Trend # 6: Should Cultural Institutions Pay Property Taxes in 2011?

Happy New Year everyone! May your year be creative and exciting as you lead the way in the world of arts, culture, and creativity.

Today is the first business day of 2011, and today’s trend in our Eleven Trends for 2011 sets the tone for thinking about the relationships between local governments and nonprofit cultural organizations this year.

Does your organization expect to pay taxes on your building this year? NGO watchers expect municipalities to look increasingly at various forms of tax on land-owning nonprofit institutions that have traditionally remained exempt. While the early targets of this have been entities such as nonprofit senior living centers and educational institutions, along with some churches, it will be increasingly hard for governments that are starting to tax these types of nonprofits to leave museums, cultural centers, and nonprofit cultural facilities off the municipal tax rolls. Some of the taxes will come in the form of user fees – sewer, water, street maintenance, snow removal, security – but others will be a straight property tax. Expect this to come up for discussion as budget season starts everywhere and local government face shortfalls. Be ready to advocate, and organize to develop win-win solutions.

And win-win scenarios can happen. Economic development specialists and many others recognize the importance of nonprofit cultural institutions and related districts to economic vitality. Cultural districts that work can literally save urban areas, which economic leaders well know.

Performing arts centers or museums that need a subsidy to keep their programming alive, at the same time create the restaurant scene that keeps downtowns lit, exciting, safe at night, and create business for nearby parking facilities, retail, and more. The net positive economic impact is usually much greater than any subsidy, but this equation may need to be stated and documented with more clarity than ever before.

When good documentation of this net positive benefit is offered, look to economic development and planning specialists to be strong advocates and important allies in finding equitable solutions that keep tax/fee costs down while stressing -and building – the value of nonprofit cultural institutions as drivers of business and property values. Cultural organizations that have never met their colleagues in local economic development agencies need to start building good partnerships now for this to happen.

A tested and viable approach is service in lieu of taxes (or fees) that can be win-wins for the public sector and NGO cultural organizations. These approaches have typically included options such as free admission days to the public for museums, or free performances for civic celebrations. While not always easy to arrange – i.e. the contractual issues of professional musicians or actors doing free events – the public willl see tremendous benefits and the in-kind arrangements are almost universally more favorable than the tax or service fees would be.

Among other scenarios: look to more currently unaffiliated groups of nonprofits in a downtown or other part of the city to define themselves as a group and establish BIDs or similar districts, with strength to market themselves as a group and create an advocacy base that establishes favorable contracts with municipal departments and works toward building the excellent reputations that attract developers to a neighborhood. While this, too, has been a tested practice, count on seeing it more widely used with the goal of creating economic value for the municipal government by boosting the overall property values in what could be multiple small cultural and creative districts. (Sometimes smaller districts, each with a unique identity and niche, can be more effective in notching up investment a few blocks at a time.)

Look, too, at the marketing and fundraising opportunities that may come about as groups see strength in banding together. Even donors that aren’t particularly interested in, say, a historical society or community arts center may get behind “The Cultural Centers of City X” based on what the group of institutions make possible in economic growth.

Consider this to be a newly focused type of united fund concept, in which savvy organizations work in small and symbiotic coalitions – perhaps subsets of larger cultural funds, or groups coming together for the first time – to attract attention from today’s cause-oriented donors. Look to coalitions like this to develop joint case statements about their combined contributions to the six or eight block areas they anchor, demonstrating their value in social and economic stories that compel more financial support – even in the face of municipal fees – because of their combined net value. When groups can show that “in our six blocks, our four organizations make X economic difference” and when they can show that the net positive difference far outpaces the cost of public services for their few blocks of geography, they can develop quite a case for support.

At the end of the year, expect there to be some impressive new models in place, where marketing, advocacy, and excellent working partnerships with municipal governments and economic developers pave the way for actual boosts in overall local support for cultural institutions.

Cultural Councils for the Future

I love arts councils – or cultural councils, culture and heritage councils, whatever they may be called – and have probably clocked well over a half million frequent flyer miles just on working with this structurally vital segment of the cultural and creativity sector. Out of the cultural councils that haven’t folded or been eliminated due to budget constraints, my bet is that at best only 30 percent are both healthy and focused on future-oriented needs as opposed to the traditional services and rationale. The field needs a radical remake: cultural councils have to get out in front again to make a substantive difference in saving and transforming community arts.

1. My calculations in reviewing thousands of Form 990s from scores of metros around the county suggest that at least 70 percent of United States arts and cultural nonprofits either have on-going structural deficits, have such low (or nonexistent) working capital – or have both dilemmas – that they are as stuck as Sisyphus, constantly trying to roll their institutional rocks up the hill only to watch them slip back down. Cultural councils know (and have championed) the cause of fiscal health, but at the same time they get stuck furthering the bad practices. An example is when I see a cultural council devote four months’ staff time and hundreds of volunteer hours to “pass through” $10,000 in state grants into ten $1,000 grants, at a negative cost benefit ratio of easily $50,000 administration for the $10,000 in grants. This is neither a smart business practice or making wise use of limited resources. (In fact, I have to wonder what the state agencies that have passed this yoke along are hoping to accomplish.)

Instead, cultural councils should be facing the dragon straight on: putting their constituencies’ structural deficits on the table, calculating the needed working capital, and defining new business approaches that can turn things around. Right now, there is a huge opportunity in helping nonprofits to digitize and sell tremendous amounts of e-product, and there are new opportunities in beneficial mergers and subsidiary development. Unfortunately, not many cultural councils can seem to get away from those maddening re-grant cycles to study, gain expertise, and lead their constituencies toward this point.

2. Cultural councils have largely adopted the creativity-sector language and inclusiveness made popular by Richard Florida, but have dragged their collective feet in expanding their services to the larger creative sector that goes far beyond nonprofit cultural groups. I recently attended a cultural commission meeting that opened with one of the commissioners telling the story of her daughter’s most recent business and financial successes with international public art commissions, and of how she has built a solid business based on sophisticated marketing plans and business strategies. That same commissioner went on to wonder at the dichotomy between the way the council sees individual artists – step children who should perhaps form local nonprofit associations – compared to the way artists create successful businesses.

Those councils that have small business development programs, start up loans, training in international sales and marketing and who even represent their constituents on trade missions overseas are on the right track, but they are the distinct minority. Yet in an increasing number of US markets, there are more for-profit artists/cultural/heritage businesses than nonprofits. This shift to for-profit cultural businesses is particularly profound among young creatives, who almost unanimously tell me they have absolutely no interest in founding nonprofits. They’d rather look for venture capital.

(I know one such creative who was recently fired by the board of the theater company he founded – by the board members he’d recruited – because he couldn’t “win” enough grants. He walked away from the nonprofit model, found investors, and is in the business of producing shows booked year round by dozens of casinos around the country. Business keeps rolling in. Dollar for dollar, he’s now the biggest player in his local cultural community, but has real difficulty fitting into the framework of the “arts community” served by the arts council.)

3. Cultural councils know that arts education in the United States is almost more of a mess than it was twenty years ago. Rounds of budget cuts have eliminated many bright spots developed over the past decades: magnet schools for the arts have ended, and little to no (or backward) progress has been made in enforcing arts learning standards. Record numbers of students are headed to music conservatories and art schools, but symphony orchestras, opera companies, and art galleries are closing and eliminating jobs and career paths. At the same time, there are entirely new creative fields waiting to be explored.

There are marvelous national and international models in which councils lead in fostering local-level understanding and curriculum that pairs creativity and innovation, targeted as much as fostering the creative inventors of tomorrow as encouraging new innovations in the arts. These should be the manifestos that cultural councils champion, the pilots they support.

4. Many cultural councils have extensively justified the economic impact of arts and culture, and deserve great credit for elevating the discussion of culture as an economic sector. It is vital, now, that they take the next steps of working hand in glove with their municipal planning departments, economic development commissions, business improvement districts, CVBs, redevelopment agencies, and other stakeholders to anchor economic development with arts and creativity enterprise and venues (for profit and nonprofit alike).

The best and the legendary cultural councils are doing this, and have been showing results for years. When cultural councils put together investment groups to build hotels and condominiums, lead the charrettes for redevelopment zones, help corporations work through how they can include theater spaces in bank buildings, determine the unifying elements and principles for zones, downtowns, suburbs, corridors, gateways and more, they are demonstrating culture as real economic development.
Time for a change? The exciting news is that many foundations and corporate leaders see the potential and are striving for change. Economic development commissions are taking increasingly active roles in fostering new thinking. Academics from MIT to community colleges are making the arts-innovation-invention links. Municipal planning departments are asking their cultural councils to lead in shaping unifying principles for development projects. CVBs are taking the lead in rebranding their communities around cultural assets. Exciting new thinking is underway. Our challenge? Make this the norm for the next generation of cultural councils.

The New Generation Local “Cultural” Council

By my calculation the US local arts agency movement is now – post recession – into its 4th generation. The first generation were the few pioneers who promoted the very concept of a local coordinating agency in the arts. Then came the big boom second generation, promoted heavily by the presence of federal and state leadership. (These included the NEA Locals Program as well as state programs that provided incentives and grants to launch local arts agencies and provide them with funds to re-grant.) Then came the third generation of retrenchment and loss as many local arts agencies simply closed their doors due to a lack of resources and equal lack of focused purpose. And now rising from the ashes are the fourth generation of councils, with a lineage and concept consistent with their heritage, but a new focus and tremendous urgency.

The hallmarks of this new generation are:

1) They are far more inclusive in their concept of “culture.” While “arts” councils have long done “cultural plans,” at the end of the day most of these councils were still just about preserving, protecting, funding, coordinating, and advocating for the arts sector. Increasingly, new generation councils (including those that have lasted from pioneer days, and have actively sought to remain relevant) are inclusive of heritage, history, humanities, and the arts. Zoos, libraries, heritage centers, science centers and more are now the constituents of progressive local councils.

2) These councils are given new energy and focus by local economic development leaders who want a very vibrant cultural life that appeals to the companies and workers they wish to attract. The pressure on them is now coming from the outside, rather than from within the arts, history, heritage, humanities field. Equally, their success is measured by the economic development leaders, to whom they are increasingly accountable.

3) Regionalism is in, redundancy is out. Those same economic development leaders are unlikely to be interested in local arts or cultural agencies in every city or suburb within a region. A hub and spokes, maybe. A “virtual” office, sure. But no redundant overhead.

4) Return on investment is key. Those that are directly in the business of boosting attendance – i.e. on-line ticket sales service for the region, “big list” database back office services for every nonprofit, centralized experts that rove between organizations saving each on cost and providing what each can’t afford alone – these are among the new interests of those that provide funding. SWAT teams – archivists who provide services to all the house museums in a region, IT teams, roving HR experts, web designers and more – these are “fee for services” offerings that funders want to see strengthen the overall field.

5) New business models, new money. The new generation councils are expected to establish a culture of new business models within the entire sector they serve/lead. These business models hold down costs, may include mergers, and make no assumptions about “business as usual.” At the same time, the new generation councils are expected to implement substantial efforts to really and truly deal with the monetary fuel needed to sustain the sector. This may mean regional taxing districts, workplace giving, dedicated revenue, pooled funds or more. They are expected to be high level brokers among the funding community, able to accomplish what others before them could not.

6) Similarly, these sector-wide councils work fluidly with for profits and non-profits. They know how to package their sector for the tourism business, how to support new business recruitment, work comfortably in tandem with those in recreation, public lands and resources, pro sports, and other “quality of life” sectors.

7) They may increasingly be in the development business, as partners, pre-development planners, owners, administrators, landlords. As regions take a look at the duplicated cost of running multiple facilities that could potentially be served by a centralized administration, the entire spectrum of development and facility management tasks are growing.

8) They are funders, but in a very streamlined way. Many former generation arts councils burdened themselves and their constituents with the weight of excessive paperwork and grants reporting to the point of the absurd. Twenty page applications and final reports for $500 grants became the reason to spend months of salaried and volunteer arts council time. More and more funders have pointedly asked the new generation of cultural councils for efficiency, streamlining, sensible approaches.

9) At the same time, the new cultural councils are demanding of their grantees. Gone are the days of making sure every organization always gets some funding. In are the days of holding organizations accountable for smart business practices, even if it means cutting off all funding to those that don’t pass. It is a tough new world.

Ready for the challenge? These new generation councils will be exciting, powerful, results-oriented entities. Dive in. Your region is waiting.

Take the big picture view…

What’s the number one issue you need to overcome? Retreating due to fear.

The best nonprofits are those that take the long view. That see the world – their art, culture, audience, funders, and future – at the 40,000 foot level. They see where they want to go, and they know that if they keep focused, they will reach their destination. It might mean a little slowing in the pace, but it doesn’t mean giving up.

Andiences and funders will come back, and in fact are coming back already. For audiences, demand is on the increase after months of negativity. For funders, donors, and folks whose discretionary income rises and falls with their portfolio – last month was the best stock market month since August. It still will be hard, but there are some spring flowers blooming out there.

What should you be doing? This is the season for renewals – in memberships, audience subscriptions, and looking ahead to a new year. Do not pull back on your renewal and new efforts. Plenty of people who dropped off your database last fall are ready to – need to – reconnect to art.

Good News on the Horizon: Research from other sectors

A big part of what I do is bring trend information to the table for clients. I look beyond the arts to other sectors that can guide us. Today’s good news comes from Commercial Property News, a publication I regularly comb for trends regarding cultural center development, arts facilities in mixed use development, and even the trends witnessed by retailers who are the prime tenants in commercial properties.

This week’s issue focuses on a new study by RREEF Research, which is a highly regarded property research company, in this case through a study they did for Deutche Bank, on trends in US commercial real estate.

1. They see that the decline in sales of commercial properties will halt by mid summer, and that we will start seeing upturn by the last quarter this year.

2. Vacancies will decline by the start of 2010.

3. Neighborhood and community centers will be the first to start doing better.

What does this mean for our field?

1. Be ready. Those projects that you may think won’t be forthcoming may be just timed right for investment. Construction costs are lower by far than they were, and good deals can be found. Timing is great.

2. If yours is a community center mixed use venture, you should be working now to line things up. Developers will be ready to move by the last quarter of this year.

There’s one other interesting finding here. CPN reports that the “luxury goods” retailers will be among the first to see the uptick by the end of this year. I look at that and think that your subscription ticket sales next fall may be better than we could anticipate right now. A week ago, when I read that the Chicago Art Institute was increasing its admission prices to $18 come May, I thought it was not such good timing. But they seem to be right in line with this report of pent up demand meshed with a bit more expendible money. All in all, a good read of tea leaves that gives new energy to us all as we look to next season! Let’s banish fear, and get to work.

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.

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.

Cultural Planning in a Recession Economy

The days ahead look challenging for arts and cultural development. Does it mean this is time to stop planning?

It is the VERY time to plan.

Resources are tight.
There are tremendous shifts in financial systems and attitudes.
Priorities change.
Urgency to focus on successful outcomes is increased.

These are key reasons not to put off policy or cultural development planning in challenging financial times. With limited resources, we need to clarify absolute priorities for cultural development action, policy, and related funding. And, we need to listen to changed perceptions and attitudes from community leaders and residents.

What are some of the important tasks in immediate cultural development planning?

First, focus on success. We’re in for a very different number of years. What will success – a vibrant cultural community, healthy cultural organizations, engaged creative businesses, engaged audiences – look like in this different economic world? Don’t shape policies on staving off crisis. Shape policies for a new reality, and yes.

Next, focus on the key outcomes that need to be in place within the next 12 months if the successes you outline are going to happen. What are the policies, the programs, the support systems that need to be in place? These may be radically different from what are now in place, so be prepared for real changes.

Now, put resources where they will really make a difference. What are the two or three most important and substantive outcomes you have to see to get to success? Put your resources squarely behind these.

And, keep your eye on the long term. Position things now to be ready for opportunity when the financial world pulls out of its slump. Remember, cultural entitites and projects that have succeeded in the years sinc 9/11 were those that had planned and prepared during dark times so they could move forward as soon as confidence was restored.

Don’t stop planning. This is the very best time to plan.