something folks in the U.S would love to see the government embrace. Look at that first line “The State is sending a clear message that the art and culture are essential services to which all citizens must have access.”

I appreciated the fact they noted change and results wouldn’t happen immediately and counseled a long term view.

I also think the observation that ministries of culture (or the NEA in the case of the US) does not have the expertise to stimulate demand is valuable to note. This is something extremely important to acknowledge when it comes to discussions about elevating arts & culture to Cabinet level position in the U.S. government. It isn’t enough to have someone in the position, the overall policy and practice of the government must be aligned toward cultivating both supply and demand. Even if the culture secretary/minister portfolio doesn’t have the ability to stimulate demand, government policy should be that those that do work hand-in-hand with the culture secretary/minister toward that end.

I debated whether to take a screenshot of the Infrastructure section because it states the well-known and easily summarized “Edifice Complex” truism. People like to fund impressive looking structures, but don’t want to fund the programs or people or programs that will inhabit the structures. However, I feel like we can all use the vindication:

Budgeting More Money For Culture, Despite Covid. You Can Probably Guess Where

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Last week Artnet reported that Germany’s 2021 draft budget held an increase in funding for cultural organizations in the country.

You may recall that I made a post in May that clarified German cultural organizations didn’t receive $54 billion in aid as had widely been reported.

German arts administrator Rainer Glaap had brought the misunderstanding to my attention and provided links to stories that explained that the money was spread across a wide swath of industries and that since each German state had their own programs and interpretations of how funding was to be used benefits to cultural entities varied wildly with freelance artists often receiving short shrift.

The most recent story seems to be more specifically focused on funding for cultural entities since the budget numbers cited are $2.26 billion and it quotes the German culture minister

Culture minister Monika Grütters says that such a strong budget for the final year before the German elections underscores the country’s commitment to culture, especially on top of its existing billion-dollar coronavirus rescue program.

“Especially in times of crisis, culture is the foundation of our social cohesion,” Grütters says in a statement. “Art, culture, and the media make us aware time and again of our great privilege to live in a country of freedom of the press, culture, and opinion, where controversial debates are possible, desired, and endurable. The protection of these freedoms remains the highest principle of federal cultural policy.”

The German government’s cultural budget has grown by about 60 percent since Grütters took office in 2013, and 85 percent since the German chancellor Angela Merkel came to power in 2005.

The story doesn’t really get into whether the different states were taking steps to make sure freelancers and small business groups were better able to access funding or other supports than previously.

 

While the erroneous $54 billion amount had caused no shortage of envy among arts and cultural professions last Spring,  I wanted to point out prioritizing culture is not an outlier. Not only has improving funding for cultural organizations been a priority this year, it has been a priority for over a decade. It should be noted, this budget has to be approved by the German Senate before it is put in effect.

Portland, OR Art Tax Update

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Back in 2012, Portland, OR approved a $35 tax to supports arts education and arts organizations around the city. In 2017 I wrote a post about how overhead was starting to cut into the amount of money available to distribute to programs. Part of that overhead was attributable to the fact people weren’t paying the tax and so funds had to be diverted toward enforcement.  Last week, via Artsjournal, is another article mentioning that the tax hasn’t proven to be the boon supporters hoped it would be. For one, people still are resistant to paying it.

The art museum, like the rest of the big five, never received the targeted 5 percent support.

That’s in part because the tax has never brought in the $12 million a year voters were told to expect. (Revenues were $9.8 million the first year and peaked at $11.46 million in 2016.)

Portlanders have been reluctant to pay it. Although the city’s population has risen nearly 12 percent since November 2012 and tax receipts should have increased proportionally, figures show revenues still never reached levels proponents forecasted.

A point I want to clarify. The article makes it sound like arts funding for schools has diverted money that was intended for non-profit arts organizations. However, from my earlier posts, it appears the law that was passed intended to fund the schools first and then the non-profits would receive funding. In fact, this recent article says when the measure was passed in 2012, funding the schools was politically more attractive to voters than funding non-profits. While the arts organizations had been pushing the art tax idea for a long time prior to the vote, when the time came, the resolution being voted upon was written to fund the school first.

The other thing the article notes is that between the collection effects and the art tax name, there are public relations and perception issues which have proven problematic.

While arts leaders all favor more Portlanders paying the tax, some worry the city’s zeal to collect is counterproductive. “You get pinged with a letter, you get pinged with a postcard, you get an email saying time to pay the arts tax,” says Portland Center Stage’s Fuhrman. “That’s where I think the bad PR comes in.”

Andrew Proctor, executive director of Literary Arts, which produces the Portland Book Festival, says the public’s ill feeling has a cost. “Even the name ‘arts tax’ sounds punitive,” he says, “and it misleads citizens that in paying the tax they have supported arts institutions. They haven’t. It can damage our fundraising efforts and can polarize the conversation.”

[…]

Hawthorne, the former RACC official, says he fears the public may believe the tax works. “Ten to 12 million is a lot of money,” Hawthorne says. “People may perceive the arts have had their influx and now it’s time to focus on more pressing needs.”

The whole article provides a lesson for those considering advocating for an arts tax of some sort. The basic idea isn’t bad, but the way it is structured and executed needs to be thought out. The example of Portland points to things people want to avoid. The name; the way in which it is collected, structured and discussed; all call negative attention to it.

It is worth reading the whole article because it also mentions the Regional Arts and Cultural Council’s (RACC) initiative to provide more equitable funding for smaller arts organizations. Back in 2012, RACC was starting to require more diversity on the boards, staff and eventually audiences of Portland’s arts organizations. In January, I had written about how the Arts Council of England was instituting similar requirements, forgetting that Portland had been working toward that goal for nearly a decade now.

Last year, RACC shifted their funding model to better align with this philosophy which includes size and economic diversity among its criteria. As a result, the larger organizations in town receive less of the art tax money than they once did.

We Can Never Beat Overhead By Ourselves, It’s Time To Merge!

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When I saw a story on Non-Profit Quarterly about four Kalamazoo, MI non-profits entering a shared-services partnership, I immediately assumed it was confined to back office functions as I had written about before. However, that isn’t entirely the case. Moreover, the impetus for their partnership isn’t so much driven by a desire to save money as it is by the fact that funding entities won’t allow grants and donations to be used for administrative overhead.

The four non-profits, Boys & Girls Clubs of Greater Kalamazoo, Prevention Works, Urban Alliance and Big Brothers Big Sisters, didn’t form the shared entity, Hub ONE, just to handle their back office functions, Hub ONE staff will help people navigate the services offered by each of these groups. “With each organization working to combat an aspect of generational poverty, the partnership appears to be a natural fit.”

A three year, $8.3 million grant from the Stryker Johnston Foundation will largely support developing the infrastructure of this new shared services entity. Some of the money will also go toward staff development and retention–something that is actually the long term goal of the shared services model.

…Gail Pico notes that overhead caps stifle social progress by restricting funding for use in effective management (e.g. professional development, evaluation, and strategic planning), keeps direct-service employees in poverty, and discourages innovation by not permitting organizations to take risks in trying new methods.

Each member of Hub ONE has been negatively impacted in some way by overhead myths. For instance, many of their employees are eligible for the programs they offer. Consequently, the group asserts that much of their time is spent trying to hire and retain employees who are driven to leave the sector for better pay. Sielatycki hopes the new collaborative will free resources for member nonprofits to pay employees more competitive wages, thereby helping reduce turnover and its associated retraining and onboarding costs.

The title of this post is a reference to the merging robot motifs of cartoons like Voltron

Of course, what can be a threat to the folks in Kalamazoo and other places is when one organization prioritizes themselves over the whole. (offered more for entertainment than caveat)

Colorblind Grant Evaluation Measures Aren’t

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There was an opinion piece on the Chronicle of Philanthropy website today by Antony Bugg-Levine, CEO of Nonprofit Finance Fund, discussing how the evaluative measures often employed by funders tend to discriminate against non profit organizations lead by, and serving, people of color.

He writes,

What I did not realize then was how colorblind application of financial assessment and funding practices can make it harder for organizations led by and serving people of color to get grants and make the most of them.

The problem often originates in the fact that these organizations don’t have access to networks of influence and financial resources that other organizations do.

So requiring dollar for dollar matches for grants or using rates of donations by board members as a measure of engagement and investment are difficult criteria for many non-profits to meet.

The same problem arises when using budget size as a point of assessment.

Determine grant size based on the value of the work rather than the current revenue of the organization: When you recognize the structural barriers that prevent many well-run and effective organizations from gaining traction, you come to see how distorted the link can be between an organization’s size and capacity. And the formal accounting rules that determine what counts as revenue make the problem worse. For example, pro bono legal advice from a corporate law firm counts as revenue. The many hours a volunteer spends reading to young people in a community center does not.

A better approach: Rather than creating rules that peg grants to a share of revenue, spend time understanding the value the work would generate and the full cost to undertake it.

Obviously, these evaluation measures don’t just present problems for organizations run by and for racial minorities. Many non-profit organizations run by racial minorities lack resources, but not every non-profit lacking resources is run by and for racial minorities.

Bugg-Levine provides a link to a guide recently issued by the Nonprofit Finance Fund which charts racially-based financial analysis and provides suggested alternatives.

There are some issues you might not immediately anticipate. For example, having access to a wealthy private donor allows organizations to take government contracts which tend not to cover full costs. Having the imprimatur of a government contract provides other funders with a greater degree of confidence in the organization, leading to better funding opportunities. But not having a relationship with a wealthy private donor makes it difficult to secure the government contract in the first place.

Another example identified in the chart is that:

Funders associate small organizations with community authenticity

Organizations will intentionally limit their revenue (often below $1 million/year) to remain eligible for “small organization” grants, because some funders will cut them off when they become larger. But, they still can’t make the leap to effectively compete against larger organizations for larger grants, given the dearth of funding options for organizations in the $750,000-$3 million/year revenue range.

Even an organization’s accounting method can be a source of bias. The indication that the organization employs accrual based accounting vs cash based accounting  favors better funded organizations that have the resources to pay for accrual accounting services because,

If an organization is using cash-basis accounting, which counts money when it is received or spent, rather than when it is earned or billed, their finances appear less stable. This can lead to suspicion about the soundness of their leadership and overall financial health, and create a perception that making a grant to this organization is riskier than if they were using accrual accounting

Not Words, But Deeds

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Last week Doug Borwick wrote a blog post saying it wasn’t enough to tell people that the arts have value in their lives.

As I started reading his post, I agreed with this sentiment because we have long acknowledged the argument that the arts are good for you isn’t really that compelling for people. I have talked about how the arts shouldn’t be viewed as a solution to all sorts of problems a number of times before.

But there is also the basic experience we all have growing up being told that food/medicine/classes/experiences are good for us. We roil when forced to consume such things under the eye of parents and authority figures and often happily reject them when provided the freedom of choice. Sometimes we come back to them with appreciation, but other times the bias is so ingrained, we resist any opportunity presented to engage with these things again.

As Borwick’s post continued though, the situation became a little more complicated in my eyes. He quotes the former CEO of National Assembly of State Arts Agencies, Jonathan Katz about how little stock people put in empirical evidence about art.

“Neither professionals [or community leaders] in the relevant disciplines nor the general public put sufficient stock in . . . studies to alter policy. This disinclination to believe is rooted in unexamined assumptions that the arts do not touch the lives of more than a select few.“

Borwick continues, (his emphasis)

In other words, people do not believe the stories or the studies because they don’t believe they can be true. For many, the arts are so inconsequential, so void of impact on their own lives, any proof of their power is literally unbelievable.

So whether you are trying to convince people of the merit of the arts or the value of your organization or you are simply trying to get them to attend your events, there is a profound chasm of disbelief to be overcome. The way across this divide is not by words. It is action alone that will work. Being perceived as valuable must be earned by doing things that make us so. If we have to tell people we are valuable, we’re not to them.

Now to echo my friend Carter Gillies, just because you can measure something doesn’t mean what you have measured is relevant. We all know that the amount of revenue something garners has no relationship to the artistic value or quality of that thing.

But what Borwick is saying means that regardless of whether you are providing accurate data derived of the most rigorous methodology possible or not, people won’t believe the evidence if it doesn’t align with their personal experience. (Which granted, doesn’t just apply to the arts and also contributes to things like the current political divide in the U.S.)

So in the end, it is actions that enter someone’s experience, including that of individuals they value, that will serve as proof of the value of arts/culture/creativity.

Cons Of Starting An Endowment

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Recently there have been some conversations around my organization and town in general about whether it is worthwhile to try to bolster an existing endowment. People have mentioned that there has been a trend away from establishing endowments in recent years. I started wondering what the thinking behind that was and what the alternatives might be.

It just so happens Non Profit Quarterly reprinted a piece that talks about the pros and cons of establishing and endowment.  On the con side is the issue is the idea that you are locking up money the organization could use now and disbursing it in the future when the same dollars don’t buy as much. Thirty years ago it may have seemed really attractive to learn that the organization would be receiving $25,000 a year from the endowment. In 1989 that could cover the salary for a position, but that money doesn’t go as far today. (Though there are plenty of places offering $25,000 as a salary.)

Current needs is the one that at least one of your board members will bring up, and is very possibly the reason why your board will vote not to have an endowment. “Why should we put a million dollars in a bank account when we can use that to serve a million more lunches?” Or buy a hundred thousand more books. Or facilitate a thousand more adoptions. Or renovate the façade of the theater. Many nonprofits are in dire need of more money, and most can at least think of an immediate way to use more….Some people go so far as to say it’s not ethical to lock money in the bank when there are so many necessary ways to spend it now. Before you know it, you have bad press and declining donations—and you wish you’d never thought of raising an endowment.

You may look jealously upon organizations receiving large payouts from their endowments, especially universities, but by and large these groups have a staff that is actively managing an endowment. A staff is required to grow an endowment to the size it yields enough to support your activities. But you need to have started with a large enough endowment to support a staff in the first place.

Enough Sins To Go Around

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A couple weeks ago Ali Webb wrote the provocatively titled Philanthropy’s Seven Deadly Sins on Non-Profit Quarterly.

According to Webb they are,

Blindness to privilege
Dismissing community knowledge
Misplaced accountability
Poor partners
Failure to learn
Risk aversion
Lack of transparency

Some of the sins were more specific to philanthropic foundations than non-profit organizations in general, but I saw some parallels with topics I have discussed in the past.

I am relatively sure most people recognize that “Blindness to Privilege” is a significant issue right now.

Carlisle observes that, “There are increasingly few places in the country where there’s not going to be significant racial and cultural differences…where people who have been very sheltered or in dominant culture settings are beginning to say, ‘Wow, we are fish in water. We didn’t know we were fish. We didn’t know we were swimming in water.’”

Don Chen, Director of the Equitable Development Team at the Ford Foundation, remarks that he wishes he “had a dollar for every organization that comes to me and says our board came up with a new strategic plan, and we are going to focus on equity. These same people aren’t talking about equity as a core value or a core component of their mission; they are often talking about equity as a topic. That’s a warning sign for me because it could be dropped like any other topic.”

In the sin of “Dismissing Community Knowledge,” I saw some familiar phrasing.

Keller observes that too often, “we ride into communities, stand before them, and tell them what they need to do to solve their problems. Then we ride out, expecting programs to be scaled and sustained.”

“Foundation people tend to over-intellectualize but under-experience the challenges of those they seek to serve with no authentic proximity to the issues,” says Carlisle. She continued, “The validity that comes with seeing and understanding different world views, which are not dominant culture, can have extraordinary outcomes.”

[…]

Chen calls it “drive-by grantmaking,” where foundations make a grant and then go away for a year or two. “Local folks have a BS meter and they know if you don’t trust their knowledge,” says Harris.

For me, this echoed what Marc Folk of the Toledo Arts Commission said about riding into a community on a white horse and Margy Waller’s “We’re From The Arts and We Are Here To Help,” post I wrote about two years ago. Likewise, Ronia Holmes piece about arts organizations being bad at community outreach which I also wrote about also has resonance with this “sin.”

From a recipient point of view, the “Failure To Learn” sin encapsulated a lot of the issues non-profits face today with the expectations of funders. If you read Vu Le’s Nonprofit AF blog, you will be familiar with these gripes.

“In philanthropy, we don’t always clean up our messes when we change priorities and make transitions.” Hegarty offers that the unwillingness to learn may stem from “a tendency to think we are the smartest persons in the room and the assumption that we have all answers and understand all the angles.”

[…]

Another possibility that Chen offers is that the field is “delusional” about what was or could be accomplished with the amount of money offered. Sometimes, Chen said, the sector believes it is “smarter than everyone who ever came before. Especially when working in in under-resourced, low-capacity places, philanthropy tends to think it has super powers.”

[…]

“We ask a lot of our grantees and then what they share with us goes into a black hole. We never do anything with the information to further the work,” said the officer. “Without processing the information and developing a vehicle to get it back to the grantees, much learning is lost.”

All of this is something to think about. It is difficult to effect the change we like as fast as we think we should, but being reminded of these concerns on a semi-regular basis feeds progress.

Often We Pay More For The Illusion Of Control

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If you want a lesson in the power of custom and pricing psychology winning over objectively better options, check out this New Yorker piece on failed attempts by restaurants to eliminate tipping.

Research conducted by Michael Lynn, at Cornell University, who is the foremost academic authority on tipping, has shown that people of color receive lower tips than their white colleagues, which arguably qualifies tipping as a discriminatory pay practice. The system perpetuates sexual misconduct, because service workers feel compelled to tolerate inappropriate behavior from customers who hold financial power over them. As restaurant prices have risen, gratuities—which are tied to sales, as a percentage—have too, so that there is now a substantial and hard-to-defend disparity between the pay of the kitchen workers who prepare food and the servers who deliver it.

A statistical model created by Ofer Azar…found only a small correlation between tip size and service quality, leading him to conclude that servers were motivated mainly by other factors …Another study by Lynn showed that perceived service quality affected tip size by less than two percentage points. A female server, by contrast, can expect to hike her tips by an average of seventeen per cent if she wears a flower in her hair.

A number of restaurant groups and owners have tried to eliminate tipping to help resolve this issues. Some have decided to eliminate tipping and set their prices higher in order to provide health and leave benefits in addition to a living wage.

While there have been some difficulties finding people who are willing to work in a no-tipping environment, the bigger problem is resistance from customers.

New research by Lynn shows that when restaurants move to a no-tipping policy, their online customer ratings fall. One factor that explains that dissatisfaction is how we, as consumers, respond to “partitioned” prices versus “bundled” prices. A partitioned price divides the total cost of an item into smaller components—say, a television listed for a hundred and ninety dollars that has a ten-dollar shipping fee. A bundled price would list the television, shipping included, for two hundred dollars. Consumers tend to perceive partitioned prices as cheaper than bundled ones.

Later the article notes people have an aversion to service charges. Even though people will typically tip 20%, if a 15% surcharge is automatically added in the place of tipping, people perceive it as a “gotcha” even though it means they will pay less. People also believe that service will suffer in the absence of tips.

There is a lot in this article that speaks to the value of using psychology in pricing strategy and providing the perception of the consumer being in control.

If you have ever shopped on sites like Amazon where there are multiple sellers of an item, if you pay attention you will often see items that are offered a few dollars cheaper than the rest of the group—until you get half way through the transaction and you realize that with the shipping and handling it is much more expensive than the sellers who offered free or included shipping. I often wonder if they are counting on people not noticing or deciding it is more trouble to back out of the transaction and starting anew with another vendor.

Surcharges on ticket sales would likely disappear immediately if the sales weren’t restricted to a single service. (Ticket prices rarely fall below face value on re-seller sites.)

Speaking about the ethics and motivations behind your pricing does gain traction with certain demographics and may make them more willing to pay a higher price if they know people are being taken care of. But this New Yorker story seems to suggest tricks like ending a price with a 9 rather than a 0 will still be a significant motivator of purchasing behavior.

Knight Fdn Looks To Fund Technology Connecting People With Art

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A heads up to people who have, (or know people with), innovative ideas using technology to connect people with arts and culture, the Knight Foundation is looking for project ideas via the Knight Prototype Fund.

Unlike some of the other projects the Knight Foundation funds, these projects don’t need to be set in the communities it traditionally supports which is why I wanted to bring it to everyone’s attention. As the prototype term suggests, they expect some of the concepts to be in the early stages of development.

Applicants don’t necessarily have to work for an organization. We’re looking for ideas from arts organizations, artists, technologists, designers, educators, researchers and others inside or outside of institutions who are eager to experiment. We’re open to diverse approaches and perspectives on the use of technology to connect people to the arts, and seek to identify projects that have the potential to be replicated by others in the field.

What can we build to help arts organizations expand their use of technology? How can we use the qualities of new mediums to create unparalleled experiences? How can we replicate solutions, so that more in the field benefit? How can we learn more about the people we are trying to reach and design solutions that understand their needs? How can arts institutions provide magic outside of their four walls? How can cultural organizations breathe warmth into technology?

[…]

We hope to invest in projects that have provocative questions at their core that can only be answered through the act of making them a reality. Grantees will join together over a nine- month sprint to learn innovation techniques and test ideas.

They anticipate the average grant will be around $50,000. Deadline is March 6. They are hosting an online Q&A from 1 to 2 pm ET on February 21 (connection instructions at bottom of the page)

As an example of the type of thing the Knight Foundation has been doing lately, they partnered with the creators of Pokemon Go to see if similar games or tools could help build community.

It sounds like they would be open to projects that pushed the envelop even further as well as repurposing existing tools in a manner few people have considered.

One of the things I most appreciate about what the Knight Foundation proposes is that they are going to provide applicants with training in innovative methods as well as bringing them together to learn from each other. This acknowledges that innovation isn’t generated in a vacuum or emerge from a lone genius working in a garage, but rather builds on past work in new ways, often in collaboration with others.

Breaking Even But We’ll Be Broke If Something Breaks

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The National Center for Arts Research (NCAR) released the results of a study last week that, while not the most cheery news to release during the holiday season, is not terribly surprising.

Looking at the data of 4800 arts organizations, they found that it is becoming increasingly difficult for arts groups to meet expenses. They based these assertions on an evaluation of three data measures: unrestricted surplus before depreciation, operating surplus before depreciation and operating surplus after depreciation

Looking at unrestricted surplus (before depreciation), the average organization saw an unrestricted surplus of 2.1% of expenses in 2016. In the same year, overall operating bottom line (before depreciation) was 0.4% of expenses—virtually break-even. However, surpluses fell to a negative 4.2% when factoring in depreciation, meaning that the average organization is not reserving sufficient funds to repair and replace their fixed assets, which can lead to future challenges, particularly for organizations with high levels of fixed assets.

Somewhat surprising, smaller organization were doing better than larger ones when the three measures were applied.

  • Smaller-budget organizations, with lower fixed assets and less fixed costs, demonstrate the highest surpluses by all measures, continuing a four-year upward trend. Conversely, larger organizations tend to end the year with deficits, continuing a four-year negative trend.
  • Across all sectors, small organizations buck the overall sector trend—i.e. even in sectors where bottom lines trended downward, the smaller-budget organizations within the sector actually grew, sometimes by over 50%.

However, it should be noted that these three criteria aren’t necessarily the only ones that matter in organizational financial health. NCAR’s next step is to:

…take a look at working capital and access to available cash. It may turn out that organizations with high fixed costs and fixed assets also have sufficiently high levels of cash reserves to cover annual shortfalls and future asset repair and replacement. If not, organizations might consider how they can become more nimble if a break-even budget is a goal.

It is worth looking closely at the study data and methodology to get a better sense of what this all means.

For example, when deciding what budget size constituted a large, medium or small organization, they used different numbers for each artistic discipline. A $2 million budget makes a large theater or dance company, but a small art museum and a very medium sized opera or performing arts center.

Their notes on trends in the Opera sector say that one organization heavily skewed the results for the whole sector and that if left out, there would be a more positive trend. There are similar notes in other sections, especially breakdown by geography where nearly every metro region had an outlier skewing the data.

The other area of the report that was interesting was their Driving Forces section which left me asking “Why Is That…?”

Total Unrestricted Revenue Drivers

  • Having more arts education organizations, music organizations, and opera companies in a community tends to raise the unrestricted revenue tide for all organizations in these sectors in a market, while having more performing arts centers tends to lower the unrestricted revenue for all organizations in this sector.
  • As the level of individual philanthropy in the market increases, unrestricted revenue goes down.  The fact that there is more giving in a market does not necessarily mean that it is being directed to arts and cultural organizations.  Unrestricted revenue also tends to be lower in more densely populated communities and those where with proportionally more Asian Americans.

Operating Revenue Drivers

  • Operating revenue tends to be higher for organizations that target young adults or African Americans, and with higher levels of local and state funding.
  • More public broadcast activity in a market tends to drive down arts and cultural organizations’ operating revenue.

I am making a broad assumption that the observation about public broadcast activity is a result of competition for donated revenue. What I wondered was if there was a benefit to underwriting sponsorship on public broadcasting that helps offset that effect by providing additional earned revenue. Or is there no sense that one should support the activities of cultural organizations that support public broadcasting?

What I wondered about the observation regarding unrestricted revenue tending to be lower in densely populated areas was if this meant people in densely populated areas placed greater restrictions on the way funds were used or if they simply gave less. In the context of the sentence that precedes it, the answer would seem to be that people give less, but that doesn’t necessarily need to be the case.

It would be interesting to know if people in less densely populated areas placed fewer restrictions on their donations, perhaps implying a higher level of trust in the organization or a confidence in their ability to evaluate the effectiveness of the organization.

Scratching An Itch

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There is a story I first saw in Non-Profit Quarterly that has been bothering me for a couple weeks. San Diego based arts organization ARTS (A Reason To Survive) is apparently in danger of closing after it’s founder left and replacement subsequently quit after four months.

While this is unfortunate and regrettably not as uncommon a story as we would like, that isn’t what bothered me. What has been something of a low level irritation since I first read the article was a quote from the founder, Matt D’Arrigo, in the original article about the financial difficulties.

“It’s the classic tale of a founder transition,” said D’Arrigo, who’s back at ARTS as a part-time consultant until the nonprofit is on stabler ground.

While he would certainly be in a position to know best since he is there on the ground and there may be elements to the story that remain unreported, what made me think this wasn’t the real problem was something the woman who replaced him said.

…Remmell said that even after she got a sizable grant to turn the organization around, she recommended the “indefinite suspension of all operations and an organized closure” because of a lack of immediate general operating funds. In an interview, she said that the grant and other money the organization had in the bank was earmarked for specific programs and infrastructure and couldn’t be used on other costs to keep ARTS going.

D’Arrigo acknowledged that Remmell walked into a difficult situation.

“We never had a huge financial cushion,” D’Arrigo said. “Part of my burnout was that I was constantly on a hamster wheel of raising money. My job was constantly keeping it together … that’s one of the reasons I left. And it wasn’t as strong as was needed in order to successfully do a founder transition.”

When I read that, I immediately thought that the real problem was that so much of their funding had restrictions associated with it and there wasn’t much flexibility to use the money for general operations. Despite all the success the organization had realized, including an Oscar winning documentary about one of the homeless teens they helped, they couldn’t find anyone willing to provide unrestricted funding.

Once my initial indignation about the non-profit funding environment passed, I recognized that the problem might also be rooted in a failure to diversify their funding sources. Looking at their most recent 990, their earned revenue was about 18% of their budget with the rest in grants and donations. If the founder was feeling burnt out by the constant need to fund raise, he may not have had the opportunity to identify sources that would provide unrestricted funding or develop programs that could generate additional earned revenue.

In any case, I don’t think this is a case of founder transition at all since it doesn’t appear any of the challenges facing the organization emerged after his departure. There are probably lessons in here about not letting your ambition outstrip your capacity to generate revenue.

The fact the organization wasn’t moderating their ambition might be cause to closely monitor how funds were being deployed. However, the idea that their funders and donors didn’t might not have trusted them enough, despite their successes to loosen restrictions on how money was used, sticks in my craw.

Increased Funding Options For Artists Nationwide Via Springboard For The Arts

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If you hadn’t seen the press release floating around social media, Springboard for the Arts announced that they partnered with the microlending platform Kiva to provide artists a loan of up to $25,000 for 36 months at 0% interest.

Springboard executive director Laura Zabel probably laid out the best rationale for pursuing a loan versus a grant:

“Grants are great, but when you apply for a grant or fellowship, you’re putting that timeline and power and agency in someone else’s hands, to decide if you get that money,” says Laura Zabel, Springboard’s executive director. “At Springboard, we like platforms or mechanisms that put the power back in the hands of the artist. It’s a much more active way that you can pursue building your business.”

Since many of you may know that many of Springboard’s activities are focused in Minnesota, I should emphasize that this program is available to any artist anywhere in the U.S.

It probably also should be noted that this is only one of a few microloan programs for artists and it appears to be the only one that isn’t limited by geography or discipline. If nothing else, Springboard is breaking new ground by offering alternative funding options to artists.

According to the FAQ about the program, as a Kiva Trustee, Springboard for the Arts endorsement means they can “provide matching funds to help artists reach their fundraising goals on Kiva’s platform and a wide network of business support to help artists build and expand their businesses.”

The way Kiva funding is generally set up, the artist needs to come up with 20% of the funding and the Kiva community covers the other 80%, thereby putting less of a burden on an artist’s family and friends. It appears that Springboard will match what an artist raises with a loan as well, providing access to a larger pool of money.

Springboard has a whole curriculum of business skills for artists, consultations and other resources to help support those looking to develop and execute a business plan, regardless of whether they are participating in the loan program.

Since you have to attach a business and a repayment plan to the Kiva loan application, those education and planning materials may be a good place to start for people.

If Your 990 Were Being Interviewed, What Would It Say?

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If you are gearing up for Giving Tuesday and getting all sorts of great promotional materials out in circulation, you may want to consider what potential donors might see when they start to investigate your organization to see if you are worthy.

I had a post that appeared on ArtsHacker today based on a helpful Non-Profit Quarterly article that charts out what sort of information is communicated in each section of your 990 filing.  Obviously, there is nothing you can do between now and Giving Tuesday to change the impression people infer from your 990 filing. Presumably your solicitation strategy extends beyond the next couple weeks meaning there is still an opportunity to affect the information people receive in the future.

The ArtsHacker post that appeared today also drew on some other pieces I wrote. One about the potential for lawsuits by beneficiaries, marginalized board members, donors who use the increasingly easy access to 990 filings as the basis for a claim.  Another dealt with the IRS’ increased scrutiny on good governance and whether an 990 indicated appropriate policies were in place.

As I also point out the 990 doesn’t need to be a major source of worry. The form provides a section for supplementary materials.

“… where you can attach additional information you think is pertinent. This may be a discussion of changes in operational and philosophical direction that resulted in an atypical shift in your finances. This is also an opportunity to mention any points of pride or information of interest to make a case for your worthiness to those who may be perusing your 990 filing to learn more about your organization.

 

 

Someone Loses When Everybody Wins

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I would swear sometimes that Seth Godin is spying on me and then writing blog posts based on what I am thinking at the time. Or maybe he is just good at writing stuff that you can easily project your own experiences upon.

In any case, today he wrote about how you can make people feel like outsiders even if that is not your intention.

You can’t have insiders unless you have outsiders.

And you can’t have winners unless you have losers.

That doesn’t mean that you’re required to create insiders and winners. All it means is that when people begin to measure themselves only in comparison to others (“How did I rank?”) then you need to accept the impact of those choices.

It’s entirely possible to be happy and engaged and productive without creating this dynamic. But in a culture based on scarcity, it’s often easier to award or deduct points and to keep a scoreboard instead.

Just yesterday I cited Nina Simon’s Palo Alto TED Talk where she talks about this very idea. In her talks and book, The Art of Relevance, she mentions that even if you are providing more opportunities for a wider range of people and not reducing service or access to the demographics you have long served, there will be people who will view themselves as having lost out in the process.

I have written about two of Nina’s talks on the subject before so I won’t expound too much on the subject except to reiterate Godin’s point that you need to understand people may evaluate their situation in these terms.

Godin’s last sentence is particularly applicable to arts organizations who definitely operate in a culture of scarcity and are apt to adopt score keeping.   The state arts council or large foundation may be pleased that they have been able to increase funding in your community by 25% over last year. Instead of viewing this as a testament to the burgeoning creative vitality in the community, it can be easy to focus on the fact that another organization got more than you even though your own funding didn’t decrease, or decide you would have gotten more funding if not for the 5 new organizations that emerged in the last two years.

From this perspective, you might begin to empathize with the long time insider who insists they have lost out even as you believe everyone in the community should be excited that your hard work and sincerity opened new doors for a wider range of people without closing off existing opportunities.

Nobody Wants To Play Find The Non-Profit

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I have mentioned before that people don’t normally perceive a difference between non-profit and for-profit cultural organizations. Colleen Dilenschneider has a good summary of the research showing this.

What makes people care about the difference between for-profits and non-profits is the positive social impact that the organization is achieving.

Dilenschneider writes:

Nonprofits do not “own” social good. Corporate social responsibility is a necessity for companies today. There are countless articles on the importance of for-profit companies doing good. It is a key tactic for gaining customers and increasing sales.

Being good at your mission is good business. Data demonstrate that organizations highlighting their missions outperform those marketing primarily as attractions.

Interestingly, this is the one area in which non-profit identity definitely works in favor of their tax status. In a piece on The Conversation that Non-Profit Quarterly cited last summer, researchers found the following (my emphasis):

In one study, we asked people to donate money to an organization supporting literacy and education. The only difference was that some people were told the company was a for-profit social venture – it had a social mission and also made a profit. Other participants were told it was a nonprofit. People gave 40 percent less money when they believed the organization was a for-profit social venture.

In another study, we gave people money and asked them to purchase a decorative notepad from one of two organizations. When given a choice to buy it from a nonprofit or a for-profit social venture, nearly two out of three people went with the nonprofit.

It seems people don’t think companies can make a profit and support a social cause at the same time.

These findings along with Dilenschneider’s data may emphasize the value of highlighting your organizational mission and the impact you have over encouraging people to engage with you in a commercial manner.

Before you get too excited thinking this could be good news if you just change your messaging, the researchers in The Conversation had additional insight that recalls our old nemesis, Overhead Ratio.

…emphasizing a social cause makes people think the company is altruistic. When the company also makes money, this flies in the face of a belief that it’s generous or altruistic. When companies have a social mission, people tend to think that all money should go to the social cause…

This doesn’t mean that nonprofits always win though…when people were told the nonprofit was known to have excessive spending, the majority of people flipped and bought their notepad from the for-profit social venture.

Small Glint Of Hope In The Overhead Cost Conversation

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I have to give Brad Shear of the Facebook group Non-Profit Happy Hour a significant tip of the hat for calling attention some interesting information about the non-profit starvation cycle buried in a Harvard Business Review piece about Business Management needing the influence of philosophers. I would likely not have read the piece long enough to come across the information.

Briefly, the non-profit starvation cycle is characterized by grant makers funding a program but only allowing a small portion of the money to be used for the overhead costs necessary to execute the program.

In the HBR article, authors Roger Martin and Tony Golsby Smith discuss a scenario they ran into regarding assumptions being made  about donors and foundations.

The consulting firm accepted this framing of the problem and believed that the strategic challenge was figuring out how to persuade donors to increase the percentage allocated to indirect costs. It was considered a given that donors perceived indirect costs to be a necessary evil that diverted resources away from end beneficiaries.

We got the firm’s partners to test that belief by listening to what donors said about costs rather than selling donors a story about the need to raise reimbursement rates. What the partners heard surprised them. Far from being blind to the starvation cycle, donors hated it and understood their own role in causing it. The problem was that they didn’t trust their grantees to manage indirect costs. Once the partners were liberated from their false belief, they soon came up with a wide range of process-oriented solutions that could help nonprofits build their competence at cost management and earn their donors’ confidence.

This is the first time I ever read that donors acknowledged the problem and their role in perpetuating it. That was cause for optimism.

I disliked reading that there such a level of distrust that the grantees would manage costs well. I would venture to say that insufficient funding contributed to a situation where organizational staff members were filling too many roles to properly focus on cost management. Though I don’t doubt that some organizations needed to improve practices regardless of staffing levels.

I am curious to know about what the process-oriented solutions were and if they required significantly more effort or if the solutions helped the organizations manage their costs more efficiently while roughly investing the same effort.  Probably more importantly, were the solutions indeed successful at earning a higher level of trust and funding from the donors?

 

How Quickly Things Progress

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If you want some evidence about how quickly new technologies and methods of doing business are having an impact on our lives, check this out:

In May 2009 I wrote about the potential legal consequences of posting solicitations for project investors online.  It just so happens that Kickstarter was founded a month before, April 2009, but it hadn’t really started to have a noticeable presence.

October 2011 I started writing about legislation and rule changes starting to take place that would remove many of the previous limits that limited giving to Kickstarter type campaigns to donation status rather than allowing investment with an expectation of return.

By December 2011, people were talking about this as a potential funding model for productions with Off-Broadway show or smaller budgets.  A short time later, people were writing that some of the limitations may not be conducive to those type of project.

I am not sure where things stand at this time. I know the laws have continued to evolve. In 2015 Broadway producer Ken Davenport wrote about how recent regulation changes would have made the crowdfunding effort he engaged in for 2012 Broadway production of Godspell a lot easier. At the time he claimed, “Yep, my friends, for-profit crowdfunding is here.”

This might be a funding model people would want to look into for future projects.

While it didn’t seem like it unfolded that quickly at the time, looking back I am surprised as how quickly things transitioned from the founding of a crowdfunding platform to the establishment of a critical mass that made authorization of new avenues of investment important. (Though granted, anything that facilitates the flow of money for investment is going to be prioritized in the US)

 

Lemonade Stand? Cool Kids Sell Art In Their Frontyards

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A year ago on Quartz a list appeared by former Stanford dean, Julie Lythcott-Haims, outlining what every 18 year old should know.

I briefly toyed with the idea of doing a post about how the arts, especially performing arts, provided experience in most of these areas. Among them were that an 18 year old should know how to: talk to strangers; manage his assignments, workload, and deadlines; handle interpersonal problems; cope with ups and downs, and must be able to take risks.

While, “contribute to the running of a house hold,” another on her list, may not appear to exactly fit into the performing arts, in her reasoning she says this teaches “respect the needs of others, or do their fair share for the good of the whole.” Those are skills you pick up when working as an ensemble.

As I was reading the article, I was envisioning kids in school, after school and summer arts camps/programs acquiring these skills since that is where arts experiences would likely teach these skills prior to someone turning 18.

So when I hit the eighth thing an 18 year old should know, “be able earn and manage money,” I realized that wasn’t something most arts programs would teach kids.

But if we are going to talk about the need for artists to manage and monitor their own careers,including finances, maybe elementary budgeting and accounting skills should be introduced to teen and even tween students.

Oh, but that is such a yucky, boring topic right? The kids want to have have fun making art, that will just scare them away.

I am not suggesting that you pull out your college accounting text. You can introduce cost and pricing in a fun way at an age appropriate level.

With younger kids, you start out saying – You made this painting or ceramic piece and now it is time to sell it. How much will you sell it for? How many do you think you can make in a week? How much could you make if you sell every thing at the end of the week?

This type of instruction hits on the cross-discipline approach schools are looking for these days. You can also get kids excited by the idea of how much money they might make.

Any kid can have a lemonade stand. Cool kids sell paintings, pottery and tickets to sidewalk performances!

Later you introduce the concept of material costs and time invested into the mix and take a more sophisticated approach to pricing. In certain situations maybe you have high school students participate in budgeting production costs for costuming and set building for performances. If they are involved in making the decisions required of a budget cap, all the better.

By connecting the idea that art has monetary value, you create a greater appreciation for art in students when they are young. It isn’t just something you do for fun and shouldn’t expect to be paid for.

While this runs counter to the idea that art should be created for its own sake, not with the goal of remuneration, the absence of this instruction hasn’t prevented people from claiming the arts should be self supporting.

Still, executed poorly the focus can be all about maximizing commercial viability over illustrating a connection between basic economic skills and art. Kids shouldn’t be given a message their work is bad simply because no one has bought it. And let’s not drag 14 year olds into the debate about doing something for exposure vs. being paid.

Given that not every person in an after school program or summer camp is going to enter an arts career, involving some basic economic considerations in art instruction when kids are young can shape attitudes and perception about the validity of arts and cultural endeavors over the long term.

Stuff To Ponder: Expanded Approaches To Pay What You Want Pricing

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A few weeks ago economist Alex Tabarrok wrote about a strange “pay what you want” promotion a shoe company was running. It struck him and many commenters of the Marginal Revolution blog as a psychological experiment with a goal of getting most people to select the set middle range price.

In that same post he linked back to 2012 post where he provided an analysis for why “pay what you want” can make sense for charities and performing arts organizations. The analysis may be difficult to understand, but the bottom line is:

Probably more importantly, pay-what-you-want pricing is going to be advantageous when the seller also sells a complementary good, such as concerts, which benefit from consumption spillovers from the pay-what-you-want good.

Basically, when you offer an option to pay what you want, there should be accompanying options like food, merchandise, other participatory activities that you can earn revenue from. It doesn’t necessarily have to be the movie theatre model where a bag of popcorn is $10. Offering pay what you want simply because you think it is a good idea without any sense of how you can offset the loss of revenue isn’t prudent. If end up with a higher per ticket price than you had before, that is great, but don’t plan on it.

One of the commenters on the 2012 post noted that the site HumbleBundle allows you to pay what you want, but also posts the average price paid in real time.

Currently, if you pay more than the average of $4.14, you can unlock additional content and if you pay more than $14 there is another level of content you can receive.

Having some sort of bonus content or access people will receive for exceeding the average is a smart idea. It rewards those who act early before the average increases as a result of people paying to receive that content (or just being generous). This content or access could be better seating, merchandise, concessions, meet and greet opportunities, invites to other organizational activities, etc.

I got to thinking about how my ticketing system can tell me what the average selling price of my tickets are on demand. I could theoretically manually update that information on the lobby screens simply as a point of information at various intervals just as a bit of psychological social pressure on people to pay close to that or a little more. While I might also choose to update that information on our website, I am not sure the sense of social pressure would be as significant for online sales.

However, if ticketing software providers created a way to export that information to update in real time like HumbleBundle does, it might be possible to create a sense of tension and excitement in lobbies just prior to performances. (Or if handled correctly, even online). Granted, it could be done manually but I know I have better things for my staff to do than constantly run reports and post data to a public screen.

Watching it tick steadily up with every purchase is much more interesting. Especially if you are experience the dual satisfaction of seeing how much money was being raised for the organization while knowing you got access cheaper than a lot of other people – “Whoo hoo!! We collectively moved the price to $15.63 (but I got mine for $4.85!)”

Thoughts? What experiences, if any, have you had? I know a number of places are doing pay what you want/can, but I am not clear if they are supplementing their income with related goods and services or if they have found a way to energize audiences around the practice in a productive manner.

Who’s Afraid Of The Big Bad Accounts Ledger?

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This weekend I got to do something I waited an entire year to do…go to Decatur, IL. Your first response may be to wonder why the heck I was looking forward to that for an entire year. The reason is because the Society for Arts Entrepreneurship Education conference was being held at Millikin University.

At last year’s conference, I had learned about Millikin’s student run arts businesses and was eager to see it in person. I will just say the experience did not disappoint. Though I am still slogging through my notes from various sessions at different student run ventures so my readers will need to be patient for at least another day before learning more about that portion of the experience.

What I wanted to discuss today is a session I attended on one of the bugbears central to arts entrepreneurship — financial literacy. When people talk about artists needing to be more business minded, that is probably one of the top three issues they envision needing attention.

Of the seven people on the panel, two were accountants that work closely with artists, Jessica Jones and Elaine Grogan Luttrull. It was something that Jessica said that really gelled the whole subject for me. She mentioned that there is an emotional and cultural barrier everyone experiences when it comes to money and finances. It isn’t just people in the arts and it isn’t about numbers being inherently intimidating. She said that she has helped engineers and scientists who work with numbers all day and they have the same issues as everyone else when it comes to finances.

I don’t remember if it was Elaine or Jessica who mentioned it, but they were somewhat opposed to the concept that people should learn “basic skills” because the term means different things to different people. A CPA can look at materials and identify revenues sources in seconds whereas other people need to make an effort and consider the skills far from basic. Jessica commented that you can’t just carve out a top 10 or 20 list of things people need to know, rather people need to become comfortable with the language, concepts and terminology so they know what to ask and how to understand a conversation about their financial situation.

Ken Weiss from University of North Carolina reinforced this idea saying that it isn’t just important for people to know terminology, but the relevance. His school does a session on intellectual property, copyright, trademarks, etc. with a guest speaker who gets the students engaged by helping them understand how these issues help their career.

This idea emerged multiple times in different sessions at the conference. People discussed how their students had the “a-ha!” moment when they came to the realization that they needed to know something for themselves and not just because the professor said they need to know it.

One of the two CPAs spoke about how helpful it was for people to learn what resources were available in terms of things like software to handle accounting, sales records, etc., and then create operational plans and procedures based on whatever resources were most suited to their needs.

That way you aren’t constantly faced with the prospect of processing your numbers and you can spend the majority of your time doing the work you love. Sometimes the biggest impediment is being unaware that these resources exist and being intimidated by the thought of keeping track of it all. Ultimately it comes back to haunt you when it comes time to report your income for taxes.

Others on the panel commented that some arts disciplines were worse than others in recognizing the need to teach students skills to help manage their careers. However with the general concern about university students taking on so much debt, many schools are moving toward making financial literacy a skill that all students must possess.

Overhead By Any Other Name

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FastCoExist recently continued its discussion about how a poor view of non-profit overhead cost is limiting the good such organizations can do by offering some “rebranding” suggestions in order to help change perceptions.

As an illustration of how the concept that non-profits must restrict their overhead cost is a severe impediment toward doing good, they cite a lawsuit against Architecture for Humanity.  The group was experiencing huge program growth, but was limited by donors to only devoting 10% to overhead costs. Because they dipped into program money to fund their growth, they have been taken to court accused of looting the funds.

Many company donations, the suit alleges, were earmarked for project costs. As overhead rose and things got more desperate, those got tapped to cover broader expenses. The plaintiff is calling that looting. The suit shows pretty clearly how groups—even if their rapid growth is woefully mismanaged—can be trapped by antiquated views on things like “overhead” and “indirect costs.”

[Update: Issues like this are why it is good to have Directors and Officers Insurance]

FastCoExist spoke to two brand naming experts who mulled over various concepts for changing how overhead costs are viewed by changing the terminology. The article go through various ideas they discarded to come up with the following suggestions.

From Margaret Wolfson of River + Wolf:

1: Circle funds
2: Encompass funds
3: Vessel funds
4: Core funds

Anthony Shore of Operative Words suggested:

1: Operations costs
2: Operational costs
3: Direct operations costs
4: General operational costs

The author of a Bridgespan report on paying overhead costs noted that this latter set of terms may not be appropriate because “not all operational costs are indirect, and not all indirect costs are operational.”

The naming experts made some additional suggestions that sounded a bit like arts organization donor categories so maybe we are already heading in the right direction and just need to find more sexy language:

Wolfson’s other idea is to award branded titles for budget line items, so folks who cover electrical costs could consider themselves “Illuminators” while those picking up the hardware and software tab would be “Digital Drivers.”

The point is, words definitely do matter. The final expression might end up being a bit unsexy, but only metaphorically. As Shore puts it: “What could be more sexy than dramatically influencing how much money pours into the critical, staying-afloat initiatives within an organization?”

Safe Deposit Insuring Arts Center Future

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Well here is a novel idea for funding an arts organization–using the proceeds from leasing space in storage vaults.

The inspiration for building the largest underground storage vault in China was finding a way to fund an art museum.

The idea for the vault came to the company’s founder, Liu Feiguo, while he was lobbying to open an art museum in the Shanghai Tower. He realized that the high revenues from the Baoku Treasury could fund the museum’s daily operations.

Baoku Treasury clients are given a 15-year membership pass to the Shanghai Guanfu Museum and the Baoku Art Center, allowing free access to exhibits and events. Most of the proceeds from deposit box sales are reinvested in the museum.

Baoku China has already announced plans to expand and build community vaults. According to Zhou, “Community vaults are actually cheaper to build than high-end swimming pools.”

It isn’t cheap to rent a deposit box and the security measures sound like they are from a Mission Impossible movie. The least expensive option is $10,300 for 15 years. I assume since clients get a 15 year membership pass to the museum and art center that must be the standard lease length.

This exact idea probably isn’t viable for everyone and everywhere, but shows a little creative thinking may be worthwhile.

What Does Waning Trust In Non-Profits Mean For The Future?

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A decision by the OneOrlando fund to distribute money they collected directly to the families and victims impacted by the recent nightclub shooting rather than through charities bears watching. Even while groups are calling for the reducing the use of overhead ratio as a measure of a non-profit’s effectiveness, there is increasing pressure to have money only spent for the purpose for which it was given.

According to the NY Times:

With the move, Orlando is the latest to shift away from established charities and opt for direct donations, a move that has become increasingly common, in part because of questions about how some charities use donations.

[….]

“There have been so many scandals we’ve seen after these sorts of situations, so it is a big deal that they’ve bypassed nonprofits because it shows a distrust in how nonprofits are doing things,” said Stacy Palmer, editor of The Chronicle of Philanthropy. “This sends a big message, too, because other cities might decide to use this as a model in the future.”

Mai Fernandez, executive director of the National Center for Victims of Crime, said Friday that the group, as well as some family members, had told city officials that they feared donations from OneOrlando would not get to victims if a traditional nonprofit was placed in charge.

While the motivation for donating money following a tragedy like Orlando is different from supporting arts performance or education programs, it isn’t beyond reason to think people will expect the same type of accountability from arts organizations. In a sense, smaller non-profits suffer for the poor decisions and scandals of larger non-profits like the Red Cross and United Way.

An individual has a right to be concerned about how their money is being spent, but those individual concerns aggregated across hundreds of individuals can serve to paralyze a non-profit as illustrated in a post by Vu Le from two years ago.

Non-profit organizations need to provide greater transparency and communication to meet the donor expectations of greater accountability. I am not sure how to communicate that there is a lot more involved in providing 6-8 year old kids with the opportunity to paint than just handing them the paint.

Do you include pictures of staff members joyfully buying paints and materials a the local arts and crafts store in your newsletter and donor report? Pictures of staff meeting with teachers to develop a unified curriculum of enriching activities? Readers may automatically gravitate to the pictures of the cute kids painting and ignore those of staff members, but maybe the fact that every hour of painting is backed by five hours of prep will slowly sink in.

In the meantime, I wonder if the committee Orlando is putting together to decide how to distribute the $7 million they have collected won’t also eventually come to realize that there is a lot of work involved in effectively and transparently giving away that amount of money. If they don’t end up paying a dedicated staff to help administer the money, they may end up either subsiding the effort through long volunteer hours or enlisting office staff paid by their own businesses and organizations.

Overhead Funding May Not Be Expanding, But The Conversation Is

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Something I had meant to mention in my post yesterday was that Priceonomics’ admiration of Yerba Buena’s Dream House Raffle sounded very similar to fund raising philosophy espoused by Dan Pallotta.

Said Priceonomics,

There is something admirable about Yerba Buena’s Dream House Raffle.

Every nonprofit spends a lot of time conducting and worrying about fundraising, and that is time that could be spent on the nonprofit’s mission. The Yerba Buena Center for the Arts identified a new revenue stream and has done well at it. It now raises more money from its raffle than it receives from individual donations or from the city of San Francisco.

Dan Pallotta says something similar in his 2013 TED Talk:

Now, if you were a philanthropist really interested in breast cancer, what would make more sense: go out and find the most innovative researcher in the world and give her 350,000 dollars for research, or give her fundraising department the 350,000 dollars to multiply it into 194 million dollars for breast cancer research?

If you have been following my blog for any period of time, you know that there has been a lot of discussion and examination about overhead ratio as a valid measure of institutional effectiveness.

Of late, the topic has been spilling out of publications focused on non-profit audiences and into the mainstream. This week, FastCompany’s FastCoExist took up the topic in a piece titled, “Demanding That Nonprofits Not Pay For Overhead Is Preventing Them From Doing Good.”

Upon reading the transcript of Dan Pallotta’s talk, I see the FastCoExist article basically says everything he did three years earlier. Except there continues to be more research conducted that is supporting the validity of the claim. FastCo cites a new Bridgespan Group study that shows how uniformly applying a flat rate limit on overhead is undermining non-profit effectiveness.

According to a recent report by Oliver Wyman and Seachange Capital Partners only 30% of New York nonprofits can be considered “financially strong”—and “many trustees do not understand the financial condition of their organization or how it compares to its peers.”

[…]

Part of the problem is that many funders have become obsessed with measuring their impact on a per-dollar basis, which means they’re more eager to give to specific projects than the institutional upkeep that supports them. But the 15% overhead limit doesn’t even parallel what commercial companies shell out. According to Bridgespan’s research, the average S&P 500 firm spends about 34% of their budget on essential behind-the-scenes support. For IT companies it’s more like 78%, the report notes. Some 21st-century nonprofits probably require the same kind of tech firepower.

Similarly Pallotta noted,

So we tell the for-profit sector, “Spend, spend, spend on advertising, until the last dollar no longer produces a penny of value.” But we don’t like to see our donations spent on advertising in charity. Our attitude is, “Well, look, if you can get the advertising donated, you know, to air at four o’clock in the morning, I’m okay with that. But I don’t want my donation spent on advertising, I want it go to the needy.” As if the money invested in advertising could not bring in dramatically greater sums of money to serve the needy.

What Bridgespan did in their research was segment non-profits into four general areas (U.S.-based direct service, policy and advocacy organizations, international networks, and research organizations) and then broke down expenses into five different categories. It probably isn’t any surprise that different segments of the non-profit sector vary widely in their needs.

There is a graphic in the FastCo article that illustrates this, but for example research organizations spent huge percentages on physical assets compared to policy and advocacy organizations. Policy and advocacy organizations didn’t spend any money on field and network operations, whereas the international and research segments did, but in greatly differing amounts.

They use this research to support their assertion that requiring flat-rate reimbursements for overhead costs across the entire non-profit sector is inappropriate. Not to mention that the percentages they set are restrictively low.

Regardless of whether this research brings about change in the immediate future, at least the scope of those involved in the conversation continues to expand.

Removing Overhead Ratio As A Measure Is Not Enough

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On Non-Profit Quarterly Claire Knowlton wrote a piece advocating for moving past a focus on overhead costs and direct program expenses in favor of full funding of non-profits by foundations. (Or at least recognition of full costs incurred by a non-profit.)

She seems to start from the premise that programs undertaken are essentially jobs non-profits do to further the interests of the funders. This sort of shifts the whole dynamic from a situation where non-profits cast about to find money in order to provide services to one where foundations seek skilled entities to solve problems for them.

Imagine if your personal paycheck were like a restricted grant. Instead of representing your value and level of responsibility in the company, your paycheck is based on a predetermined line-item budget that details exactly how you can spend your earnings. A portion of your paycheck can be used for rent, some for utilities, but most is earmarked for business attire, transportation to work, and coffee to keep you productive throughout the day. The thinking here is that by tying your paycheck to the expenses that contribute to your work, the company is making sure that you will show up on time, appropriately caffeinated, and properly dressed. It’s as if every penny of your paycheck is spent before you cash it.

To some extent, you had a say in your paycheck budget. In fact, you had to present a proposed paycheck budget when you applied for the job. Your friends on the inside said no one who spends more than 20 percent of his or her paycheck on rent has ever been hired. To get the job, you cut your rent line item. That means making do with an efficiency unit above an all-night bowling alley, but it’s better than not having a job at all. Some line items were nonnegotiable from the start: As a policy, your company won’t pay for haircuts; but that’s okay—you can let your hair grow long.

She goes on with this analogy noting that the “company” wants to make sure you are working effectively so they require you to generate reports–except that the cost of doing so will cause the ratio of time you devote on administrative tasks vs. the central tasks they are paying you to accomplish to skew higher. The employer won’t like that.

Because every penny of your paycheck is pre-spent, there is nothing left over for the future or to take care of retirement, emergencies and replacing your aging car (equipment).

In terms of a solution, she says:

“If we start to fully fund nonprofits for their day-to-day program and overhead expenses, and abandon overhead measurements as a proxy for mission fulfillment and efficiency, it’s the equivalent of giving nonprofits control over their paycheck.”

But she says the term “full costs” include:

Day-to-day operating expenses + working capital + reserves + fixed asset additions + debt principal repayment = full costs

In addition to laying out her argument, she makes suggestions to both non-profits and foundations about how they can change the conversation and practices.

Full funding of costs according to her definition would allow non-profits to be more focused on outcomes rather than compliance in order to survive.

This distinction is important. One of my initial thoughts when I read this was that what Knowlton was talking about would primarily be applicable to social service non-profits because fewer foundations would be interested in funding an arts non-profit primarily focused on creating performances.

The thing is, many performing arts organizations are just as focused on compliance and survival as any other non-profit. There are a lot of sincere ambitions that get abridged and curtailed because there isn’t possibility of revenue or funding.

I don’t know how many conversations I have had that started enthusiastically but were quickly ended by the phrase, “…unless we can get a grant to cover it.” Enthusiasm to do a week long residency with multiple interactions turns into a single lecture-demo for lack of funding. Opportunities for single lecture-demos get turned down for not being revenue generating. The outcome focused on is surviving another season.

After awhile, no one even entertains exciting ambitions and settle for minimal token gestures that will garner them a little bit of funding.

A situation where both the organizations and foundations embrace philosophies that make a complete assessment of what would be required to fully fund an arts non-profit could yield amazing outcomes from some.

In addition to funding capacity building for the organization so that everything from the board governance to hiring practices were strengthened, a rigorous study of what the local market would bear in terms of pricing, (including the optimal pricing spread for events), would provide a clear picture of what the capacity is for revenue.

This way there is a good basis for decision making by the organization as well as stronger justification of the funding that is needed to offset the difference between earned revenue, donations and program expense.

While I am skeptical full funding will happen, articles like this one and the conversation about eliminating overhead ratio as a measure of effectiveness are indications that there is potential for a shift toward more constructive policies.

Companies No Longer Want To Sponsor Simply For The Exposure

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The most recent issue of Arts Management Newsletter has a translation of a piece written by Wolfgang Lamprecht about the death of corporate sponsorship.

Citing the number of corporations disengaging from their support of a host of international venues and events, Lamprecht says the days of sponsorship as publicity is past. The value of sponsorships to a corporation needs to be framed in different terms.

Just as many artists are rebuking job opportunities that provide “exposure” as the only stated benefit, so too are companies no longer interested in arrangements that simply puts their logo in front of eyeballs.

Here’s the thing: today, entrepreneurial cultural engagement is less about image or about customer loyalty than it is about the central asset of trust. Our current crisis of confidence cannot be overcome with programs for the needy, nor by logo placements.

[…]

Art and culture have the particular advantage that, on the most part, they generate a basic element of trust. Trust and confidence are crucial for securing the stability and legitimacy of the economic system, but they must be produced discursively. The disadvantage of culture lies in the fact that art and culture are viewed as being marginally important and therefore have to fight for their social relevance.

Lamprecht notes that as the concept of Corporate Social Responsibility has gained currency, it has expanded to encompass the concept of Corporate Cultural Responsibility (CCR). He takes pains to emphasize that “CCR is therefore part of the social (= societal, not charitable) responsibility of a company.” So conversations soliciting support should focus more on social good and responsibility versus charity and tax benefits.

Of course, this also means that the organization soliciting the support needs to make sure they present an image that embodies cultural asset.

In short, cultural engagement of a company has to follow the belief that the support of arts and culture is not simple fun and communicatively truly brings all that which impact research and marketing departments have so eagerly argued for in the past (image, customer loyalty, employee motivation, etc.). Above all, it is an important contribution to social responsibility that a company should, if not must, provide to maintain a balanced and civilized society, as well to the long-term sustainability of its own success.

[…]

The goal remains the same: against the backdrop of a massive lack of trust through saturated markets and products that are similar, corporations are, in the competition for clients, forced to approach their stakeholders differently than by common means. CCR presupposes the desire to stand out from the competition and, particularly in the field of corporate communication, to secure confidence, competitive advantages and verifiable income. The following measures have been defined for CCR: corporate sponsoring, corporate giving, corporate secondments / corporate volunteering, events, cultural commissioning, product-/image placement, cause-related marketing, public private partnerships, impact investments.

My only concern with this approach is that it starts to smack of artwashing/culturewashing and greenwashing. An arts organization can damage their image long term by having an association or accepting a gift from an unsavory individual or company. It would be worse if they were perceived as openly courting anyone who wanted to remove a blemish on their reputation.

Something Lamprecht wrote seemed to suggest this approach should be used with individuals as well as companies.

“…a key advantage of the model described here is no longer the need to decline and perpetuate the terminologically worn demarcations (CCR measures) between sponsorship, patronage, donations, etc. as a prerequisite for entrepreneurial legitimacy of individual cultural support measures.”

If individuals are not widely solicited for support in Austria, I may be misreading this to suggest that the idea of social responsibility should be applied to all efforts to garner support, including individuals. I know from reading other pieces in the Arts Management Newsletter that fundraising in Germany is conducted in a different manner than in the US. It may be similar in Austria where Lamprecht works.

But it is interesting to consider that rather than saying individuals donate and corporations sponsor, a single term and rationale for giving might be used.

Is there any benefit to trying to recast the rationale for why an individual in the US should donate? My impression is that different people are motivated to donate by different arguments. But if you change the message from donate to help a poor child experience art (charity) to donate to help a child develop into a better cultural citizen (social responsibility), is that better?

My suspicion is that “cultural citizen” will work with foundations and governments whereas “charity for the under served” is more compelling to an individual. But maybe I haven’t thought of the right terms yet.

Investing In Social Outcomes

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Non-Profit Law blogger Gene Tagaki had a post on LinkedIn a couple weeks ago about Social Impact Bonds. These bonds are a fairly new approach to funding non-profit activities. While I think they could be a viable tool for funding the arts, I had some reservations about them as well.

The biggest difference between a social impact bond and the current practice of government entities providing grants to solve the same problem is that a private investor is involved in the process.

Here’s how that might work using social impact bonds:

  1. A government agency identifies a social problem and commits to making a payment, but only if the targeted social outcome goal is met.
  2. An investor interested in addressing the social problem makes an investment which will may result in repayment with an additional return on its investment, but only if the social outcome goal is met.
  3. A nonprofit organization is paid by the investor, delivers services to achieve the social outcome goal, and provides a report back to the other parties.

Typically, an intermediary develops the SIB, raises capital from the investor(s), selects the nonprofit service provider(s), and selects an independent assessor that will determine if the social outcome goal is met.

Among the benefits to this approach that Takagi lists are:

  • Government payments only for agreed upon social outcome results, generally shifting government funding from short-term relief to longer-term impact.
  • Greater development and use of metrics for impact assessment, which may contribute to a favorable change in the way government funding works in its selection of service providers, models of service, and evaluation criteria and protocols.
  • Investors screen nonprofit service providers for those most likely to deliver the targeted social outcome result.

The shift toward long term impact rather than short term goals would definitely be a boon for most arts organizations. But the potential for service providers to be chosen on the basis of independent analysis using different criteria can be very appealing.

Arts organizations which are well positioned in communities investors wish to impact and who specialize in providing the services desired have the potential for receiving all the funding they need to do the job rather than funding in proportion to their budget. If organizations are chosen based on effectiveness rather than prestige, smaller arts organizations may be more likely to benefit as well.

The potential downside of this approach is that because it is an investment, the desire for a return may dictate many elements of the program.

  • Diversion of more cost-efficient direct government and philanthropic funding of sure-bet programs to address social problems…
  • Investors may dictate strategies of service provision to maximize their opportunity for a high economic return on their investment instead of a high social return.
  • Funding will be restricted and likely prevent nonprofits from using such funds to build the necessary infrastructure to support new or expanded programs to achieve the social outcome result.
  • Funding for innovative and long-term strategies may be stifled by investors willing to fund only the strategies with the most proven track records of success and/or easily measured, short-term returns.

Even if your organization doesn’t participate in a Social Impact Bond program, I foresee some potential repercussions in government granting and funding taking their cues from investors. If a government entity sees that companies are investing in certain programs, they may either view it as a type of imprimatur of those programs without doing any research or developing any criteria of their own. Or the government entity may wish to curry favor or stimulate greater investment in the community by supporting investor agendas with grants and favorable rules.

Part of the process to be qualified to invest in a Broadway show is that your personal wealth be such that you can afford to lose money. That is essentially what Takagi suggests in the analysis at the end of his piece. Only true social investors who are prepared to lose money or only gain a small rate of return in order to effect a social good should be allowed to participate in the Social Impact Bond program.

I bring up the Broadway investment scheme because the same potential for damaging investor influence exists there but the agreements have been structured so that it is clear the majority of investors don’t have any say in the way the show is executed. A basic framework exists that could be applied to Social Impact Bond funding.

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Butts In The Seats by Joe Patti is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Unported License.
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