Fixing Charitable Giving in the Arts

If you haven’t seen Monday’s Wall Street Journal special section Report on Philanthropy and Charitable Giving, go find it on line. Make sure your favorite funder gets a copy.

Pablo Eisenberg’s superb and provocative cover story, “What’s Wrong with Charitable Giving and How to Fix It” hits the nail on the head in calling for nine fundamental changes in the way that foundations of all sizes give out their money to all types of nonprofits. (See link in blogroll to the left.) His top three priorities are to increase the amount of payout from 5% to 6%; to increase general operating support; and to increase multi-year funding. The first priority takes an act of Congress. The other two are common sense. So are his other points, including simplifying application and reporting procedures and adopting rolling grant making.

Let’s get the first priority dealt with first. Eisenberg argues that “an increase in the payout rate to 6% in all grants would eventually add about $10 billion a year to the coffers of nonprofit organizations, to the approximately $40 million that it is estimated that foundations now give.” Yes, you read that right. $10 BILLION would be added to the $40 million. He goes on to say that “Foundations claim that such an increase would jeopardize the perpetuity of their assets, yet a number of studies argue that their assets could be maintained with a payout of 7% or 8%. The Obama administration and Congress should act quickly to increase the payout to 6% in grants, and the President should use his bully pulpit to pressure foundations to give much more than they are currently giving.” (Well, my sense is that most foundations are giving as much as they can to save nonprofit organizations in this dire time. But I fully agree: Congress has to let the payout go up to 6% or we will simply lose our vital nonprofit sector.)

As for Eisenberg’s other key recommendations – increased operating support, multi-year funding, and rolling grant making – they are essential changes that have to happen to keep the arts sector alive. Many foundations, to their vast credit, have already scrapped their various grant programs in favor of general operating support – at least through the predictable future. But the very notion is still politically charged among funders who have traditionally used grant making to address their own priorities. Equally charged is the idea of multi-year funding and overall larger annual allocations so that organizations have a chance to really do what they set out to do, rather than accomplish only a fraction of their goals.

In the arts, the past/current model has been proven, and proven, and proven to not work. In her report to Grantmakers in the Arts – the association of foundations and public agencies that fund the arts – Holly Sidford recently wrote that “the nonprofit arts business model is shaky, for many reasons. One important reason is that the practices of both nonprofits and funders have not recognized that there are different kinds of money (in the Nonprofit Finance Fund’s terms: build, buy, and burn capital), a financial diet too rich in project grants erodes the fundamental viability of any nonprofit organization. A commitment by more funders to better understand and respect capitalization principles in their grantmaking, coupled with more open-minded exploration of ways funders can support hybrid and alternative financial models, would increase responsible practices in the future. A corollary to this is the need to adequately capitalize collaborative ventures.”

For decades and through a number of recessionary cycles everyone involved in arts funding has known that the emperor has no clothes – the funding approaches adopted and used in both the public and private sector do not and have not and will not work to create a healthy nonprofit arts sector. It was 1966 when economists William J. Baumol and William Bowen first studied and wrote about the fundamental earnings gap within the performing arts and here we are today, still with the same earnings gap and the same undercapitalization and underfunding of the arts.

Write a letter to the President. We need that 6% payout rate.
Talk to your favorite foundations. It has been 44 years since the earnings gap was documented as undeniable. Isn’t it time to fix charitable giving so that the arts survive and (maybe) thrive?

Rewarding the Creators

There’s a must read column in today’s on-line Forbes by Silicon Valley technology entrepreneur and strategy consultant Saramana Mitra. Anyone who thinks about the role of creativity, of invention – the absolute thinking processes we learn from and through the arts – should ponder it.

Writing about our economy, Mitra says,

“We’re not having any recovery. We need the innovators, the entrepreneurs, the creators, the scientists, the technologists–those who build value, those who create jobs–to lead us out of this nightmare. Not a bunch of speculators who make money regardless of whether value gets created or destroyed. In fact, many of them are incentivized to destroy value by spreading fake rumors about companies and stocks, and they do so often. Some get caught, most don’t.

And our talented youth gets seduced by this profession of speculation known for its easy and abundantly flowing financial rewards, avoiding those that require much greater intellectual capacity. Most importantly, very early in their lives, our talented youth come to realize that fields that may earn them a Nobel Prize–cancer research or multi-core computing–may not make them rich. But moving money from here to there will.

And thus, we lose Berkeley Ph.Ds in nuclear physics to hedge funds and MIT computer scientists capable of delivering computing to 6 billion people to derivative manipulation on Wall Street.”

Mitra’s focus on nuclear physics and computer scientists could well have included the documentary film maker, the author, the composer, the designer whose creativity and innovation should also lead the way.

Until we see that creativity is fundamental to economic as well as social progress, and make creativity a fundamental (and attractive) value throughout our culture, we’re stuck. Intellectual property is the currency of the future. What drives its creation?

Creativity and innovation.

Back to Business

Okay friends, I did take a hiatus as a blog writer. Thinking time is important and I needed it. And, truth be told the combination of such giant changes around us combined with the winter months where as a Mom I spend every Saturday and Sunday (at least) getting our sons to some ski hill somewhere in the western US for USSA races….well, blog time got back burnered. You can see why…

But today is the first day of Spring! Let’s get at it.

First off, rumors of the demise of the arts are, to paraphrase the line, very premature. Yes, layoffs and cut backs are real and horrible. My heart goes out to every organization and every individual impacted.

But the arts are not impacted more than the rest of society. Is there an untouched industry out there – particularly one where consumer spending is involved? No. Have we gone through serious recessions before and come out strong? Yes, if you remember 1992, 1982, or 2001.

But let’s use this as a chance to do some real rethinking about our field. I still have my copy of William J. Baumol and William G. Bowen’s classic Performing Arts: The Economic Dilemma. (Cambridge: MIT Press) 1966. It is tattered, and it still rings true. In 1966, they laid out the reality of the structural deficit that defines the performing arts. (Add the visual arts, too.) Since 1966, our field has sought ways to pretend that structural deficit doesn’t exist. Public and private sector funders have sought to support the field around programs and projects, but still haven’t been able to fill the gap that is operations and overhead.

I was so excited when the NEA announced its stimulus funding of staff positions – finally a response to the realities Baumol and Boman mapped out 43 years ago. The unfortunate downside is the temporary nature of the funding – it doesn’t address the long term need that funding has to fill. From my little corner of the blogosphere, I’d champion this as a time for more funders to once and for all address the structural gap. It hasn’t gone away, and it won’t. No amount of project funding or new commissions or special initiatives will cover up the issue.

Other musings…

At the same time as being grateful for the stimulus funding from the NEA, I am terrified – as I hope you are – of Congress’ anti-museums, parks, zoos, botanical gardens stance on stimulus funding. Where did all that vitriol come from and why didn’t we anticipate it? When folks are really strapped for money the way most are today, seniors, families, and young adults flock to free days at museums and free concerts in parks, among other things!

Could it be that we have tried to over-sell the economic benefit argument and have forgotten to mention that cultural gathering places are what hold us together as civil society, bring us together in shared experience, and bring us a combination of civic pride and social engagement?

Or could it be that the arts have a stronger advocacy base to carve out their share of the funds? Despite all the work that scholars have done in the field of cultural policy, and all the applied work I do and so many others do in “cultural development” we still don’t have a cultural sector that works together to advocate for all that is culture. In this time of societal change, what would it take to create that sector, to build our strength, and to finally look at our field as a whole rather than competing interests?

And finally…

If you think that the arts aren’t getting some of the stimulus funding, check out Stimulus Watch and the other on-line listings of projects put forward for the funds. There are a number of mayors around the US that have inserted very significant capital development projects in the arts. I’m seeing hundreds of millions in arts capital projects, and the roll is growing by the day. So, at the local level, the belief in major civic arts projects as important to our future remains strong.

Happy New Year! The trends for the year will be…

May 2009 be a good year for everyone. We’ll be in tight financial times until mid year, at least, according to the leading economists. But then growth will gradually start. Historically, we’ve seen that recessions are an excellent time to plan and prepare for that new growth. So that means the next six months are very important for any type of planning.
* For feasibility studies, this is the time to get your homework done. Feasibility studies done now will likely focus on more doable structure than at the boom time of the market, which means these projects will be seen as viable by more funders. While capital is not out there right now, projects looking for land may find this is a sweet time for deals.
* For strategic plans, this is the time to think deeply about entirely new operational models, finance models, efficiencies and structure. We think the market has been overly flooded by entertainment options in many places, and that a little correction along with leaner operations may be very good for the long term.
* For policy plans, this is an excellent time to take the long view and focus on: 1) strategies to help organizations think about new business models that may create efficiencies while building market share; 2) strategies to build(rebuild) market loyalty by audiences; 3) helping organizations rebalance their financial models and expectations. Gaining audience loyalty this year will likely require deep discounts and price realignment in tickets and admissions, so budgets will need major reworking; 4) building for stability for the long term. During sobering times, we all do a better job of focusing on the real priorities.
* For marketing plans, this is an excellent time to focus on customer service and building customer loyalty. Marketing media continues to evolve at lightening speed. The Obama campaign organization showed us the incredible value of text messaging: this is a key time to build your own text messaging capacity. You’ll also want to build your CRM capacity, to target market as effectively as possible. And don’t forget the increased role that social networking plays in linking your audiences together.
* For cultural development in general, this is the time to think about how to benefit from the stimulus packages that are already moving through the pipeline. Programs like the federal WIRED grants have been around for a few years and will now get much larger, and offer opportunities for arts jobs the likes of which were last seen in the CETA era.

This is exciting. There is a lot of good, proactive work to do that will profoundly advance thinking about the mechanisms, support, and market for arts and culture. Let’s get to it! Happy New Year!

The Arts, Automakers, and Newspapers…

As if the auto industry bailouts and now the bankruptcy of major newspapers such as The Tribune Company aren’t enough…

Today’s news of the Baltimore Opera bankruptcy is the latest in a series of worrisome similar stories. Our good friends at Buffalo’s Studio Arena faced the same sad situation not long ago, closing the doors on a major regional theatre. Last week, the Virginia Symphony went on the record that it may be close to bankruptcy. And there are rumors of more institutions facing similar fate.

For an industry that long considered itself unique, bankruptcy and bailouts show striking similarities between the auto industry, newspaper industry, and the arts.

Haunting similarities…

1) A lot of product out there, some of it of variable quality that left enough people unhappy with past purchases that they stopped new major purchases. (See GM’s apology yesterday about expensive cars and trucks that were variable quality. Think of people dropping their Trib subscription because of spotty quality.) Applicable to the arts, yes, often enough to create ripples in subscriptions and donations. Applicable in people pulling back, purchasing less often, not donating.

2) High labor costs leading to inflated purchase prices. From Detroit, to Chicago’s newsroom, to backstage at a professional theatre – the issues are one and the same. Sky high fixed labor costs and contracts. The arts aren’t unique.

3) Growing debt, lack of funder confidence, and inability to leverage more financing. When funders voice lack of confidence, the ability of nonprofit arts to get new lines of credit just about vanish in the best of times. In the worst of times, forget it.

Is there a silver lining? Let’s pray that an outcome of this will be radical rethinking about the industry, our needs, and above all the accountability to which we hold our industry. The past few recessions haven’t been deep enough or hurt enough to force real change.

I remember working with a group of civic leaders after the last recession to create a firewalled endowment that couldn’t be touched, that required high accountability on balanced budgets, and would have been salvation to that community’s arts in today’s economy. Those civic leaders ditched the concept when the arts groups backed away because easy money started flowing. Too bad. They wouldn’t be facing a local arts crisis today.

This month’s Harvard Business Review includes a superb article on nonprofit accountability. It claims that nonprofits do well when they “are much more explicit about the results they intend to deliver and the strategies and organizations they’ll create to achieve those outcomes.”

Explicit accountability. That’s our new arts era. Let’s use it wisely, and emerge stronger for the long term. We need this silver lining.

Never Waste a Crisis, and Always be Thankful

I enjoyed reading Saj-nicole A. Joni’s Third Opinion on Forbes.com yesterday, detailing how businesses should approach the turbulent times in which we find ourselves. She aptly quotes Rahm Emanuel’s quip, “never waste a crisis.” We in the cultural field should take heed. This is a time for examination, change, refocus and relignment.

Saj-nicole summaries four steps for businesses, which I’ve briefly applied to the cultural nonprofit field:

1) Figure out how to survive.

Change. Cut. Add. Reprice. Restructure. Do what it takes to stay viable.

2) Figure out what you can do now that you couldn’t do before.

A cut in next year’s calendar of events may give you the much needed time to build the back office infrastructure you need to eventually support new growth.

3) Listen for market transitions.

Take the time now to listen and learn, and tool up for the future.

3) No whining.

Our field, like every other, will change. There will almost certainly be less product being presented as we right size. There will be new consolidations and operational models that lower operating costs. Marketing the arts and culture will continue to rapidly evolve. We need to be stimulated by the changes ahead, and ready to grab the opportunities.

That leads to my last point:

4) Be thankful.

As we reflect on the bounty and the challenges, past and present, we have so much to be grateful for as a field, and as a people who are enriched by art and culture. We live in a country that created as its First Ammendment to the Constitution the Right to Free Speech that has granted us the precious right of expression central to art making and sharing. We live in a country with a bountiful and diverse cultural landscape. We live surrounded by art and the work of artists who challenge us every day. We have witnessed enormous growth in our nonprofit and civic arts and cultural institutions over the past thirty years. We work within a wonderful community of people who believe in the value of arts, culture, and creative expression as fundamental to a healthy society. We are challenged, daily, with new opportunities to connect this work to a broader public.

Tomorrow, let’s pause to reflect. Friday, let’s roll up our sleeves, and meet new challenges.

The Real Power of a Cultural Plan is Who Uses It

One of the biggest problems in cultural planning is figuring out who is supposed to use the completed plan. Who is the steward who moves it forward? Who leads the charge? Who monitors its accomplishment? Who keeps all the competing interests aligned?

We’d all like to believe that a cultural plan is implemented by all those organizations and interest groups that care about arts and cultural development in their communities. An arts council takes one role, a foundation another, a government entity yet another, and so on. Sometimes this indeed happens, and the outcomes can be fabulous. More often, it doesn’t happen. The steering committee members go back to their own organizations and priorities, and all those good ideas become a wish list rather than an action plan.

A great way to make sure this doesn’t happen is to call the document “a plan for cultural development” and note from the get-go that the plan is a policy document to guide a particular agency or funder in achieving key outcomes. There has to be an entity that fully implements the plan, that takes it and runs with it, and that has the full support of the power-brokers (funder/s) in making the plan happen.

As a policy document, the plan has to guide the actions of the implementing agency. I believe that internal agency planning has to be an integral component, to fully align the arts council or economic development agency or foundation – whatever entity is going to do the plan – to get the plan done. That agency plan, in turn, has to be supported in full by the agency hierarchy – the mayor, the county executive, the economic development agency – all those whose support is essential to turn policy into action. There has to be an infrastructure behind it.

Within the plan, there have to be policy priorities. Basically, what will the lead implementing agency focus on for the next two or three years that will have a specific outcome, responding to specific findings from the cultural development planning work? As a client once told me, if there are so many goals that you can’t remember them all, the plan will not get done. If yours is the lead agency, you want a plan with outcomes you can deliver. Keep your eyes on the priorities and know that you can accomplish the most important developmental work.

More on the creative economy…

Randy Cohen, the research director at Americans for the Arts, noted in response to my post yesterday that they actually do include musical instruments manufacture! Thanks for the clarification, Randy. He’s also been great to send along the links to the reports they offer at the congressional district level and the state district level – incredible advocacy tools.   My hope is that AFTA will offer their reports at the MSA level, and/or the county level, to correspond with the way that a lot of planning work happens on the ground.   Those of us in the field using IMPLAN to give accurate pictures of economic activity at the micro level could really benefit.  And, I’d love to continue the dialogue to include many, many more industries in the “creative economy” definition.

So just what is the creative economy?

One of my goals whenever I work on a cultural plan is to establish a baseline of the area creative economy, and then to identify ways to grow that economy.  Too often the creative economy – at least in the US – is  narrowly defined.  (Americans for the Arts has done a fabulous job with the conservatively defined arts-centric part of the creative industries, but I think their creative industries data under-represents reality.) (See blogroll for their 2008 update.)  On the other hand, some define the creative economy as anything based on intellectual property, which might be too broad.  ( My geologist friends develop a great deal of intellectual property, but does that make the mining industry a part of the creative economy?  Doubts.) 

So just how do we get to a viable baseline?  Americans for the Arts uses Dunn & Bradstreet as their data source.  In my own searches, I begin with the North American Industrial Classification System, or NAICS codes.  NAICS codes are assigned to every enterprise in North America, and from this we can assess the enterprise impacts, the jobs, the value added, and their total economic value.  As such NAICS can be the key to assessing the bgroadly defined creative economy.  But there are many judgement calls to be made, and this offers an interesting discussion for the arts/cultural development field.  Wouldn’t it be great if we had a standardized way of defining what codes belong to the creative industries and which codes don’t? Something bigger than what we see now from AFTA, but realistic extractions out of NAICS?

Each creativity-based element of NAICS has three components: education and training, jobs and the creation of economic value, and impact – audiences, buyers, users, and those touched economically and socially.  Think about the case we could make if we would work toward a true definition of the worth of our industries.

The first three sets of NAICS codes – ag, mining, utilities – don’t have any sub codes that really seem a part of the creative economy.  The forth, construction, might have a few.  By the fifth, manufacturing, you get into some interesting judgement calls.  For example, I would include the Manufacture of Fine China, Earthenware, and other Pottery; and the manufacture of Pressed, Blown glass, and Glassware in my creative industry profile of a community.  (AFTA includes individual artisan work, but not manufacture.  But many artists and artisans are employed in the manufacturing process, so I’d opt for the larger definition.) But should the manufacture of other glass containeers be included?  Book printing, yes, but should Quick Printing be included?  How about clothing manufacturing?  Do we include it all, or just sub-parts – for example, manufacturing of Schiffli lace?  Or what about food manufacturing?  I guess you would include specialty cheese manufacturing – my neighbor who makes artisan cheeses would argue for that - but what about fruit and vegiatable canning?  Include piano and musical instrument manufacturing – yes.  But what about photographic equipment? (AFTA includes photographic equipment, but excludes musical instruments.)   

 I’d be likely to include all of the economic activity of NAICS code 51 – Information – which in addition to  sound recording and movies includes telecommunications.  

Code grouping 54 codes professional and scientific enterprises.  From these, the normal picks include graphic design, interior design, photographic studios and the like along with the standard inclusion of advertising agencies.  But how about custom computer programming? (That’s where some computer game enterprises can be found, and these are largely considered a part of the creative industries.)  Most defitions already include architectrual and landscape architectural enterprise, but how about mapping? 

The codes (71) for arts, entertainment and recreation are particularly frustrating for those of us in the arts field.  For example, how are we to break out the enterprises/occupations from the grouping “promoters of arts, entertainment and sporting events?”  Does that mean a local NFL franchise and Symphony are in the same code?  (Yes.  AFTA has broken these out using D&B data.)   How about food services codes?  Do we include chefs/fine dining, but not the coffee shops offering up custom lattes? 

The point is, creativity, innovation and foundational arts thinking can be found to shape and influence hundreds of industry classifications, and thousands of job types.  The arts field is even broader than  represented by AFTA’s ground breaking analysis.  And, if as a field we had a broader definition of what is in and out of the “creative industries” of NAICS – which opens the door for many detailed economic profiles at the local level - we’d be better positioned to make the case for what the arts really mean to our economy and our communities.  We’d be able to work toward a far more holistic approach to educating for the creative sector.   And we’d come even closer to assessing the real value of the economy driven by creativity.

Rethinking Arts Facilities

As noted in one of our earlier October blogs, a recession economy is exactly the right time to plan. And it may just be a terrific time to rationally rethink community goals and needs for new arts facilities. Feasibility studies done now may actually lead to smarter and more viable arts facilities than those done in the heady days of a flush financial market. Why? A recessionary economy brings new need for partnerships, creative problem solving, and right-sizing for civic construction ventures.

There are a myriad of wonderful performing arts centers, theater complexes, and museum facilities out there to use as models of wise budgeting and solid operations.

Trends we see and like:

1) A new interest in performing arts centers “attached” to high schools. Not every city and town has the population to afford a major stand alone PAC. But they can build outstanding halls that provide their students incredible opportunities and that also provide residents with buildings that otherwise couldn’t be afforded in capital or operations. Some of these halls are free standing. Most have distinctive and professional-quality entrances and box offices. Many include black box theaters. Some are even multi-theatrical complexes. The truly great ones are every bit as workable for professional performances as for student events, and as a result are booked almost every day of the year. We’re thrilled by all that we see happening in the wonderful and affordable ($5 million) Bothell (WA) North Shore Performing Arts Center, which has been a joint venture between the Bothell School District and a private sector group. And for magnificence, the new Lake Zurich High School (IL) Performing Arts Center couldn’t be topped.

2) Facilities on community campuses. These are particularly workable in mid sized and smaller communities, but have applicability to larger cities as well. Bloomington, Minnesota’s modest but absolutely lovely performing arts facility shares a building entrance with the city council chambers. Rooms used by community arts groups for rehearsals in the evening can be used by the fire department or planning office for meeting space during the day.

3) Multi-jurisdictional and entity partnerships in making facilities happen. Today’s projects require creative partnerships, sometimes involving all or most of the following even before private giving or bond financing come into play. municiipal and or county goverment, school districts, colleges, and developers. In operations, it is fabulous to see models ranging from THEARC in Washington DC all the way to the proposed Pinedale Community Center, in Wyoming. Put together by multiple nonprofit, education, and civic groups, these are models where the arts – including state of the art performing arts halls – live side by side with afterschool education programs and diverse community service agencies. They put the arts in the heart of every day community life.

We still love the major arts facilities that are community architectural icons and centerpieces. But we are drawn to the above trends as wonderful solutions that are also financially much easier to capitalize and operate. They are the type of solutions that are worthy of consideration, not only due to the present economy, but because they really work! The books balance, users are delighted, and quality arts are at the heart of community life.