Investing In Social Outcomes

by:

Joe Patti

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.

Doing It Alone: Reader Participation Edition

by:

Joe Patti

Okay dear readers, I need your help.

Buoyed by the amount of traffic and social media sharing on my “Talking to Strangers” post back in February and encouraged by the recent research finding that people underestimate how much they will enjoy doing things alone, I plan to work over the summer to develop a program to encourage single attendees .

If you recall from my Talking To Strangers post, I, (and I assume a bunch of the rest of you), was inspired by an effort in Brazil which reserved seats on buses for strangers who were interested in meeting new people. To facilitate the process, they had Post-It notes with suggested topics of conversation for participants to use.

Given that an NEA study said a significant impediment to event attendance respondents identified was the lack of someone to go with, I suggested a program similar to the one in Brazil might be helpful for arts organizations.

I had talked to my staff a couple months ago to get them brain storming, but I thought I would enlist readers’ to provide input as well. I figure this can be helpful to everyone, after all.

So here are some questions to consider:

-What are the guidelines for participation?

If you are setting aside special seats for the program, obviously people can’t buy two at once unless they are interested in sitting in two separate locations.

-How best to promote the program to explain it clearly without sounding condescending?

You don’t want to imply people are losers and have no friends–unless you can do it in such an amusing manner it endears people to your organization.

-What are good general conversation topics to use?

Obviously, each event lends itself to specific questions, but what consistent elements might you direct people to discuss?

Not just plot and composition of a piece, but for example, physical features of the theater you might want to draw attention to. For this program, it may be better to get people speculating about how the fresco on the ceiling was painted than to tell them outright.

-What is a good way to mount the questions on the back of seats?

This is a bit of a puzzler at the moment. It has to be durable enough that it doesn’t fall off as people brush going to and from their seats. It has to be removable since you may change the seats for the program from event to event or rent the facility to groups that don’t have a talk to strangers program.

But it can’t have metal hooks that will gouge into the back of the person sitting in the seat it is attached to. Magnets might work, but not everyone has seats with metal backs.

-What are logical extension to this program?

While I saw this as a way to remove a psychological barrier from a single ticket buyer who might otherwise decide to stay way, single subscribers may want to be paired with other single subscribers. You might hold an after performance events to help people solidify their new friendship. People who already attend frequently and with friends may want access to the conversation starter questions to join in the fun with their group.

All this would be great because it provides an opportunity to engage people in other ways.

What Else?

There are other factors to consider, but I throw these out to start people thinking.

Dear Arts: It’s Not Your Challenge Alone

by:

Joe Patti

Last week Createquity published an analysis looking at why people in lower socioeconomic status (SES) don’t attend arts events. Their research challenges the common assumption that price, lack of time and geographic proximity are the main factors in the decision not to attend, at least among this demographic.

Unfortunately, the real impediment might be deeply instilled cultural behaviors that present a problem in areas beyond the arts.

The piece, Why Don’t They Come? is thought provoking and occasionally surprising. It has started a good deal of conversation both on the Createquity site, and also on economist Tyler Cowen’s Marginal Revolution blog where it dominates the discussion on a post of assorted links.

I say that instilled cultural behavior is an potentially an impediment because overcoming it will take more than programming changes, lower prices/free events and taking events to different neighborhoods.

Createquity’s questioning of the argument that arts are elitist is somewhat depressing as it points out the lack of low SES involvement in even low cost and solitary pursuits.

Data from the survey shows that fewer low-income individuals attend pop and rock concerts than their wealthier counterparts, and significantly fewer of them attend visual arts festivals and craft fairs. In fact, people with lower incomes and less education are less likely to read books, go to the movies, take an arts class, play a musical instrument, sing, dance socially, take or edit photographs, paint, make scrapbooks, engage in creative writing, or make crafts.

Granted, if an effort to change programming, address costs and increase geographic access is made over a long period of time, attitudes may change in the direction arts organizations hope. Even if those measures aren’t effective in influencing low-SES people, the barriers they respond to may be decisive for people in other socioeconomic strata and therefore important for arts organizations to continue to address.

But when it comes to people in low SES, this relationship/outlook is not unique to the arts. Two days after “Why Don’t They Come?” was published, the New York Times had a story about low SES people and food that had many elements in common with the Createquity piece.

The Times story talked about efforts to bring grocery stores to “food deserts,” places where residents didn’t have easy access to high quality food and produce. The idea was that if people didn’t have to walk miles or ride the bus for hours to get to a grocery store, they would make better choices about what they ate. However, it didn’t work out that way. People continued to buy what they were in the habit of eating. (my emphasis)

It turned out that food preferences dominated. When the researchers looked at shoppers with lower levels of income and education living in richer neighborhoods with more accessible healthy food, their shopping mimicked that of low-income, less educated people in poorer neighborhoods. (And the reverse was true, too: Richer, more educated shoppers in poor neighborhoods looked more like rich shoppers in rich neighborhoods.)

“When we put supermarkets in poor neighborhoods, people are buying the same food,” said Barry Popkin, a professor of Nutrition at the University of North Carolina, who participated in an Institute of Medicine review of food desert research in 2009. “They just get it cheaper.”

[…]

It’s possible that poverty itself explains a lot of the shopping variation. In general, fresher, healthier food is more expensive to buy than less healthy processed food. It also takes more time and resources to cook, and keeps for fewer days.

If people can’t afford healthier foods, then it would be reasonable to think that just giving them a better store wouldn’t solve their problems. But Ms. Handbury’s paper found that the education of the shoppers was much more predictive than their incomes. Poorer families bought less healthy food than richer ones. But a bigger gap was found between families with and without a college education. Those results, Ms. Handbury said, suggest that improving people’s diets will require both making food accessible and affordable and also changing people’s perceptions and habits about diet and health.

Like the NYT story, Createquity also mentioned that education level is generally a predictor of participation in an arts event. Though the folks at Createquity state that income is also a predictor of arts attendance, they later note that cost is not terribly significant in keeping low-SES people away.

Roughly speaking, this simulates what would happen if every exhibit and performance in existence could be attended for free. The result? Only 7% of the chasm in attendance rates between rich and poor, and between college-educated and not, would be bridged.

Though by now we know that “if you build it/perform it, they will come” is an unwise approach, even removing other barriers in addition to convenience and proximity isn’t enough:

Indeed, according to our model, even if all barriers to participation were removed for low-SES populations and every person who wanted to attend an exhibit or performance in the past year were able to do so, it would still not close even half of the gap in attendance rates.

The authors of “Why Won’t They Come?” acknowledge no one knows why low-SES people make the decisions they do. Among the reasons they suggest are that it could be the group appreciates TV more, it may be a matter of learned behavior, a belief that they are not the type of person who likes the arts or that the general perception that arts are too expensive keeps them from seeking low cost and free opportunities.

The lemonade out of lemons takeaway from this is that it isn’t a problem unique to the arts. Look back at the sentence I bolded earlier- accessibility, affordability, change perceptions – all sentiments familiar in discussions about the arts.

Anyone working on helping low-SES people make better decisions about their lives is a potential ally and partner. (Though the adjuration against defining what is good for people found in Createquity’s post after the art gallery picture is well taken.) A social service organization can help an arts organization gain more direct access to the demographic and an arts organization can help the social service partner structure their training in an engaging manner. Often people in the arts feel like they are going it alone and face challenges no other sector faces, but that is not necessarily so.

Info You Can Use: It Is Possible To Be Too Thankful To Volunteers

by:

Joe Patti

As your performance season ends, like me you may be looking to thank all the volunteers whose hard work made your projects possible over the past year. You might feel a little guilty about all the effort they put forth on your behalf and want to spend a little more money than you planned in showing your appreciation.

However, according to a post by the For Purpose Law Group, there is such a thing as being too appreciative and you can create more problems for your volunteers than you intended.

For example, technically giving a volunteer a $25 gift card is taxable and you as the organization are supposed to withhold taxes.

Stipends or cash gifts of any amount (even allowable “nominal” stipends to bona fide volunteers) are generally taxable income. The volunteer recipient must report the amounts on his or her tax return and pay applicable taxes AND the organization must withhold taxes and make FICA payments – just as it does for employees.

Yeah, I did not know that either.

The other wrinkle is if you pay volunteer a stipend. A volunteer can’t be paid a stipend in return for their services, but you can use it to help offset expenses they might incur. This is something community theater groups often do with their cast and crew. Even in this case, there are some strict guidelines which apply.

Pay particular attention to the last paragraph.

“Although a volunteer can receive no compensation, a volunteer can be paid expenses, reasonable benefits or a nominal fee (or any combination) to perform … services.”

“…(A) fee is not nominal if it is a substitute for compensation or tied to productivity.” And “… determining whether the expenses, benefits or fees would preclude an individual from qualifying as a volunteer under the FLSA requires examining the total amount of payments in the context of the economic realities of a particular situation.”

The agency “presumes that fees paid to volunteers are nominal as long as the fee does not exceed twenty percent of what an employer would otherwise pay to hire a full-time employee for the same services.”

But – and this is a big “but” – if the “volunteer” receives anything of value exceeding $500 a year, that person must be treated as paid staff or as an independent contractor and relinquishes important liability protection under the federal Volunteer Protection Act (as well as becoming potentially liable, in the case of independent contractor classification, for a whole slew of self-employment taxes).

I point out that last paragraph because it is easy to hit that $500 threshold. Paying someone $100 for six weeks of rehearsal and a performance as gesture of acknowledgment and to help defray gas doesn’t come close to really paying them what they are worth. But it is so very easy for a really dedicated person to hit $500 over the course of a year. (And remember, there is supposed to be a reporting of income and withholding on each of those $100 payments.)

It appears that the prohibition against tying the stipend to productivity means you can’t provide a larger stipend to crew heads than to the crew or give everyone who did 250 volunteer hours a $25 gift certificate and everyone who did fewer hours a $15 gift certificate.

“A test to help evaluate whether a payment to a volunteer is a compensation substitute is “whether the amount of the fee varies as the particular individual spends more or less time engaged in the volunteer activities.”

In their suggestions at the end of the post, authors May Harris and Linda Rosenthal, say the best solution may be a bouquet of flowers rather than a gift card. I think other modest gestures like appreciation meals probably qualify as well, assuming you aren’t serving caviar.