Donor Advised Funds – Who Makes the Decisions?
April 05, 2017
The Economist and Nonprofit Quarterly recently published articles, mildly critical, on the topic of donor advised funds.
A donor advised fund is a gift by an individual to a charitable foundation (typically community foundations, or foundations created by financial institutions) to establish a fund to express the donors personal philanthropy. Money or securities are contributed to an endowment, which is held and invested to create income which is disbursed to one or more charities.
Benefits for the donor and charity
The donor benefits by receiving an immediate tax receipt. The donor can then advise on the selection of charities who will receive a distribution each year from the fund. For the donor, it is a fairly simple means of achieving part of their estate plan. They can identify charities to support, and achieve a tax credit now versus a future bequest through their estate. The charitable foundation handles all administrative details, communications with charities, and issues the cheques.
For financial institutions, donor advised funds represent an additional investment product generating investment management fees. The charitable foundation administering funds earns fee revenue for administering the funds.
If a donor, as they establish a new fund, immediately identifies one or more fixed charities to receive fund distributions, the charities benefit from the knowledge that a donor has made the irrevocable decision to donate a part of their personal wealth to philanthropic goals that support their mission. While they may or may not know the identity of the donor, it is helpful to know a source of revenue will be recurring.
The critical commentaries of the articles focus on the grey areas in donor advised funds. There is little transparency or public accountability around how funds are disbursed. Questions may be raised about where the money is going. Charitable foundations often report at the macro or sector level, but not typically to the level where individual charities or communities are identified.
The beneficiary charity also loses the personal relationship with the donor. They may not know if a grant is one-time or recurring – something a direct conversation with a donor could have affirmed.
Questions are also raised over the degree of fiduciary oversight being applied with respect to advice and recommendations received from donors or their family. So long as the recipient entity is an eligible charitable organization, charitable foundations give great flexibility to the donor to identify donation recipients.
There is nothing inherently wrong with the concept of donor advised funds. The fund can either be a permanent endowment (annual payouts in perpetuity) or a fixed-term fund (capital and income are intended to be fully distributed over a period of time).
What perhaps doesn’t get effectively communicated, and some donors overlook, is that they have made a legal transfer of ownership of property from themselves to the charitable foundation. The donor no longer has ownership rights. The legal agreement establishing the fund provides for the donor to offer advice on distributions, but the final decision and legal responsibility rests with the charitable foundation.
At the Ontario Arts Foundation, we spend much time in conversation with our donors to ensure they understand the reality that once the donation is made, the ownership and control of the fund has passed to the Foundation. Our fiduciary responsibility is to ensure the fund is administered in a way that is consistent with its objectives. We may receive recommendations from a donor on disbursements, and if consistent with the charitable purpose of the fund, we will respond positively.
Charitable foundations must retain the right to decline a recommendation if it is contrary to:
the charitable purpose of the fund (eg. the fund objective is to fund music organizations, and a recommendation is received for a distribution to a health care organization – laudable but contrary to the fund purpose)
public policy (Canadian courts have ruled against trustees disbursing funds for purposes that support racism, ethnic orientation or political purposes not considered charitable under our tax laws.)
the recipient’s eligibility (A donation cannot be made to a non-charitable organization.)
the charitable foundation’s mission (Some foundations have a particular viewpoint on charitable or social issues as part of their mission. If a donor recommends a disbursement contrary to that mission, the foundation may respond by declining to follow the recommendation.)
It can take some time to develop comfort and trust between the donor and a charitable foundation about the distribution of funds from a donor advised fund. It is important that donors and the charitable foundation have a clear understanding of how decisions will be made, so that there are no future surprises….or disappointments.
Arts and Aging – Focus by Ontario Arts Organizations
December 01, 2016
It has been an uplifting experience over the past months to discover how many Ontario arts organizations offer community outreach initiatives intended to enhance the quality of life / wellbeing of older individuals.
The range of programs cross all arts disciplines – dance, visual arts, music, theatre – providing access for people who may be increasingly unable to attend regular performances or exhibitions.
Why do this?
A growing body of research indicates that participation in arts activity is an effective way to improve health, intellectual stimulation and physical wellbeing of aging people. Research indicates:
Singing improves mental health and wellbeing –
Dance classes boost cognition, motor skills, balance, posture
Playing an instrument has benefits, including reducing dementia risk
Visual arts – viewing art, or art classes result in increased social engagement, psychological health and self- esteem
Ontario arts organizations
Examples of Ontario arts initiatives focused on the aging include, Dance Classes for People with Parkinson's – regular classes offered by the Canada’s National Ballet School. Jazz FM and the Alzheimer Society jointly offer a Tuesday morning program – Music Memory to highlight the importance music has on those suffering dementia. In Ottawa, MASC's Programs for Seniors brings professional artists in all disciplines to seniors in homes, centers and hospitals. Seniors in the Studio, a visual arts program offered by the Kitchener Waterloo Art Gallery stimulates the senses and mind through hands on art activities and dialogue with artists.
Benefit to artists as well
In addition to the benefits to participants, this kind of initiative benefits the artists as well as they see the opportunities to apply their creative skills in new ways. All together, these are marvelous initiatives that reconcile arts and culture with wellbeing in society.
Summer Travels - 2016
September 01, 2016
Parry Sound sunset
Among the arts organizations supported by the Foundation are theatre and music festivals located outside Toronto and whose programs are summer based. So this summer, I took the opportunity to visit as many as I could, seeing parts of southern Ontario I had never been to. It offers a different view to the ‘Canadian landscape’.
From Parry Sound to Gananoque, Grand Bend to Millbrook, the talent and creativity across the festivals was breathtaking. This was not ‘work’, in addition to meeting the Artistic Directors, Managers and actors, I saw a wide variety of performances. In every location,—the arts organization is a ‘presence’ in the local community, drawing in residents, visitors and tourists. Many local communities rely on the economic contributions from the arts.
It doesn’t get much better to combine being on the water’s edge in Parry Sound in July in the early evening, watching the sun set and then listening to superb Canadian musicians at the Festival of the Sound.
Another perspective was a magical early evening northeast of Toronto in Millbrook. The 4th Line Theatre is an outdoor theatre, using farm buildings converted to seating/stage.
The production was developed from historical events in this part of Ontario and the cast (both
4th Line Theatre, Millbrook, Ontario
professional and local community volunteers) used the stage and adjacent fields, blending landscape into the performance experience.
Further east, on the St. Lawrence River, we saw the most amazing one man performance based on the life of Tom Thomson at the Thousand Islands Playhouse. We stayed over and engaged in ‘retail therapy’ on the main street of the town.
Kincardine pipe band
In the tiny village of Blyth, the Blyth Festival has developed a history of compelling theatre where we were challenged by a thought provoking drama – well acted and creatively staged.
After experiencing a summer Saturday evening in Kincardine with the local Pipe Band parade (30-40 strong), we drove down Lake Huron to enjoy, sing and laugh at the Drayton Entertainment Huron County Playhouse's production of Mamma Mia.
Embracing all ages, one of the lead actor’s children was performing on a smaller stage next door in a panto production of Aladdin – the arts embracing all ages!
We saw theatre in small productions in Port Dover (Lighthouse Festival Theatre) and Port Colborne (Showboat Festival Theatre), as well larger scale shows at the Shaw Festival and Stratford Festival -- ‘Breath of Kings’ two back to back performances (you can never have too much Shakespeare).
In the musical theme, I had great fun wandering festival site at Ottawa Bluesfest. This included small blues/jazz groups in an intimate stage setting as well as mingling with thousands to hear contemporary rock/rap groups!
The common denominator was a passion for excellence. From playwrights,
staging, directors, musicians, actors – the quality was high. I came away impressed with every organization, every community.
Grand Bend, Ontario
All of this lies within a day’s drive of Toronto – it was a refreshing break to see more of Ontario, to meet playwrights, actors, musicians and be intellectually challenged and satisfied. It was VERY clear how important the arts organizations and festivals are to the life and economy of their towns/cities. Whether it was our having dinner in the bistro across from the Blyth Festival, staying in local inns/B&B’s or being one of 40,000 attendees at one BluesFest concert, it was clear that Ontario’s our arts organizations and festivals are important contributors to their local economy – employment, taxes, generation of visitor/tourist activity and effective engage with their community.
A visible example were the teenage volunteers at Huron County
Playhouse selling 50/50 tickets before the performance, acting as ushers – involving the local community.
What a treat this summer was – there are still many places and arts organizations to visit and I look forward to planning next summer !
Transformation in the Arts
July 13, 2016
While the mandate of the Ontario Arts Foundation is to invest in perpetuity, i.e. for the very long term, we recognize that arts organizations, like any organization cannot exist in perpetuity based solely on past success. To continue to deliver sustained arts programs, organizations need to adapt and respond to change in their operating environment.
Transformation or Bust
Diane Ragsdale, a well know arts commentator, spoke at a 2016 Creative New Zealand Conference – her topic was titled Transformation or Bust - When Hustling Tickets and Contributions is Just Not Cutting it Anymore. It is lengthy, but a thoughtful perspective on the arts and the notion of creative transformation to be viable and successful.
She observes that the justification for the arts in western culture seems to have shifted too far in the direction of ‘measurement’ – arts as paying its way, or contributing to economic growth. It is absolutely true that the arts are strong economic contributors, but have we lost, at the political level, sight of ‘culture for sake for culture’s sake’?
Diane identifies five ways arts organizations can work to transform in a positive way and continue to engage with their communities:
Let the community back in
Practice radical hospitality
Be the kitchen table. Be the campfire
Focus on impact rather than size. Form covenants rather than contracts
Create scaffolds of meaning-making rather than money-making
Each intriguingly named theme is accompanied by examples of organizations being creative and transforming themselves, or how they practice their craft and engage with their audience.
Read the full transcript here.
Taxing Endowment ?
May 25, 2016
To our minds, taxing endowment is very short term thinking. Lately, US media and politicians have called for taxation of the larger endowment funds. As lawmakers look for sources of funds amid declining tax base at the local level, along with rising tuition costs, the presence of large, successful and growing university endowment funds have become an enticing target.
Most endowments, including the Ontario Arts Foundation’s, saw the market values of funds under their stewardship decline during the 2008 economic crisis. Legislators and the media seem to have forgotten the impact. Endowment distributions dropped or in many cases, had to be suspended for a year. Since that time, a combination of improving security markets over the last 5 years, sound investment management and new donations have seen the aggregate value of funds held in endowments grow significantly. Lawmakers in states where the large universities are located ( Harvard, Yale, Princeton ) are making statements that the school endowments should be ‘forced’ to make mandatory payouts to reduce education/tuition costs or help offset deficits in education budgets.
Not surprisingly, we are not supporters of this for several reasons:
Recent history of a time when the market value of endowments declined below the original principal, resulted in an inability to make the annual distributions that the arts organizations we support rely upon. Our investment strategy looks to mitigate that risk by growing the capital and maintaining a reserve to ensure we are able year over year, to make distributions. But no Board or investment manager has control over global markets.
Taxing investment profits, or challenging tax exempt status of endowments will mean that donors intending to provide long term support to an organization may use other vehicles, or not make the gift. One of the advantages of an endowment is the pooling of multiple funds to lower investment costs. Taxing an endowment and driving donors elsewhere may increase costs, which impacts the amount available for distribution.
What is forgotten in the dialogue is that many individual endowments, collectively managed by the foundation, or a university have very specific purposes (i.e. fund an arts award). The governing organization does not have the ability to re-direct the capital or income to the purposes external bodies are suggesting.
Endowments are an attractive tool for generating sources of income that are separate from government funding, operations/arts programming. The stability of returns is an important part of an organization’s finance’s.
Taxing an endowment may be attractive to the media or a politician, but it truly is short term thinking at its worst.
Wall Street Journal article March 28, 2016
Bloomberg article March 23, 2016
Forbes article August 25, 2015
What Drives a Payout Decision?
March 07, 2016
At the beginning of each year, the Foundation Board meets to review investment performance and decide on the payout percentage. This determines the actual income arts organizations holding endowments with the OAF will receive. What does the Board consider in making this decision?
The majority of endowments we administer are permanent. The original capital can never be paid out and income is based on returns (cash income and market appreciation). So rule # 1 is to invest the portfolio so that annual returns increase each fund’s value, which creates income available to pay out. Our investment objectives are to earn consistent returns that support annual distributions, to preserve the capital in real dollar terms (protect against inflation) and cover investment management and our administration expenses. We invest for the long term, and aim to be able to pay out 3 to 5% returns consistently. We seek returns that exceed 5% over a 5 year period.
The Board looks at investment returns for the past year ( 2015, 7.2% ) and returns for 5 years ( 9.0% ) and 10 years ( 6.7%). This confirms that market growth is well in excess of our policy objective and that the difference between the original endowed value and current market is growing. We want that difference to be going up each year. As that happens, the board can with confidence strike a payout percentage that is stable and consistent.
A consistent income year over year is helpful for arts organizations in setting their operating and program budgets. We believe that consistency is more important than maximizing a payout in a given year then having to lower it in a future year. We recognize that arts organizations need the income from their endowments, and we try to pay as much as we can while being mindful of the long term.
Another way we look for stability is to base the distribution rate on the average market value of the funds over the previous three years. This is helpful both as markets grow year over year or experience a decline.
The Board is mindful of future return expectations, which is reflected in the asset mix strategy and decisions on investment managers. As a long term investor, our investment strategy has a bias towards equities, and we choose managers having a long term investment focus. That focus examines economic themes emerging across the world, and identifies businesses that will benefit from these themes and are well managed to excel in their particular business and marketplace. These strategies mitigate short term volatility and position the Foundation for sustained long term growth. We believe we are achieving success in this regard. The OAF investment portfolio has achieved higher long term returns with lower volatility than most managers following a similar strategy. The OAF annualized 5 year returns are approximately 10% vs a 7.6% from a universe of comparable balanced portfolio managers.
Lastly, we seek returns that are decent versus excessive as we strive for that long term continuity, and avoid significant year over year variations in returns.
The debate at the Board is always lively, as it seeks to balance a sustained, increased amount each year, while also marshaling resources for the long term in order to deliver stability. For 2016, all factors resulted in a decision to maintain a 4.5% payout. Ontario arts organizations will receive just over $3.0 million in endowment income this year.
Common Issues Facing the Arts in Canada and the U.S.
December 16, 2015
Canada does not have an annual gathering of arts funders that embraces private, government and public funders similar to Grantmakers in the Arts in the U.S. Therefore, it is always interesting to monitor the dialogue coming out of the organization’s annual fall conference. At the 2015 meeting, a couple of key themes were tabled that we feel are equally relevant to the Canadian arts sector.
The discussion revolved around actions funders can consider to help arts organizations achieve long-term sustainability, and access capital resources to help weather economic fluctuations in the hopes of achieving stable operating revenue that is close to meeting operating expenses year over year. Many organizations are simply unable to move beyond the annual scramble to fundraise and/or meet earned revenue targets for the arts programs they deliver.
Building sufficient capital reserves is a strategy that is desirable, but seems today to lack the ‘sizzle’ of current themes of funding social enterprise/social impact investing. Practically, raising funds to meet current operations is critical to the delivery today’s arts programming (as well as the employment of artists, delivery of arts education etc.). The allocation of scarce resources is a common challenge. The attention paid by some funders to social impact/ social enterprise initiatives (totally laudable) inevitably means funding for operations gets squeezed.
Allocating funding between established arts organizations and new and emerging organizations is also a common refrain. Where to place funds so that they do the most ‘good’ is a challenge, particularly at the government funding level where demand increases and funding dollars are flat or declining.
The dialogue continues...do we fund the established, well know organizations at the expense of investing in new, often culturally diverse arts organizations, or the reverse – insist on greater financial independence from the larger organizations and help support the next generation of artists and arts organizations? There is no common answer to the issue. Finding a balance between established and emerging is a continuing dialogue. Funding that reflects the cultural evolution and diversity in our communities does seem a reasonable approach.
- Other topics raised at the U.S. conference included:
Tenure – how long should a funder support an organization? Should there be an expectation of achieving financial independence and allow funding to move to a new organization?
Reporting – understanding the effectiveness and impact of grants made to arts organizations. Has the investment generated positive results (a subtext is over what time should that be assessed).
Capitalization – helping organizations establish financial reserves to weather changing times and economic cycles. This is where the topic of endowment plays a role.
Where should the strategic emphasis be? Capacity, sustainability and engagement – what is a reasonable time frame for each?
The GIA website does not have open access to all conference presentations, but there are excellent blog summaries by Barry Hennius and Lara Davis on the conference proceedings. Always worth a read.
Ontario's Culture Strategy
November 25, 2015
The Ontario Arts Foundation is committed to the contributing to the success and financial stability of the arts in Ontario. We do this by connecting private donors and the arts through endowments largely established in response to government matching programs. The OAF has invested significant time in the past year to raising the profile of matching programs at the provincial and federal level. We have met with Artistic Directors and Arts Managers to provide information about long term funds and discuss whether the timing is right for their arts organization to raise endowment capital and apply for matching grants.
At the moment, the only active matching program is federally throught the Department of Canadian Heritage, Canada Cultural Investment Fund, Endowment Incentives Matching Program. We are in regular contact with senior staff at Ontario’s Ministry of Tourism, Culture and Sport to reminding government of the benefits of matching, the value over time of the provincial Arts Endowment Fund program (1998-2008) and encourage a new investment.
Ontario's Culture Strategy
It is an opportune time to elevate the profile of endowment and matching with the Province of Ontario's Culture Strategy currently underway.
We met in September with Deputy Minister Drew Fagan and Assistant Deputy Minister Kevin Finnerty to share information about the compelling economic results of the Arts Endowment Fund program and to encourage the Ministry to invest in renewing the AEF program as an outcome of the Culture Strategy.
In October, we met Canadian Heritage Deputy Minister Graham Flack to express appreciation for the Federal government’s continued investment in endowment matching. Now that the election is over, we asked the Ministry to consider alternate ways to support arts organizations, specifically art galleries and museums currently ineligible for the Endowment Incentives program. We look forward to meeting Canadian Heritage Minister Joly and to learning more about the new government’s priorities as part of the 2016 Federal Budget.
Ontario Arts Foundation's Submission
We are participating in the town hall Culture Talks sessions this November and December hosted by the Ministry of Tourism, Culture and Sport. We encourage all arts organizations, their leaders and board members to attend one of the remaining sessions if you haven't already, and to share your vision for arts and culture in Ontario. If your organization holds an endowment under the Arts Endowment Fund program, it is an opportunity to express in your own words, the stream of secure income you receive.
Here is the submission made by the Ontario Arts Foundation to Ontario's Culture Strategy.
Investing in a Low Growth Environment
August 13, 2015
We are sometimes asked by an arts organization why the 2015 income paid from their endowment was 4.5%, when the Foundation earned investment returns of almost 14% for the year. There are two answers to the question:
- Our investment policy goal is to earn returns ( interest, dividends, capital gains ) that allow for consistency in income payments year over year. In years where portfolio returns are particularly strong, we ‘bank’ some of that return so as to be able to keep income distributions stable against years where returns are lower/more volatile. The Board takes a long term view and considers long term results as well as short term returns making the annual payout decision. In 2014, one year returns were almost 14%, but looking at 10 year Foundation investment returns, the average is closer to 7%. An income return of 4.5% is in our view, reasonable and allows for a reserve (“cushion”) to cover future inflation and periods where markets are volatile or returns are lower.
- The second reason is that the Board and our investment managers believe that the double digit investment returns of the past 3 to 5 years are not likely to continue.
Lower Investment Returns
Opinions will always vary, but there is a common view that suggests the world is moving, over the next 3 to 5 years to an environment of lower investment returns. Slower global economic growth, appears to be the new norm. This results from continued high levels of government and household debt, aging demographics as boomers retire (they save more and spend less which impacts government tax revenues), and slower transitioning of emerging economies. After a period of years where interest rates have been at low to near zero levels, it is anticipated the US Federal Reserve will begin to slowly increase interest rates in 2015. The increases are expected to be small and Canada will likely lag moves in the US. Canada’s economic growth is more mixed than the US, due to challenges faced by an energy and commodity led economy.
The US economy remains a global driver and is slowly improving, but at a slow pace. As it strengthens, US interest rates are expected to rise. High equity returns of the past 3 to 5 years have resulted in high asset valuations. Our managers don’t see this as sustainable. The likely outcome, in the near term are positive equity returns, but at lower levels closer to a 10 year average of 5 to 7%. Our expectation is that the managers the Foundation employs will achieve, and exceed those returns.
We believe that equity and fixed income markets will deliver positive, but lower total returns in 2015 and for the next 3 to 5 years. Our strategy and asset allocation policy continues to be biased towards equities, and is focused on high quality companies, well managed, holding conservative balance sheets and a history of generating positive returns.
We believe the beneficiaries of endowments want their capital to be protected, to grow and to deliver a sustained level of income. In times where other sources of income to an arts organization are more variable, this stability is important and a comfort as an organization builds its future arts programming.
Arts and Aging
June 30, 2015
I’ve observed a rise in published materials and articles on the intersection between the arts and the areas of aging, healthcare and wellness. The driver may be the “Boomer” generation, who as they retire seek to keep active, learning and finding a place for the arts in their lives.
When you consider that one of the most active participants and financial supporters of the arts are the ‘pre-war’ generation, this is important for arts organizations to incorporate into arts programs. It seems clear there is a general recognition that the arts ( in all disciplines ) benefit older adults emotionally, cognitively and socially. A number of research initiatives indicate that participating in the arts is good for the body, psyche and brain and warrants investments to enable participation.
Integrating the arts with this age group is increasingly moving beyond a ‘nice to have’. Providing culturally enriched programming enhances quality of life, engages this sector and sustains deeper relationships with arts and culture organizations. We know this manifests through volunteerism by retirees who have time, energy and experience to bring to an organization. It also reflects in current and legacy financial support.
This is a great opportunity for arts organizations to review programs, community engagement and education activities to more broadly include and appeal to this age group. It is an opportunity to be more intentional in providing culturally enriched programming for this age cohort.
Blog Posts & Video
Two recent posts I read provide interesting background on the topic – a series of conversations organized by Barry Hennius and a Huffington Post commentary on a US conference organized by Aroha Philanthropies. There is a particularly charming short video clip titled ‘The Wall’ on the Aroha Philanthropies website.
This intersection between aging and the arts can be a a great opportunity for arts organizations and the patrons who participate, attend and support. As one of the posts concluded –..”Happily, growing older is looking a lot more promising, interesting and even exciting.
2015 Federal Budget Measures Affecting Charities
May 04, 2015
A measure Canadian charities have long lobbied for was recognized in the 2015 Federal Budget announcement on April 21st. An exemption from capital gains tax will be available to certain disposition/sale of shares of private corporations and real estate. It will apply to dispositions made after 2016 and the tax exemption will apply to:
- The cash received from the disposition of shares of a private corporation or real estate where the proceeds are donated to a qualified charitable donee within 30 days of the sale transaction and the shares or property are sold to a buyer who deals at arms length with both donor and qualified charitable donee
- The amount of the capital gain to be exempt from tax will be based by reference to the proportion of the cash donated to the total proceeds of sale ( i.e. not all of the proceeds are donated to the charity )
This has long been sought for by Canada’s large charities, but can benefit all charities where a donor wants to provide financial support, but a significant portion of their personal wealth is held within a private business.
A more ‘technical’ measure will now provide that a registered charity will not be considered to be carrying on business where it acquires or holds an interest in a limited partnership. This expands investment opportunities for charities, where the investment is intended to be a passive investment, and the charity does not hold more than 20% of the interests in the limited partnership, and the charity deals at arms length with the general partner.
Canada 150 Community Infrastructure Program
A new program – the Canada 150 Community Infrastructure Program will provide funds to support the expansion and improvement of existing community infrastructure, which may provide towns and cities will resources to include cultural projects as well as those supporting tourism, sport and recreation. To help celebrate Canada’s 150th anniversary, $210 million will be funded over 4 years to support community events to recognize this milestone in Canada’s history. This funding has been much awaited by the arts sector and hopefully details arising from the budget will make clear how the funding can be put to work. Funds will be invested over 4 years, starting with $24 million (nationally) in 2015.
As always, the devil will be in the details of the budget measures and how this will be implemented. Happily there were no new measures adding compliance requirements to be imposed on charities.
Getting Capital Right
April 02, 2015
Getting Capital Right: Six myths and Realities for Grantmakers Part 1 and Part 2
Two recent blog posts from Associated Grant Makers, written from the perspective of a grantor/funder have insights relevant for Board members and arts leaders.
The articles resonated as recently the Department of Canadian Heritage announced the 2015 matching grants under the Endowment Incentives Component. This year, organizations who contributed to their endowments will receive matching grants of $ 0.97 for every dollar raised and contributed. This is extremely positive for those participating, but a high match also indicates that many organizations are choosing not to raise capital or endowment money. Given we all recognize the power of matching, it is a puzzle that more arts organizations in Ontario and Canada are not taking advantage of the opportunity.
Stable source of cash
While capital held in an endowment is ‘committed’, it does create stability in the production of cash income every year – a stable, reliable source not tied to a grant application process. The articles observe that most nonprofit organizations exist on one to two months of working capital. A healthy and well capitalized organization will have both investments (endowment) as well as access to cash – to pay the bills, innovate/experiment, weather economic cycles and invest/innovate in new programs.
The articles encourage organizations to think about capital by asking – will the funding align with your organizations’ strategy and financial plan? A business plan that supports operational stability and a capital plan that sets out goals for longer term saving and investment are two key criteria. Liquidity is of course important, but don’t overlook the opportunity to build your endowment - particularly in an environment where an active government matching program, such as Cdn. Heritage is in place.
Income with no strings attached
Every organization can, and should save, and try to manage costs in line with revenue realities. Any surplus provides you with breathing room to manage programs and take risks. One of the comments of the article, which resonated, was the reference to funders making gifts ‘with no strings attached at all’. This is one of the benefits of endowment income – it arrives each year and the organization makes the choices on how it will best be deployed.
Capital and capitalization of your organization are long term issues – your needs will evolve and change over time. Access to capital ( or the income on it ), be it from an operating reserve, or donor gifts – which are matched is critical to your long term success.
Arts Advocacy - 2015
February 23, 2015
For some time, the Ontario Arts Foundation has been quietly advocating on behalf of arts organizations for a renewal of the Province of Ontario Arts Endowment Fund matching program. This innovative program, which ran from 1998 to 2008 saw the Government of Ontario invest $60 million in matching funds for endowment. It was a compelling success story of a public/private partnership. In summary, 273 arts organizations in 75 communities across Ontario created endowments with the Foundation. As private funds were raised by an arts organization, and contributed to an endowment, the Foundation matched those contributions dollar for dollar. Since inception, the $60 million investment has grown ( through private funds raised and market appreciation ) to over $140 million. Since 1998, a cumulative $55 million in income has been disbursed, which represents an over 90% return on the provincial investment. Very few initiatives can demonstrate a similar, sustained long term return.
With funding for the arts being either static or reduced, we believe matching programs are a powerful stimulus to focus private donors on long term endowment giving. The income from these endowment programs is unrestricted – the arts organization can deploy the annual income in any way that best meets the needs of the organization – annual operations, arts scholarship, arts education in the community.
The objectives of the Arts Endowment Fund program are to:
- Increase self-generated revenue and be a stable source of long term income
- Foster artistic excellence and engagement in the arts by people living in Ontario
- Enhance an arts organizations’ ability to create employment and contribute to Ontario’s economy
Ontario Ministry of Finance - Budget Submission
In addition to regularly meeting with staff at the Ministry of Tourism, Culture and Sport to sustain awareness about the program’s success and promote it, we also recently made a Budget Submission to Ontario’s Ministry of Finance promoting inclusion of renewal in the 2015 budget. We recognize that the government is very focused on addressing Ontario’s fiscal situation, but firmly believe one of our role’s is to promote this source of funding for the arts at all levels of government.
You can read the submission here.
What are the Policy Issues Facing Artists and Cultural Organizations in 2015
February 04, 2015
A Toronto based arts service organization The Arts Advocate provides commentary and up to date information about government policy, events and trends in the cultural sector of Ontario. At the end of December, they invited subscribers to their service to complete a short survey on the most important policy issues facing the cultural sector in 2015. We completed the survey in early January, and at that time responses showed:
|Improved public investment through grants or tax credits
|Paying artists adequate fees
|Amending the Copyright Act to better protect creators and publishers
|Updated cultural content regulations
|Greater international presence and promotion for Cdn artists and products
|Policies and programs to strengthen audience engagement
For more information on the survey results, visit the Arts Advocate Blog.
Arts Endowment Fund Renewal
As the Ontario Arts Foundation actively is seeking renewal of the Arts Endowment Fund matching program, with the Ministry of Tourism, Culture and Sport, we are heartened by the high degree of support for public investment in the arts. The responses are interesting and it will be interesting as the year progresses, to see which issues continue to have profile and one hopes, a policy/government response.
The Value of a Charitable Remainder Trust
January 09, 2015
Photo: Gary Beechey
In 1994, 61 people contributed $44,000 to a charitable remainder trust, administered by the Ontario Arts Foundation to create an income for Mary Jolliffe (1923-2014) one of Canada’s best known publicists.
Mary was a character, who like many artists, devoted her life to supporting the arts in North America. Her first role as a publicist was with the Stratford Festival at its beginning in 1953. From there, there were few significant public relations roles that Mary did not hold – O’Keefe Centre in Toronto, the Guthrie Theatre in Minneapolis, the Metropolitan Opera touring company in New York, Expo 67 in Montreal, the National Ballet of Canada, National Arts Centre, the Canada Council and the Ontario Arts Council. Her passion and commitment to promoting artists and arts organizations
was lifelong and she left her mark at every organization. Mary was recognized for her efforts by being named to the Order of Canada in 1985.
Like many artists, Mary moved from role to role and devoted most of her resources during her working life to her lifestyle and the organizations she supported. When retirement became a reality, she found herself with limited sources of income. As a way to recognize her many accomplishments, the individuals contributing to the trust wanted to provide an income supplement to help cover Mary’s costs of living. The OAF successfully managed the Mary Jolliffe Fund for 20 years. Quarterly annual income payments were made Mary totaling over $80,000. At her death, the fund was valued $46,000.
Charitable Remainder Trusts
Charitable remainder trusts (“CRT’s) are a tax planned way to create a fund to provide an annual income for life to a named beneficiary. On the death of the beneficiary, the remaining capital is transferred to a registered charity. There are several advantages, to this form of trust, which is not often used by Canadians as part of long-term tax and estate planning.
- A charitable remainder trust may be funded with cash, securities or real estate. The contributions are held by a trustee ( such as the OAF )
- The named beneficiary is entitled to receive the income for life ( in effect a form of annuity ).
- Gifts to the trust are irrevocable and the beneficiary has no right to any of the capital contributed
- On the death of the life beneficiary, the remaining capital is transferred to a charitable organization named in the trust agreement.
- As the gifts to the trust are irrevocable, the donor(s) receive a charitable donation tax receipt. The amount of the receipt is based on the present value of the remainder interest, which is determined by the value of the assets contributed, prevailing interest rates and the life expectancy of the income beneficiary.
Some individuals create a trust as a means of ensuring a future gift to a charity important to them, while continuing to receive income from the property which is removed from their estate. The value is not subject to probate fees at the time of the death of the income beneficiary. The trust is responsibly managed by the Trustee, who will provide the annual income.
Mary Jolliffe Award for Arts Administrators
The capital remaining in the Mary Jolliffe Fund will now be used to fund an award, recognizing the contribution of senior arts administrators in Canada to the arts. In this way, the legacy of the lifelong commitment of Mary Jolliffe to the arts will be continued by honouring people like her, who are similarly accomplished. For arts philanthropists, a CRT offers another way to support the work and life accomplishments of an artist in a way that helps the individual, is tax effective to the donor and provides a future gift to a charitable organization.
Adapting to the Digital Age - Museums
December 03, 2014
||There is a constant flow of information and articles about arts, culture in response to the digital environment we increasingly live in. The New York Times recently published a special section on the Visual Arts, which included an article titled Museums Morph Digitally. The article speaks to decisions now widely being made by museums to allow visitors to use their digital devices, and indeed to encourage their use. It is part of a transformation of how museums present permanent collections and exhibits, a recognition that people live both in a physical, and a digital world – they embrace a physical experience of seeing a work of art, and share/retain that experience digitally.
As well, we see museums and art galleries making efforts to make their collections more accessible through a process of digitizing all works. Remember that only a very small portion of a museum collection is ever on display at any given time. One of our client funds provides grants to support efforts to make collections more accessible to the local community and to visitors.
Digital technology, the article says, is being used to provide supplemental information about an artwork, and can be delivered directly to a smartphone. Technology is also used for conservation and research. For example, 3D scanning allows online viewers of a physical work to be seen from angles not possible in an image, and sometimes at the institution itself- think of a very large object ( a dinosaur at the ROM, or very large sculpture at an art gallery ). The purpose of technology is to give the viewer more access points into an artwork, as if someone is personally guiding the viewer through the painting or sculpture.
The Opening Up of a Range of Viewing Choices
The old view that putting images online would harm museum attendance has shifted to the opposite – “…when people can see artworks online, it is a taste and they want to see more, often in person..” It is not a shift to a ‘technology’ rules environment… rather creating a range of viewing choices for the visitor…letting the content determine what we do and how we use technology or devices in ‘low tech’ or ‘high tech’ way.
The New York Times article is a good read, and indicative of forward thinking.
Canadian Women in Philanthropy
November 05, 2014
A recent study Time, Treasure and Talent: Canadian Women in Philanthropy by the TD Bank on understanding the financial needs, goals and aspirations of Canadian women also included a focus on philanthropy and charitable giving by Canadian women.
In 2012, the Canada Revenue Agency reported that charitable donations by Canadians reached $8.3 billion. The banks’ report suggests one of the most influential forces in creating change in the charitable sector is the participation of women – as volunteers, leaders, board members and most importantly as donors.
Canadian women give a larger share of their assets to charity than men. TD’s study examines the roles, attitudes and expectations of women involved in charitable work, across all causes.
- 4% of female tax filers have the resources to make a major charitable gift ( 300,000 to 350,000 women )
- A majority of Cdn households holding investable assets greater than $500,000 include at least one woman
- Charitable giving by women has risen from $1.1 billion in 2002 to $3 billion in 2012
- The study suggests women are more likely to volunteer and donate to a charity than men
Women and Wealth
Women emphasize the importance of creating a long term relationship with a charitable organization, and the study suggests the outlook for generosity of women donors is positive. The study contains detailed data on the profile of ‘women and wealth’ and is a quick, informative read. For many women, a prime motivator to charitable giving is the realization that they and their family have a level of financial security that enables them to want to support a particular cause or charity. Interestingly, the tax considerations of charitable giving are not top of mind when gifting decisions are being made by women.
The study suggests that charitable organizations have the opportunity to raise their profile with women in their communities, and to understand how best to structure information sharing, communications in a way that responds to the motivators for women that are described in the study.
Dialogue on Capitalization
October 08, 2014
South of the border, a US based organization Grantmakers in the Arts undertook over the last four years research on the important topic of the role of capital in an arts organization. This can summarily be described as “having the capital to execute strategy” or perhaps a little more elegantly, “Capitalization is the accumulation and application of resources in support of the achievement of an organization’s mission and goals over time. A well-capitalized organization has the ability to access the cash necessary to cover its short and long term obligations, to weather downturns in its external operating environment, and to take advantage of opportunities to innovate”.
As we all remember, the recession and market decline in 2008 resulted in significant challenges and financial stresses for arts organizations. The original research work undertook to build knowledge about funding practices and how to achieve financial sustainability. The research and reports in great detail are available on the Grantmakers website.
In 2014, the organization surveyed arts organizations to see how the fruits of the research are being put to work by arts and cultural organizations. If nothing else, the research stimulated many organizations to have a conversation about their overall financial strategy – how to strategically secure and use resources to do their work over time. Key elements of capitalization are beginning to find their way into board/staff discussions, such as:
• The different kinds of capital required by an organization
• Distinguishing between regular revenue sources ( fund current operations/programs ) and capital ( funds that provide for liquidity, adaptability and durability of the organization )
• Importance of building liquidity for any organization and to create it by saving
• Understanding how the behavior of funders can impact the organization’s finances
Good Business Practice
A key outcome of the original research, which is increasingly accepted by funders, was that good capitalization of an organization begins with the generation of operating surpluses to be used as capital the organization may access to successfully achieve their mission/vision. Past views that an organization generating an operating surplus does not require funding is in decline – the understanding has grown with funders and Boards that achieving surpluses and cash reserves are a critical part of good business practices. Capital should be viewed as a strategic asset that enables an arts and culture organization to take a risk, adapt its mission/vision and change to be financially viable over the long term.
Good Capital Management
Change is occurring to improve the capitalization of arts organizations. The report does say that some Boards are still reluctant to provide change capital or other forms of unrestricted funding, continuing an older view that an arts and culture organization should operate with very low overhead and run at a deficit. Shifting to good capital management practices ( e.g. establishing reserves ) involves all dimensions of an organization – education of board members as well as arts management staff is a continuing need. The work to better understand the role of capitalization will continue. The work of Grantmakers in the Arts is important as it frames the issues, opportunities and possible solutions in a way that is easily understood.
The Value of Unrestricted Funds
July 01, 2014
Imagine this, a man walks into a bakery and says to the baker, “I need a gluten free cake, but I can only pay you 20% of the cost, and you can only spend my money on eggs, but not butter and not on electricity for the oven; you have to find someone else to pay for the oven’s electricity!” Nonprofit funding: Ordering a Cake and Restricting it Too asks the question what it would be like if a bakery operated with the same funding restrictions as not for profit organizations.
Multiple Revenue Sources
Arts organizations, like most not for profits, require multiple revenue sources: government operating and project grants, public and private foundation grants, corporate donations and sponsorships, individual donations, gifts, legacies as well as box office revenues. Applying for a grant can be a time-consuming and a rigorous process. Grants are typically annual, and deadlines and grant applications will vary depending on the funder. Fundraising donations, which in addition to grants are the lifeline of an organization’s financial wellbeing, may come with stipulations where the donor attaches terms to their gift.
Capital and endowment fund income is a welcome addition to an organization’s revenue sources. Endowment income is unrestricted - the management and board of the organization make the decision where best to apply this resource. Endowment income is stable, reliable and not subject to an application process, filing deadlines or donor restrictions.
Ontario Arts Foundation Endowed Funds
The Ontario Arts Foundation manages endowment funds established under both the provincial Arts Endowment Fund and the federal Canada Cultural Investment Fund – Endowment Incentives Component. Arts organizations benefit from matching grants where privately raised funds can be doubled or even tripled, greatly increasing the value of the fund. Organizations can breathe easy knowing they will receive an annual payout of unrestricted income, that they need not apply for or is restricted by donor’s wishes.
One of the OAF’s fund holders recently told us, “Our struggle is to find sufficient, sustainable operating revenue, while keeping our fees affordable to the communities we serve. The endowment fund income is critical and helps us make up the shortfall in our operating costs, particularly at a time of year when cash flow is stretched.”
General operating funds, admin expenses, and why we nonprofits are our own worst enemies speaks to the value of unrestricted funding. The blog post offers the following suggestions to not for profit organizations on the value of unrestricted donations/funding:
- At a fundraising event, don’t say that 100% of your donation goes to programming, rather say that your donation will be used to support the organization and its work
- Publicly recognize funders who support general operating funds – “Without unrestricted funds, our organization cannot run all of our programs – thanks to this funder, we are able to deliver our mission”
- Rather than use words like ‘overhead’ or ‘administrative’, which seem unattractive to some funders, use words like ‘core support’ or ‘critical infrastructure’
- Create a line item for reserve funds in your organizations’ operating budget. The presence of some form of reserve protects your organization during times when revenue sources may not be stable
Organizations recognize the importance of revenue from multiple sources, and know that donors may have a particular area of interest. However, don’t overlook the value of a stream of unrestricted revenue, which can be critical to an organization’s ability to adapt and deploy resources wisely for long-term sustainability.
Ontario Arts Foundation - 2013 Was a Good Year for Investing
May 28, 2014
The Foundation holds two types of capital funds: endowment funds where capital is held permanently and only income is available to be disbursed, and restricted funds where capital can be disbursed, depending on the agreement with the donor. Our investment objectives are long term, with the goal of achieving investment returns which allow for annual income payments to arts organizations together with preserving capital and maintaining the purchasing power of income over the rate of inflation. We strive to achieve at least a 5% real rate of return over a five year period. This allows the Foundation board to make sustained income payments each year in the range of 3 to 5 %.
Fiscal Year Ending March 31, 2014
At the end of March 31, 2014, Foundation assets under management were $67 million (subject to year-end audit review), up from $61.2 million in 2013. The asset growth is a combination of new contributions and matching funds received during the year of $850,000 and strong investment returns. This allowed us to make award and payouts and distribute just under $3 million in income to the 273 arts organizations across Ontario for whom we hold endowments for.
Over the years, the Foundation’s investment strategy has allowed for continued growth in income paid out year over year. This unrestricted income is an important resource for arts organizations in Ontario.
Strong Investment Returns
Investment returns for the year ending December 31, 2013 were very positive and the Foundation portfolio achieved 14.9% for one year. Five year returns were 10.2%,which supports our long term goal of achieving long term absolute capital appreciation, with a focus on capital preservation. Investments are made in high quality companies with trusted management teams who have a long term focus. To achieve our investment objectives, the Foundation believes it is prudent to have the assets managed by professional investment managers on a discretionary basis. Active management, where the portfolio managers make decisions regarding asset classes, industry sectors and individual security selection allows the Foundation to structure a risk managed portfolio that is expected to achieve long term positive returns.
In 2013, the Foundation employed three investment managers. During the first quarter, we consolidated investments allocated to the ‘alternatives’ sector from two managers to one, where performance results were stronger and aligned with our long term investment objectives.
What the Future May Hold
Despite considerable political uncertainty, and volatility in security markets worldwide, investments returns to March 31, 2014 continued to be positive. Investment performance for the quarter ending March 31, 2014 was 4.0%. Although it is difficult to predict, all signs are pointing to a market correction in 2014. Our focus will be strongly directed to managing the downside risk in the face of market instability and avoid losing capital over the longer term.
Professional Development in the Arts
May 02, 2014
I read a timely blog posting that should be on the agenda of the Board of any arts organization. The thrust is that a greater focus is needed on developing the professional skillsof arts managers/leaders. It is well accepted in the corporate world that an organization’s success is tied with a continuous focus on growing the abilities and skills of today and tomorrow’s leaders. This is equally applicable to arts and culture.
Professional Development Training
Critical to the success of any business are the skills of management. Professional development training should be part of running any business entity. Arts organizations are small, and in some situations, large businesses. One of the roles a board can play is to help identify for the organization’s managers, what professional development may be most appropriate for the arts organization, what is affordable and where to source the training. This illustrates the value of a board member with human resources skills or professional development experience.
We recognize that training has a cost attached to it, and resources are always limited. It is, an investment that can lead to a more efficiently run organization, an organization that retains/develops staff ( impacting productivity ), and one adapts to changing business/economic realities. There is a whole range of skills required to run a healthy organization. If there are opportunities to improve personal and professional skills, the more the arts organization will be positioned to meet the most complex problems. Learning is an ongoing process, both at the creative and management level. Professional development should not be a ‘nice to have’.
The blog recommends that two things need to happen – the arts sector culture should recognize that continuing skills training is critical to survival and should be accessible throughout the organization. This should translate into a line item in the arts organizations’ budget – for board, staff and perhaps even volunteers. The budget line has to align with organization resources, but this is an investment I believe, most funders will understand, and support.
Like any business, the arts sector is experiencing the start of a transition from the current generation of arts managers to the next. Providing professional skills training is critical – be it business management, leadership skills to managing in a new economy and a changing technology environment. Sharing institutional knowledge and life experience is part of that mix.
I found the blog post compelling and a quick read – I encourage you to read it, share it with your Board and incorporate professional development as part of your organizations’ financial plan.
(Barry's Blog is a service of the Western States Arts Federation, WESTAF).
The Economic Value of Arts Education
March 20, 2014
In a recent submission to the Province of Ontario recommending re-instatement of the Arts Endowment Fund matching program, we make the argument that an investment in the arts is an investment in economic growth and job creation. Economic studies increasingly report on the positive economic activity resulting from arts and culture activity. As examples:
- 252,000 people in Ontario are directly employed in arts and culture
- In 2010, 73% of Ontario residents attended a performing arts event, spending an estimated $600 million
- Government tax revenue ( from all levels ) from arts and culture spending was approx. $1.7 billion
Economic Benefits of Arts Education
What isn’t as commonly reported are economic benefits arising from arts education activity. A recent article in the Chronicle of Higher Education comments on the ‘economic value’ of an arts education. The study (by the National Endowment for the Arts) is interesting as it seeks to follow the relationship of arts and culture industries to GDP ( a countries’ gross domestic product ). It would be interesting to unearth Canadian data, but the summary results suggest arts education is a path that leads to greater creativity and innovation in the work force.
- In the US, arts education added $76. Billion to the country’s GD
- Arts education as an ‘industry’ employed almost 18,000 people
- For every dollar spent by a consumer on arts education, an additional 56 cents is generated elsewhere in the US economy.
Education in dance, theatre, music and the visual arts stimulates curiosity, creativity, imagination and capacity for evaluation – skills highly prized in in the work force. An older report by the RAND Corporation ( Gifts of the Muse – 2004 ) comments on two benefits from arts participation. They were phrased as ‘intrinsic benefits’ which connect with ‘a distinctive type of pleasure and emotional stimulation’ for the participant, and ‘instrumental’ benefits, more output/quantitative oriented. The article uses the analogy of an arts festival, which creates local economic activity (instrumental) and social interactions within a community (intrinsic). Instrumental benefits have been more difficult to quantify and therefore have been reported on less, but now with this study, direct economic benefits can be articulated and measured.
It would be beneficial, if it could be universally accepted that arts education is integral to education at all levels. Being able to point to economic benefits may help promote arts education, at a time when it can be the first budget to be cut/cut back in challenging financial times. In the arts organizations we serve, many organizations direct endowment income towards arts education/arts outreach programs in their local communities. As well as instilling the ‘instrinsic benefits’ to children, youth and adults, these program employ artists. In smaller communities, arts education programs ( culture activity in general ) are important draws to professionals considering locating in a non-metropolitan community. As arts director recently stated to us – ‘The interest from the Arts Endowment Fund supports our arts education programs for students attending schools in Toronto’s priority and inner city neighbourhoods. Many of these children are new to Canada and many have, otherwise limited access to arts education experience with a talented professional artist.”
We believe strongly in arts education – it is good economics, our artists deserve it, and the kids deserve it.
For more information on the article, and the original RAND study ( it is long, consider reading the Summary section ):
2014 Federal Budget – Changes to Charitable Donations
March 03, 2014
The federal budget proposes to increase flexibility to Executors in the tax treatment of charitable donations made by an individual at their death through a bequest in their Will.
During your lifetime, Canada’s tax rules allow an individual, who makes a charitable donation to claim an income tax credit calculated on the fair market value of the donated property. You are limited each year to claiming donations up to a maximum of 75% of your net income. Donations not claimed in a year can also be carried forward for any of the next five years.
In the year of death, a charitable bequest, or designation of the proceeds of an RRSP, RRIF, TFSA or life insurance policy to a charity, is treated as having been made by the individual immediately before death. The value of such gifts, up to 100% of net income can be deducted in the deceased person’s final tax return. Any balance over 100% of net income in the year of death can also be carried back to the prior year. Such gifts are very beneficial in reducing income tax payable by the Estate.
The 2014 budget proposes to introduce additional flexibility to the Estate Trustee. Instead of the donation being deemed to be made immediately before death, charitable donations/designations will deemed to have been made by the Estate at the time the gift is paid to the charity. This is usually in the first year after the date of death in most situations. The charitable deduction can be claimed in either the tax year the bequest is paid, the year of death as part of the final T-1 return, or be carried back to the last two taxation years. To be eligible, the charitable gift must be paid to the charity within 36 months of the death of the individual.
It sounds complicated, but the bottom line is that gifts to a charity from an estate, by way of a bequest or designation can now be reported in several ways, allowing the Estate Trustee the opportunity to fully apply the value of the gift against income tax payable in the year of death, or reduce tax payable in the two years prior to death. There is now a greater opportunity to ensure that a charitable donation can be used to reduce taxable income of the taxpayer in a manner most advantageous to the estate.
The changes are expected to be applicable to deaths/estates which occur after 2015. It affords a new and welcome degree of flexibility in managing the taxation that arises in an individual’s estate.
What Defines Character in a Leader
February 24, 2014
I recently attended a leadership program at the Ivey School of Business. It involves a lot of reading and I found one article interesting and I think useful for board members and arts managers who are hiring for a new position. As well as skills and experience that we look for in a candidate, this paper referenced three particular criteria – competencies, commitment and character. One of the more difficult elements to assess is leadership character.
Competencies and Commitment
When hiring, competencies matter – they define what the candidate is able to do, the skills he/she will bring to the role. These include intellect, organizational, business, people interaction and strategic thinking. As well commitment is critical, as it indicates the degree to which an individual will be willing to want to, and do the challenging work of leading an organization – will they be engaged in their role, show you that they are prepared to invest what will be necessary to be successful.
The article became most interesting in the commentary about character. As the authors state – “..character counts.” Character will determine how a leader perceives the environment in which they work, it determines how they will apply the skills and competencies they have and shapes the decisions to be made. Character influences what information a leader will look for, consider and how they interpret it and then implement.
The article defines character in three dimensions:
- Traits, such as open-mindedness or extroversion. They will predispose a person to behave in a certain way.
- Values, such as loyalty and honesty, which are deeply held beliefs about what is right/wrong – what it makes sense to do in an organizational context
- Virtues , such as courage or accountability – behaviors that are demonstrative of a ‘good leader’
Character is described as comprising 11 dimensions – integrity, humility, courage, humanity, drive, accountability, temperance, justice, collaboration, transcendence and judgment. The article describes each in depth and illustrates how it connects with the qualities you are looking for in a leader. As an example, integrity is described a wholeness and soundness of leadership character. It will be apparent in principles such as honesty, candor, transparency and authenticity.
In most hiring processes, in both business and not for profit worlds, much time has been spent by human resources groups on developing competency profiles and ways to assess/measure those competencies. Much less effort has been placed on character. Character reflects the capability of a person that may not be immediately evident. It may seem to be subjective, but the article tries to describe appropriate behaviors and measures that can identify the dimensions of character within an overall assessment of an individual.
Character is revealed by how people behave in situations. To uncover more of a person’s character during the hiring process, it is important to conduct an extensive examination of the person’s life and work history – in good times and bad. You learn more by asking how the candidate responded to a fact situation in their past, than by asking how they would respond to a future, hypothetical situation. Integrating character and character development into the hiring/selection process may help identify the best candidate from a group of several well qualified, experienced individuals you are considering.
To read the full article, follow this link:
The Arc of Personal Philanthropy
January 13, 2014
A Leadership Forum organized by the University of Southern California, titled Philanthropy,: Imagination, Innovation and Impact contains a series of short, very readable commentaries on personal philanthropy. One couple, who have pledged to give away one-half of their personal wealth to philanthropy summarized five principles that have guided their thought process about giving back. They are simple, but well worth repeating here:
Principles of Giving Back
1/ Passion – If you don’t have a passion for giving, or a particular cause, consider spending your time elsewhere. Without a personal passion, you won’t be effective.
2/ Strong leadership – Leadership at all levels of a grant making/gift giving organization is important for making meaningful change. Leadership can take a variety of forms and come from unlikely places – it influences how you make decisions, how your energize staff and sustain a resilient organization.
3/ Involvement – personal involvement leads to better decision making. You will have a deeper impact, than simply writing a check to an organization.
4/ Measurement – Pay attention to the impact of your gifts and support, so that you can see the difference you are making and how you might do it better
5/ Lastly, be flexible and open to adjustment. Effective philanthropists need to be willing and able to adapt and respond to the constantly evolving challenges that face the organizations you support
Philanthropy in a Networked World
December 17, 2013
The Monitor Group, a consulting forum ( part of Deloitte’s ) spotlights promising new ideas and practices, including pioneering new models of philanthropy. They are associated with a Canadian task force focusing on philanthropy – Northern Lights. As more information and results from this task force become public, we’ll share in future the findings and highlights.
What's Next For Philanthropy?
A 2010 report articulates "next practices", how foundations and philanthropists can develop approaches better suited to achieve positive social impact in today’s interconnected and interdependent world.
In the past 10 years, much focus in philanthropy (including arts organizations) was on how to improve organizational effectiveness and efficiency -- to better deliver programming in an environment of constrained resources. Over the next 10 years, the Monitor Group believes a further focus will be on coordination and adaptation. This means that funders will need to look to others and partners and co-ordinate efforts to address the challenges we collectively face. Because of the rapid pace of change, organizations need to be adaptable – incorporating data in a continuous loop to see what is working well and regularly adjusting strategy to add value. The collective theme is – Act Bigger and Adapt Better.
Innovation and Cross-Sector Collaboration
Going forward, the most successful funders will want to embrace a network mindset and see their work as part of a large, diverse community of partners - a more powerful effort. Funders don’t need to work with others, but if they want to achieve significant impact in their communities, they will have to. We will need to enhance our capability to lever, shift and adapt strategy in real time.
In Canada, public innovation to meet social challenges requires not for profit leaders as well as business heads and philanthropists to work outside their comfort zones. Examples of innovative organizations working collaboratively to bring forward new initiatives include:
Social Capital Partners: led by philanthropist Bill Young, this organization is applying market solutions to help the disadvantage find employment;
JUMP: initiated by John Mighton, this initiative helps children build confidence and self-esteem, through a focus on developing mathematical skills -- resulting in higher academic success;
Evergreen Brickworks: Green cities for a healthier planet, develops a model that balances social goals with financial necessity – blending commercial activity with grants and private donations; and
MaRs Centre for Impact Investing: builds online investment platforms that mobilize private capital for public good.
Place des Arts, Sudbury
In an arts context, 8 francophone arts groups in Sudbury came together to foster collaboration between arts groups with the objective of creating a shared culture facility. The facility ‘Place des Arts’ is to be built centrally, as part of a broader initiative to re-vitalize downtown Sudbury. The project is independent, but is closely related to two other major infrastructure investments in the city – a new School of Architecture and new home/expanded space for the Art Gallery of Sudbury. Collective community input and shared knowledge of each projects’ goals is helping to achieve a larger success.
For more information on "next practices":
What's Next for Philanthropy, by the Monitor Institute
Commentary with a Canadian context can be found in this article by Deloitte:
Canada Needs a Social Revolution
Achieving Steady (And Growing) Investment Returns
November 04, 2013
A recent article in a US philanthropy publication reported that endowment funds held by charities and foundations were reporting average 5% returns (2011) and that investment performance has still not fully recovered from the steep market declines in 2007-2008. The article indicated, in this environment of low returns, some organizations were moving to ‘protect’ the endowment value by lowering endowment payouts, appealing to donors to contribute, or seeking higher returns by investing in alternative asset classes.
OAF Investment Policy
The Investment Policy of the Ontario Arts Foundation states that the principal objective is to secure steady, positive long terms returns that help ensure consistent income payouts to arts organizations. An equally important objective is to grow the value of the endowment portfolio so that the income it generates can keep pace with or be greater than the rate of inflation.
Each year, the board of the Foundation reviews investment performance and determines how much can be paid out from the endowments we administer. This helps arts organizations to plan how they will use this important source of ‘unrestricted income’. This annual review takes a balanced approach:
- pay out income such that organizations receive steady, and increasing income; and
- retain and reinvest part of the returns for future years.
Retaining some of the investment return is a safe guard to ensure that in a year where investment markets may experience a downturn, we are holding sufficient funds that enable the foundation to pay a similar level of income even if markets underperform.
Strong Investment Returns
We are pleased to report that changes the Board made in our asset mix and investment strategy in 2012 are resulting in positive investment results which exceed the levels reported in the US. To the end of September 2013, the Foundation portfolio achieved a positive 9.1% year to date return, and for the one year period, performance was a strong 12%.
2012 Investment Strategy
In 2012, we made changes in our investment managers, which included allocating part of the portfolio to alternative investments. Without materially increasing the level of ‘risk’ in the portfolio, the more active investment strategies of the managers are adding value to positive results from more traditional asset classes of equities/fixed income. Earlier this year, the Board also felt that investment returns from fixed income/bonds are lower than the risks associated with fixed income ( we continue to be in a period of low interest rates ) and fixed income weights were reduced, reinvesting into equities.
The Board of the Foundation meets regularly with our investment managers to receive information about their view of global investment markets, current strategy and performance. We are pleased with these results, which will support our ability for continued stable distributions of income.
As the income we pay out is ‘unrestricted’, arts organizations can allocate the income where they feel it is most needed within their organization. It is recurring income and not subject to lengthy, sometimes complex granting program requirements.
Strategic Investing in the Arts
October 07, 2013
I recently read a comprehensive outline for a strategic framework for investing in the arts. Based in California, the paper by the William and Flora Hewlett Foundation is a superb description of the role of a foundation as funder, a descriptor of why we should invest in the arts, and an outline of what is offered/expected of the relationship between arts organization and funder. The foundation offers a compelling reason for investing in the arts.
“The performing arts offer a unique human experience that bridges cultural and generational lines. Philanthropy plays an important role in supporting the performing arts….and its approach to providing multi-year operating support”
At a time when many arts organizations invest considerable time in researching and completing funding applications, trying to make their mission ‘conform’ with a granters program for funding, it is refreshing to see a foundation that provides multi-year funding in a way that allows the organization the freedom to determine where best to apply the funds received. "The Foundation has persisted in providing a significant portion of its support in unrestricted form, while other funders have increasingly favored project support."
This is similar to how endowment income is made available by the Ontario Arts Foundation. It frees the organization to invest more of their time with programs, supporters and the community.
The paper is not long and really well written. I encourage you to take a look.
Community, Arts and Engagement
September 16, 2013
Looking at the mission statements of arts organizations, you see references to community engagement. The term can have many different interpretations across organizations and disciplines. I found a helpful definition in a recent (September 13, 2013) blog post by ArtsBlog. It referred to definitions that I found simple and clear:
Community : refers to individuals and organizations who are related through arts education delivered in a local community
Engagement : describes an active, two way process where the arts organization motivates others to become involved/take part in arts activity. Through the activity, both parties experience change.
Mutual activity and involvement is a key determinant to successful community engagement. Arts organizations who are involved with their local community embody these terms in several ways;
Reaching out to the local community to identify arts needs its education programs can meet/fulfill. This differs from developing an idea and then offering it to the community
Introducing young people to art forms through education programs, both within the organization (invite participants in) or taking a program out to the community - a school, community centre or public event
Responding to an increasing desire for continuous learning by older audiences – through exhibitions, lectures, education series, take a performance to the audience
Attracting visitors – who are drawn to the arts program as part of their visit ( it may become a reason why they visit )
Employing local artists to deliver arts education programs
Successful programs begin with a dialogue with the community to identify a need / opportunity, and an initiative or program follows. This is described as being more successful than the arts organization developing a program they wish to ‘introduce’ to the community. Mutual ownership of the idea and then program are suggested to be more successful in sustained impact over time. I’ve observed that when financial circumstances are challenging, external arts education or outreach programs may be reduced or cut back. If engagement is part of the arts organization’s mission, this may be short sighted. A successful organization focuses on taking programs out to the community as well as drawing participants to the organization and its arts goals.
Arts education is a means to engage at all ages.
Tax Changes to Be Aware Of
August 26, 2013
We often think of Canada’s tax laws as dry and unchanging. Charity law and tax regulation actually changes quite a lot and shouldn’t be thought of as dormant. I recently attended a seminar and here are some tax related highlights arts organizations should be aware of :
First Time Donor Tax Credit – this is worthy of note for new and young arts supporters who don’t have a history of making annual donations. To encourage new donors to donate, CRA will allow a 25% tax credit for “first time donations” of up to $1,000 (cash only for some reason). A gift of $500 attracts an additional tax credit of $125. This is only eligible to be claimed once between 2013 and 2017. Target your under 30 supporters, who may not yet have a history of making a donation beyond attending arts programs of your organization. A terrific opportunity to use social media to get their attention.
CRA continues to take a hard, aggressive line on taxpayers using Registered Tax Shelters. If tax is owing from the assessment of a tax shelter, new regulations permit CRA to proceed with collection actions on 50% of the disputed tax, any interest charges or penalties arising from the disallowance of a donation claimed through the shelter. What hurts is that this is payable even before the ultimate liability of a donor has been determined through the objection or appeal process.
A small point – if your organization has paid parking for staff, charities and non-profit organizations are not exempt from collecting and remitting HST/GST on the paid parking benefit.
Political activityby charities is receiving significant scrutiny these days – a couple of points to be aware of:
* There are three categories of political activity:
Permitted without limit – activity by a charity undertaken to achieve a charitable purpose submission to public officials on law or government policy
Permitted with limits– Communications involving activity aimed at retaining, opposing, changing law, policy or a decision of government. The activity must be non-partisan, connected to the organizations’ charitable purpose and fall within the general 10% resource spending limit
- Prohibited activity- Illegal or partisan political activity involving the direct or indirect support of, or opposition to any political party or candidate for office. What you do must be specific to ALL parties/candidates
* The 2012 budget expands the definition of political activity to include gifts to qualified donees if it can reasonably be construed that the gift is to support political activity of the donee. In other words, If I make a gift to a provincial arts council and that organization uses it for political purposes, that can be deemed a forbidden activity. If a charity does not want to have to track political activity in their T3010 information return, it should designate in writing that any gift to another charity is not to be used for political activity
* If a charity exceeds the limits of the tax act for political expenditures ( generally 10% of its annual resources ), CRA may impose a one year suspension of tax receipting privileges, or indeed revoke charitable status
*Equally, if political activity is not reported in the organizations’ T3010 return as required, again CRA can suspend charitable receipting privileges until the required information is obtained. This emphasizes the importance of having the Board of Directors review and approve the annual T3010 return. This is an important document – as CRA publishes highlights for ALL registered charities in Canada, this is the first place any individual or media will go if they are looking for information about your organization. Bottom line – know the rules before becoming involved in political activity
Anti-spam legislation – new regulations have been created for spam and ‘unsolicited electronic messages’. Charitable organizations that send ‘commercial electronic messages’ ( most of us do…) need to ensure they comply with the legislation. Emails which simply include advertisement or sponsored links can be caught by the rules. Essentially, the activity is prohibited unless you have express or implied consent from the recipient. Charities will need to identify individual donors on their donor lists and note a two year time limit (ie. Renewal of consent)
CRA has updated Fundraising Guidance in April 2012, which applies to all registered charities. The 3.5% disbursement quota continues and failure to correctly record fundraising revenue/expense can again result in suspension of receipting privileges. This is another reason for your Board to review and approve the T3010 form before it is filed with CRA. CRA pays attention to the ‘fundraising ratio’, which is the ratio of fundraising costs ( note – this is not total operating expenses) to fundraising revenue, calculated annually.
* If the ratio is under 35%- generally unlikely to generate questions or concerns by CRA
*35% and above – CRA may examine the organizations’ returns over a number of years to identify if a trend exists of high fundraising costs
*Above 70% - you can be sure CRA will ask for an explanation and rationale for this level of expenditure
Complex – yes and it is always advisable if you are not sure, to ask for advice from your legal/ audit advisors. The CRA website is quite helpful in providing information, although it can be a challenge if you don’t know exactly what you are looking for www.cra-arc.gc.ca
Charitable Donations are still Lagging Pre-recession Levels
August 05, 2013
A recent study on charitable giving from foundations, individuals and corporations indicates that overall amounts are still below levels raised in 2007, the start of the recession and market downturn. While the securities markets have recovered, the ‘psychology of giving’ has not. An article from the Chronicle of Philanthropy confirms that donors at all income levels remain cautious about their personal finances. If you are working, the automatic assumption of annual salary increases and bonuses no longer holds true, and the prospect of layoffs remains a reality. Donations (in the US – we expect Canada to be similar ) are still 8% lower than levels experienced in 2007. This means that all organizations continue to face challenges in delivering programming or building capacity.
Two other themes exist that create challenges for not for profit organizations :
Government Funding – the ‘new normal’ as governments work to attack deficits, is funding programs are either static or may see a decline. If a government funding program is not cut, program administrators face a new challenge. The same amount of funding dollars must be allocated across existing and new/emerging organizations. Not for profits should no longer count on fixed year over year operating grants.
Broader Scope - Donations from individuals or corporations are being made locally, and nationally and internationally. Philanthropic funding is being spread more broadly, and local causes may receive less funding. As an example, one of the wealthiest communities in the United States (San Jose – silicon valley), sees only 33% of funding/grants going to local organizations.
As organizations revisit their business models, the need for core operating support, or new resources to help build capacity is critical. Interviews with not for profit organizations conducted by the Stanford Social Innovation Review identified opportunities for individuals to:
Maintain support levels for operationsand in particular provide support on a multi-year basis. This creates certainty for an organization and is efficient. The time and effort required to complete often complex grant applications every year, diverts employee time away from arts mission and programming. Unrestricted support for the ‘unsexy’ parts of a not for profit organizations budget is greatly needed in our current economic environment.
A task for the non-profit organization is to increase communications with government leaders, foundation grantors and other organizations – look for opportunities for partnerships, for sharing data and resources. Individuals can use their ‘voice’ and share their passion and commitment for a not for profit/arts organization with their contacts in government and foundations.
Not for profit organizations have always been nimble and creative in delivering programming when resources are tight. Given it may be that funds raised for charitable causes won’t reach pre-economic crisis levels till 2018, individuals can support organizations through a focus on core operations and creative ways for partnering within a community.
Background information and articles on this topic can be found at:
Awards and Scholarships: The Recipient’s Perspective
July 08, 2013
“I am the winner of the Lambton County Music Festival Lady’s Sacred Concert Group. I would like to thank you for your contribution. Without donors like you, the prizes for this festival would not be possible.” Samantha
“I just wanted to send you a little note to say thanks for the donation to the Festival. I will be entering college in September and this money will help with my studies.” Melanie
“You were so kind in granting me your award, and it helped make my trip to Peterborough to compete at the provincial level possible. I won the Grade 10 vocal award!” Lauren
What is the impact of an arts award or scholarship? As these young winners of the Lambton County Music Festival Hugh D. McKellar Scholarship told us this year, it is immense.
Awards and Scholarships
One of the most rewarding aspects of my job as Executive Director of the Ontario Arts Foundation is meeting and hearing from artists who are the recipient of a donor’s arts philanthropy through an award or scholarship. The honour of knowing that they were selected by a group of their peers, received a financial reward, can add it to their c.v. and use it to continue their professional development as an artist is indescribable.
Donors provide financial support to arts organizations for their ongoing operations and arts programs. But they may also be looking for a more permanent way to support an arts discipline they have a passion for. Awards and scholarships can play an important role in arts philanthropy.
The advantages of creating an award or scholarship are many.
- Awards provide financial support to an individual artist at various stages of their career development.
- Scholarships are highly important to students and emerging artists for continuing education or professional training.
- Awards are both recognition of success or achievement in a discipline and create opportunities for continuing professional development.
Through awards and scholarships, donors can receive long term recognition and provide a legacy that recognizes their personal passion for the arts. Knowing that their philanthropy will be enduring can be a big plus.
The Recipient's Perspective
Christina Petrowska Quilico is a classically trained and accomplished pianist. In a recent interview with me she comments on how big a role awards and scholarships played in her development as one of Canada’s best known classical pianists.
“I started piano lessons as a child at the Royal Conservatory, and was accepted into a program at Juilliard at age 14. During my career, I’ve received Canada Council grants and doctoral fellowships. Awards and scholarships provided financial resources that really helped me, that allowed me to live and study in New York. As a young artist, you simply don’t have the financial resources to support lessons, coaching sessions or auditions.”
In 2000, Christina established the Christina and Louis Quilico Award at the Ontario Arts Foundation to honour her late husband, renowned baritone Louis Quilico, and to recognize the next generation of outstanding young singers, pianists and composers for voice.
Art photographer Larry Towell, recipient of the 2010 $50,000 Paul deHueck and Norman Walford Career Achievement Award for Art Photography, told me he was sitting in his kitchen trying to figure out how to finance a trip to the Middle East to photograph people in a war zone. And then I called to tell him he was the recipient of a $50,000 award! This meant so much to him. He could now afford to go forward with his plans.
Awards for a Specific Purpose
Awards can be directed for a specific purpose, for instance career development. The Virginia and Myrtle Cooper Award in Costume Design was established in 2006 by the late Dr. Virginia S. Cooper of Toronto. This annual award is intended to enrich the careers of professional mid-career Canadian costume designers in Ontario through research and travel. Lea Carlsen, the 2011 winner of the Award, said that the $15,000 prize money would allow her to travel to Paris to study historical costumes, and then travel to Baffin Island to undertake a project to learn design techniques used by Inuit artists. Both will deepen her knowledge and work in costume design.
In some cases, artists may apply the prize money very simply, for instance to buy more paint to continue their work. Others may really need to undertake much needed repairs to a home studio. As a bonus, under Canada’s income tax laws, awards are exempt from income tax, and therefore bring even more financial reward to artists. (Scholarships are fully taxable.)
In every case, I have been warmed by the deep appreciation shown by these artists for being recognized by their peers and rewarded for their talents. They are forever grateful that a donor has thought to fund an award. I wish all donors could be present to hear the stories and positive outcomes from this form of philanthropy!
The Economic Impact of Volunteers
June 10, 2013
At the end of April, Canadians had the opportunity to recognize and thank the volunteers who support charitable/not for profit organizations. A part of almost every charitable organization are volunteers, those individuals who commit time, energy, their talents ( often also financial contributions ) to supporting the programs and work of a charitable organization. Their support, given without expectation of financial compensation has a significant economic impact.
An Economist's Case for Volunteering
A recent publication by TD Economics provides a commentary on the positive economic impact of volunteer hours. The benefits of volunteering are both tangible in the sense of resources committed on an unpaid basis, and value created in the form of ‘social capital’. This can take the form of productivity from volunteers who return regularly to assist with a NFP program ( they know how to do the work and can offer ideas for improving efficiency ), or helping a person develop skills they can translate into work outside the NFP, or the positive impacts to a community. The bank report illustrates as well, the economic benefits arising from volunteers. In 2010, it is estimated that 13.3 million Canadians volunteered in some capacity. This can be translated as a little over 1 million jobs. If you assume an average hourly wage, the surprising economic contribution from volunteers equates to $50 billion in Canada.
For arts organizations, volunteers are an important resource, please remember to thank them for what they do and don’t hesitate to highlight the value they contribute to your organization’s work and arts mission.
Recycling Capital of Endowments
May 13, 2013
There is no shortage of material to read about the challenge of securing arts funding at a time when government sources are static or facing cutbacks. A recent article in the Toronto Globe and Mail (April 20, 2013) references this in the context of arts organizations winding up, which can be one way of ‘freeing resources’ for younger performing artists.
As I read the article, another reality came to mind – when an arts organization or artistic director decides it is time to close up shop or move on, how is their artistic legacy preserved? We see few solutions or resources allocated to for instance, preserving the choreography and staging of a ballet or archiving music composition. As senior artists or organizations make the decision to retire or are in transition, it is important that resources preserving the best of their art form as a legacy for future artists/arts organizations be part of the funding equation.
We don’t have a perfect solution today to address the question of legacy, but one way the Ontario Arts Foundation is able to continue supporting arts organizations is by ‘recycling capital’. Within the fine print of endowment agreements, is a provision that has turned out to be a quiet blessing to arts groups in Ontario. All endowments contain a provision which states that if an arts organization winds up, or loses its charitable status, the Foundation Board has the responsibility to re-allocate the capital to another arts organization. The endowment capital is not returned to the organization as it winds up, or to the original donors. The capital must continue to be used to support the arts in Ontario through another arts organization. Our Board identifies an arts organization whose arts mission/discipline is comparable to that of the organization winding up. In other words, private capital and government matching dollars (Arts Endowment Fund program) raised to support ‘dance’, will continue to support ‘dance’. The endowment may be added to an existing organizations’ endowment, or we may invite a new arts organization to create an endowment and receive immediate funding. We try, as much as possible, to keep the capital within the same geography/community where private donations were originally raised.
Since the OAF was established in 1991, we have re-cycled over $850,000, money which continues to be invested on behalf of arts organizations across Ontario. The income arising from the endowments is unrestricted and has tangible value to an arts organization.
At a time when arts organizations struggle to secure funding, the security of long term unrestricted annual income becomes quite attractive. Without the burden of lengthy, time consuming annual grant applications, arts organizations gain time to dedicate to their artistic endeavors. This is appealing to young arts groups trying to build a sustainable operation, and at the same time offers comfort to donors, who see their donations continuing to serve their initial purpose.
As the Globe article concludes, nobody thinks there is one solution for all companies. Endowments held by the Foundation are one quiet way that capital is kept at work, supporting Ontario arts organizations as they grow, mature and transition over the long term.
Characterizing Donors and Motivations for Giving
April 22, 2013
I recently read a report prepared by a group Hope Consulting – “Money for Good II” which researched factors motivating donor preferences for supporting financially a charitable organization. The motivation for the research was to gain a deeper understanding of the ‘voice of the customer’ for charitable giving – what drives an individual, or a granting organization to decide to financially support an organization. What type of information is key to the decision making process?
It is an interesting read – you can delve into detailed research findings, or scroll through the summary findings. I liked the way the report characterized donors into six segments:
¢ Repayer :
|“ I give to my alma mater, I support organizations that have had an impact on me or on a loved one” 23% of donors
|¢ Casual Giver :
“ I give to well-known nonprofits because it isn’t very complicated” 18% of donors
|¢ High Impact :
“ I support causes that seem overlooked, I give to nonprofits I feel are doing the most good” 16% of donors
|¢ Faith Based:
||“ We give to our church, we only give to organizations that fit with our religious beliefs” 16% of donors
|¢ See the Difference :
“I think it is important to support local charities, I give to small organizations where I feel I can make a difference” 13% of donors
|¢ Personal Ties:
“ I give where I am familiar with the people who run the organization” 14% of donors
Overall and not a surprise, a key driver for a donation is ‘caring deeply about the cause’ – 35% of donors. Generally donors are not highly motivated by maximizing social impact. Few donors ever research a charity before making an initial donation. When research is undertaken about a not for profit, it is more to confirm the ‘acceptability’ of the organization, and not on finding organizations that are ‘best in class’. Individuals and granting organizations begin to differ in behavior in some respects – individuals want to support organizations which make good use of their dollars. They care about legitimacy, respect and where the funds are going. Granting organizations differ in that they seek to maximize impact and find the most ‘effective’ organizations. A high premium is placed on effectiveness and impact of their grant. Granting organizations research almost every grant and have a high need for comprehensive information about the organization – they are ‘information hungry’. Any arts organization applying for grants know this well….
All groups tend to be loyal with their giving – repeated donations to organizations they develop a relationship with. All donors would like financial information from the organization they support, followed by information on the effectiveness of programs. It appears that information describing effectiveness of programs represents an ‘unmet’ need, or opportunity. This is an opportunity for not-for-profit to enhance their reporting in order to attract additional or increased support. An interesting comment was made on the role of advisors – the report suggests that advisors tend not to advise clients on where to donate. When you consider that most financial advisors want to be involved in every aspect of a client’s financial affairs, it is interesting that this is an area where they are less involved.
The implications of the research suggest that not for profit organizations can be more responsive to donors by:
- Improving information, particularly on the impact of programs, charitable activity
- Provide information in more detail, following a ‘consumer reports’ style format
- ‘Push’ information to where people look for it today – people rarely ‘shop’ for a charity – websites/forms of solicitation to build awareness
- Adapt constantly – always try new things
The report did not break out the not for profit sector, it would be interesting to see if the general results change at all for arts organizations.
For more detailed information, you can access the report here.
How We Manage Endowment Funds
April 01, 2013
The expectation of an arts organization holding an endowment is to receive a stable long term income to support their mission/programming and assist in covering operating costs. Endowment income is also a source for funding to implement change, education and programs to build audiences.
Long Term Perpetual Funds
The majority of endowments with the OAF are long term perpetual funds. The capital is held in ‘perpetuity’, which for investment purposes means a horizon longer than 10 years. Income is paid out annually based on a return established by the Board each year, based on actual investment results. Our portfolio objectives are to achieve at least a 5% investment term return over 5 years. That return is intended to cover operating costs, create a reserve for inflation and allow for annual income payouts in a range of 3 to 5%.
Investment Policy Statement
Investment strategy/allocation of assets (equities, fixed income) is documented in an Investment Policy Statement, which is reviewed annually. The board considers what level of risk it is willing to accept to achieve target returns and links that risk assessment with selection of assets to invest the portfolio. The actual decisions for security selection and security trading, is delegated to several professional investment managers. The asset mix strategy is based on a combination of risk tolerance, return requirements and our outlook for long term investment returns. The Board holds responsibility for setting strategy, hiring managers and monitoring their results. The managers are expected to deliver value added returns that meet or exceed our target return expectations.
Coming out of the economic downturn and extreme market volatility of 2008/9, the Board conducted a strategic review of investment strategy. When we looked at our objectives, we identified there was a gap between the current portfolio asset mix and the desired long term return. We could ‘close’ the gap by investing in higher growth assets, which implies taking on higher risk. As our objective is stability of returns, we looked for alternate solutions. The Board evaluated way in which the OAF could lower overall risk in the portfolio, introduce potential for increasing returns in a prudent way and maintain oversight through ongoing review of asset mix/investment policy. We identified asset classes that could help the foundation achieve its objectives - small cap equities and absolute return strategies (hedge funds).
We engaged a consultant, conducted manager search and interviewed candidate firms. Our conclusion was that different types of asset management can diversify risk, increase returns and lower the volatility of the foundation portfolio. Investing in the new asset class of Alternatives – Absolute Returns created the opportunity to close the gap between our required returns (5%) and expected return from the asset mix of the investment portfolio. The new strategy was implemented at the beginning of 2012.
So how did we do?
2012 was a strong year in investment markets. The results achieved by the three investment managers employed by the Foundation, was a positive 12.6% for one year. Three and five year returns were 6.93% and 3.93% respectively. Over the short and medium term, we closed the gap between our required return (meet expenses, allow for inflation and pay 3 – 5%) and actual results. Markets continue to be volatile, but we believe that our strategy will deliver positive results and allow the foundation to deliver stable, long term income to the arts organizations and private awards/scholarships we support.
Based on the actual returns in 2012, the Board approved a payout of 4%, or $2.2 million to over 270 arts organizations across the country. This continues a strong history of financial support – since 1991, the Ontario Arts Foundation distributed over $21 million in endowment income payments.
The Foundation continues to grow assets ($1.5 million in 2012), reflecting contributions by arts organizations to increase their endowments, gifts from private donors, and receipt of matching funds through the federal Endowment Incentives program of the Dept. of Cdn. Heritage. Total assets under administration now exceed $60 million. Careful and continuing stewardship of our investment responsibilities, and a diversified strategy is expected to continue to achieve positive results and ability to support arts organizations in Ontario.
2013 Federal Budget – Application to Charities
March 22, 2013
The 2013 Federal Budget contains a number of items that will be of interest to charities. The government references a continued dialogue with the charitable sector on measures that can increase the number of Canadians making donations. Initiatives promoted by the charitable sector, such as the ‘stretch tax credit’ or capital gains tax relief on donations of private company shares or real estate were not included. Many of the recommendations contained in the Report of the Standing Committee on Finance – Tax Incentives for Charitable Giving in Canada (February 2013) remain just that - recommendations.
That said, there are measures of interest – a good summary is found in the Charities and Not-for-Profit Newsletter published by Miller, Thomson, a Toronto law firm.
Canada Cultural Investment Fund: Endowment Incentives Component
For large charities, extremely positive news in the Budget – the $10 million limit on matching funding through the Endowment Incentives Component of the Canada Cultural Investment Fund is being increased to $15 million for the life of the program ( 2015.)
Economic Action Plan 2013 announces that the Endowment Incentive component of the Canada Cultural Investment Fund will increase to a maximum benefit of $15 million over the life of the program, an increase of 50 per cent. The Endowment Incentives Component of the Canada Cultural Investment Fund helps promote corporate philanthropy and private investment in the arts by providing government grants to match private sector donations.
Starting in 2013, the amount of funding an arts organization can benefit from, over the life of the program, will increase from a maximum of $10 million to $15 million, an increase of 50 per cent. This will help ensure that large arts organizations such as the National Ballet of Canada, the Orchestre symphonique de Montreal, the Banff Centre and the Stratford Festival can continue to demonstrate leadership in building private sector support, while maintaining access to the program for small- and medium sized arts organizations. With this program adjustment, the Government of Canada is taking concrete steps to help ensure that Canada’s arts and culture sector contributes to a strong economy, with arts organizations becoming more resilient and self-sustaining through the continued support of the private sector
The Diversity of Private Philanthropy
March 04, 2013
People of all means give time, and money to support an art form, artists and organizations important to them. That desire to contribute can be lifelong, and is a process that evolves from being a volunteer, to financial support and ultimately a bequest or legacy gift. The process of determining how support moves from time, talent to treasure is a process that is personal and unique to every person or family.
We are approached by individuals who would like to make a long term gift to support the arts, encourage new artists (scholarship or award) or a particular organization. Charitable gifts can be implemented through a variety of structures. We try to begin the conversation to discover:
Would you like your gift to have an immediate financial impact or take a form that supports financially over time?
Will this be your gift or one that involves your family?
Is your gift to be made now, or in future as part of your estate plan?
The Immediate Gift
For an immediate financial contribution, a cheque or donation of securities is easily accomplished and is tax effective (particularly securities donations) and is gratefully received by the organization. A gift that will benefit over time requires thought and planning, often requiring the involvement of your legal and tax advisors. Charitable gifts are tax effective and where possible, try to implement a gift that is most beneficial to your personal tax status.
If you wish to retain a degree of influence or control over how your gift will be used, more complex documentation is a requirement. This will happen where you want to restrict the use of your financial gift for a particular purpose or time period. The arts organization you support may have a particular financial need (capital campaign, new production, outreach program) that aligns with your goals. In any situation, it is wise to talk with the organization about your desire to support and learn what can best help the organization meet their arts mission, whether in the short or long term.
As an example, should you decide to make an endowed gift, your intent is to create an income stream for the arts organization and the principal is to remain intact. That can be in ‘perpetuity’ – one way to think is to see this as a gift lasting 100 years or longer. Or, the principal could be held for a fixed period, say 10 or 15 years, during which income and/or some of the principal is paid out. At the end of the time period, the organization benefits from a stable source of funding and perhaps a final capital gift.
Honouring a Family Member
In the situation of honouring a family member, considering the benefits of an award or scholarship can be very meaningful to the person and family member – whose personal legacy lives on through supporting future generations of artists.
When making a gift to an arts organization, It is important to understand the organizations’ financial position – your desire to make a long term gift could be counter-productive if the organization is struggling to meet the financial demands of current programs. An arts organization whose operating income covers expenses, may be delighted to receive a long term endowed gift, where the income provides flexibility for planning, adapting and a source of extra income to support their arts mission. You will want to know if the organization has the capacity or access to expertise (such as the OAF) to effectively manage an endowment, or long term fund. Will an endowed gift meet the current or first priorities of the arts organization ? Discussions like this can help you clarify if your long term gift will be of greatest value, today and in future to the mission of the arts organization.
It is always a good idea to consider the contingencies – what would I like to happen to my gift in the event – the organization ceases to exist, or the program it supports comes to an end. Everything has its own life span and having the ability to re-direct to related artistic causes means your gift will continue.
For every person wanting to support the arts financially, there are many options that exist to meet your goal or which can be tailored to your financial situation and the goals you and your family have. Making an informed decision is most important, whether the gift is one time and immediate or one that will last a generation.
Creating a rapport with your Donors
January 28, 2013
Whether you are the Executive Director, Artistic Director, Development Manager or Board member, if you are actively involved in the administration of an arts organization, it is likely that you get involved in conversations with donors – individuals and families whose time and financial support help sustain your organization and its programs. Some people have a natural gift for establishing a personal rapport and building a trust relationship with people, greatly enabling conversations where the expected outcome is new or additional financial contributions. Most of us struggle, to some degree with parts of this process.
Bristol Stragegy Group Report
A short report I came across from the Bristol Strategy Group (2010) illustrates the art of holding conversations that build trust between two people in a clear and simple way.
Establishing a relationship involves listening to the other person – it is much more important than what we say in a conversation. There are three quite simple questions to incorporate into a conversation with your donor:
- “What do you want to achieve?” - described as the ‘success’ question to learn what motivates your donor;
- “What do you want to avoid?” - deepen your perspective on donor motivation by learning what the donor wants to ‘avoid’ – What don’t they want to happen if they support you, for example, your organization and programming no longer exist;
- “What helps you decide what charities to support?” – allow you to learn what your donor’s expectations are for service, recognition.
The article suggests that using the three questions changes a conversation to one of respectful interest focusing on the donor and their reasons for giving/wanting to support your organization. Going into a conversation, you will be rightly proud to speak about your arts organizations’ mission, programs and challenges for success. It is important to begin by understanding what your prospective (or current) funder wants to support, what motivates them to give and what their expectations are by providing their financial support.
Prior to starting a conversation, you should be clear on what you want to accomplish at your meeting. In building a successful donor relationship, prepare by learning as much as you can about the donor before the meeting starts. When you meet, focus on listening – what are you hearing, which may differ from the words your prospect/supporter actually uses. Does that help you understand if this is a strong prospect, and can you meet their expectations? You hope to come away with knowledge that helps you build a strong and enduring relationship with a donor – they will become an advocate of your arts organization. Your time is precious, and the questions can create a positive atmosphere where both parties may find out - ‘we aren’t right for each other’. Not everyone will say ‘yes’…..
The Three Questions
Using the three questions creates an opportunity for an informative dialogue that lets the prospect know you are personally interested in them. The approach is equally applicable with current donors as you try to deepen current levels of support. Donors may respond differently to the ‘success’ and ‘avoid’ questions and using both can give you a deeper insight into their beliefs. The last question will help you learn what the donor expects from you in return for their financial support.
The questions described in the article are simple and can be used by anyone in your organization – they are easy to ask, and people like to respond. You are keeping the focus on them and not you, allowing you to learn important information about the profile of the donor, while quickly building a trust relationship with that person.
Read more... www.bristolstrategygroup.com
Special events – building prospective new supporters
December 10, 2012
Supporters of arts organizations commit support in a number of different ways:
- Purchasing tickets/subscriptions and attending regular arts programs
- Volunteer support to the organization’s activities and administration
- Financial support through annual campaigns, special events, and special purpose campaigns
Prospective New Supporters
Maintaining current records and information about supporter’s can be complicated and requires both dedicated staff resources, and often access to donor management software. I’ve heard many a discussion about the benefits of special / gala events. The gross proceeds often are large, which is wonderful. The costs and time required to plan, organize and execute leave arts administrators questioning whether this is a cost effective way to raise funds for the organization. Michael Kaiser, head of the Kennedy Centre for the Arts in Washington, offers a non-financial perspective on the benefits of gala/special events that relates to attracting prospective new supporters to your organization.
Michael suggests that special events are excellent ways to create ‘prospecting opportunities’. Your current supporters purchase tickets or a table and bring their friends as guests. By attending the event as a guest, they become familiar with your organization and arts mission/programs. The host typically considers their guests to be people who are likely to support the organization. Following up with all guests is an easy way to attract new donations, subscribers or volunteers.
LYBNTY's and SYBNT's
Our experience tells us that donors who already give to an organization are the easiest group to raise gifts and donations from. The Kennedy Centre characterizes these donors as “LYBNTY” – someone who gave Last Year But Not This Year”. Their donation is recent and you can reasonably expect that they will support you again. Donors who fall into this category can become a primary list of prospects to attend your next special event. It is a much more fertile group than the “SYBNTYS” – Some Year But Not This Year.
Tracking your donors and their frequency of support is an effective tool to where you place your resources. We can’t reach out personally to every donor or prospective donor. A simple tactic of reaching out to your organization’s ‘LYBNTS’, can save time and result in positive results for your organization.
To read Michael Kaiser’s post, follow the attached link: http://www.huffingtonpost.com/michael-kaiser/lybnts-and-sybnts_b_2190894.html
Considerations for Creating Capital and Endowed Funds
October 31, 2012
Arts managers ask us – why hold money in an endowment, where we only receive income and can never access the invested capital ? Investment returns have fallen and I’m not sure I can count on receiving income.
Capital funds, whether endowed (income only and capital is invested in perpetuity), or a restricted fund (income and limited access to capital under certain conditions) offer an arts organization a stream of income, that through its constancy, helps protect the organization from swings naturally occurring in earned income or fund raising activities. Capital invested in this way is a source of income that recurs and is usually unrestricted – you determine how best to use it each year. You may add it straight into your operating budget, but we observe that thoughtful arts organizations use it to invest in the future – through arts education, youth programs or scholarships to support emerging talent, as well as supporting strategic investments in program/mission.
A long term fund can meet both your planning needs and the desires of your donors who want to create a personal legacy through a gift delivering a stream of income – one that sustains over time the arts they are passionate about. People of all means give time, and money to support an art form , an artist or arts organization important to them. That desire to support is usually lifelong and often is a process evolving from volunteer, to annual gifts and ultimately legacy gifts/bequests. The decision making process is unique to every person or family. Connecting to the values and interests of donors is essential to your financial stability and long term funds, endowed or restricted are a tool you should have in place to respond to different styles of giving. People of modest means can and do make meaningful financial contributions, often through a final gift or bequest.
When developing your mission, or implementing a strategic plan for the next five years, managers and board members will identify if the organization needs to think of capital in the short term – a board restricted fund that serves a ‘rainy day’ fund, or a plan to build capital funds that accumulate funds to create streams of future income – providing flexibility to invest in new, adapt to changing circumstances, invest in facilities or sustain the legacy of an artistic founder. Just as donors are unique, so are arts organizations. You need to ask yourself where your organization sits in its development – ask yourself:
Do you have a firm grasp of your current liquidity needs – are all financial sources needed for today
Is your organization able to create reserve funds for investment or to meet a short term funding gap
Has your board thought about how long term gifts will help sustain your arts mission
Can you direct long term income from gifts towards priorities of the organization such as outreach, education
Does your organization have the capacity, or access to expertise to manage long term gifts
Would a long term gift that is subject to restrictions offer any risk to your organization
Will a focus on long term gifts take away resources that are required to meet current funding needs
The Evolution of an Endowment
Historically, endowment meant capital was to be preserved and invested, generating a source of annual income. That often meant in ‘perpetuity – forever’ – one way to think of this or explain to a donor is a gift that will last 100 years or longer. Fewer donors think this way, and appreciate solutions that are long term, but also allow them to ‘see’ their gift at work. Endowment in this sense translates into a capital restricted fund – income is generated, but the capital may potentially be accessed in special circumstances/needs, or a fund is designed to last for a stated period – 10 – 20 years.
Understanding the demographic profile of your donors and the values important to them is important when discussing the best structure for a long term gift of capital. It both strengthens the connection between your organization and arts program to the donor and helps create a planning result that meets your financial funding needs today and over a longer time frame.
For every person wanting to support your organization financially, there are many options to link their values and aspirations to your business needs – be they current year’s programs, or a income that supports strategic goals long term in nature. Making informed decisions, both on your part and with your donors and their advisors is most important – to ensure support sustains you today and sustains your mission for years to come – continuing to spin ‘straw into gold….”
Financial Management in the New Economic Reality
September 24, 2012
The last four years have adversely affected the ability of many arts organizations to raise funds and plan future arts programs: investment returns have been volatile, market declines impacted donations of securities, government funding is more variable and audience levels declined (and have not yet returned to pre-recession levels for much of the sector). Managing an organization’s finances in this environment is challenging, and can take time away from the key mission of delivering an organization’s arts mission.
Non Profit Quarterly
The Non Profit Quarterly recently published a very readable article commenting on financial management issues in an environment of lower and variable sources of public/private funding. It offers simple observations on areas to focus on to wisely to use the resources you have.
Not for Profit Quarterly: Managing in the New Economic Reality
As an organization dedicated to managing long term capital funds (endowments, awards, scholarships), I spend time talking with arts organizations about growing existing capital funds or creating new funds. The article makes the point that endowments can be valuable assets (secure capital, steady source of income), but efforts placed on growing an endowment fund can take resources away from regular annual fundraising and capital raised for this purpose is not available in the short term. If the arts organization is facing financial challenges and needs operating cash, it is probably not a time to allocate resources/donations to endowment. Every organization will know if their financial plans can accommodate a focus on building a capital resource that delivers a stream of income to support its operations, or fund a particular outreach program.
Long term capital
Long term capital, held in a form of endowment fund is attractive to some donors whose personal philanthropy is long term in nature (planned gifts, special projects, legacy giving). Opportunities for raising matching funds, such as the federal matching program through the Dept. of Canadian Heritage Endowment Incentives Program should be considered. We know that donors respond positively to matching opportunities.
In today’s environment, what is most important is that long term gifts, have flexibility so that the capital is set aside on a long term basis, but is not ‘locked away’ in perpetuity. The trustee’s or board should have discretion, in defined situations to be able to continue delivering returns, which may have to comprise both income and capital.
Arts managers are nothing if not resourceful, I’ve quickly learned, and sustainability over time is a blend of the new – public/private partnerships, collaborations, social investment, together with attention paid to balance sheet management and aligning costs with sources of revenue. The article concludes that “nonprofits that can proactively take stock, plan and respond to the changing world will have the competitive advantage, and more important, best be able to deliver on mission.”
World Cities Culture Report 2012
September 10, 2012
A very readable report on the role of culture in a select group of cities across the world was recently published by the City of London. The paper World Cities Culture Report 2012 is a detailed analysis of a select group of world capitals, with a goal of demonstrating the role culture plays in urban life and economic vitality.
As well as providing some interesting facts (Johannesburg has 943 rare and secondhand bookstores, Tokyo has 681; Berlin apparently has only 4), the report explores attitudes towards cultural policymaking. There is much information we can translate ‘locally’ about culture as a driver of economic growth. The creative industries represent a large and rising share of urban economies – a thriving cultural sector is important to a city’s being attractive to residents, visitors and the businesses who employ them.
Canada is a young country, yet our cities face the challenges described in the 9 cities profiled – balancing modernity and tradition, linking cultural participation and existing infrastructure – developing audiences and attracting visitors, workers and businesses.
The report can be found at http://www.worldcitiesculturereport.com/.
Arts and Business Exploring Collaboration “In Kind”
August 27, 2012
Since joining the OAF two years ago, I’ve constantly been impressed with how creative and entrepreneurial arts organizations are in managing sometimes ‘scarce’ resources as they deliver creative and outstanding programs.
Culture Professionals Network
The Guardian in the UK publishes an interesting blog: Culture Professionals Network . A recent update (13/08/12) describes how UK arts organizations are being entrepreneurial in other ways, by exploring collaboration with business beyond the purely financial. As an example, a theatre company secures reduced rent for their office needs, and occupy otherwise unutilized office space. That collaboration might see the arts organization delivering arts programs, or workshops to the business’s employees. Space and infrastructure are secured in exchange for providing arts education and programming to the staff. It is one more way to develop future audiences and arts supporters.
The collaboration can create a sense of community and a commitment to helping each other out, thereby building a stronger, deeper relationship with an organization. The arts organization can use the opportunity to stage performances, installations and deliver community projects. It isn’t a substitute for financial support, but can be one way to expand an arts organizations ‘reach’, grow audiences and through the collaboration, cost effectively manage part of operating expenses.
Corporate Matching Programs are a Fundraising Tool all Arts Organizations Should be Aware of
August 07, 2012
Donors and supporters of arts organizations should be aware of the benefits of matching programs. It can be surprising how often your supporters aren’t aware of, or don’t take advantage of the corporate matching donation programs offered by their employer. This is a charitable giving program where the business matches donations made by employees (typically through a payroll deduction program) to eligible non-profit organizations.
These programs are widely in place in large businesses, and are easily established by smaller businesses. Some corporations establish a focus for corporate giving, but the majority only require that donations will be matched and paid to a non-profit organization registered with the Canada Revenue Agency. In addition to payroll deduction programs, some organizations also provide ‘volunteer grants’ – a fixed dollar donation to a non-profit organization where the employee is an active volunteer. These programs are often even less well known than corporate matching.
Benefits of Employer Matching Programs
The benefits to the employee and the organization are simple and tangible:
- Additional funds are raised and matched which benefit the arts organization
- Employees who participate usually become repeat donors
- A matching program is often an incentive for the employee to increase their average donation
- Donations are easily completed through payroll deduction processes
- The donation amount is matched. Most organizations will match $1 for $1 up to a defined limit
For the business, the corporation benefits from recognition in their local community. There are also tax benefits to the business for their matching contribution. Corporate matching programs are an excellent way to engage employees in developing the program, establishing guidelines and supporting volunteerism in the local community. It is a tool that supports employee morale and retention.
As an arts organization, your role is to know the businesses in your community who offer employee matching programs. Share that awareness with your donors, supporters and board members. Board members, who are business owners, may not currently offer an employee program - you can provide information and education on how to set one up and its benefits. Don’t overlook the value of annual volunteer grants by the corporation to/on behalf of employees who give their volunteer hours/time to support your arts mission. Consider approaching a business owner to ask if there is information they might require from your arts organization to help with employee awareness, or to help shape a matching program that might be more focused.
The Benefits of Security Donations
July 16, 2012
Canadian tax laws are structured to encourage philanthropy, and for many donors, an outright gift of cash is simple and most attractive. Our tax laws offer significant benefits to donations of securities to a registered charity and it is surprising that donors are not as familiar with the benefits of this approach. If you are considering making a gift to an arts organization and intend to use a security to raise the funds, it is far more tax effective to gift the security to the charity, as opposed to selling the asset and then donating the cash equivalent.
Change in Tax Laws
In 2006, the Federal budget eliminated the taxation of capital gains arising from donations of listed securities to a public charity or private foundation. The exemption applies to donations of publicly traded securities (stocks, bonds, mutual fund units which are publicly traded). As a taxpayer, you receive a charitable receipt equivalent to the fair market value (closing price on the day the security is received by the charity from you/your broker). The tax treatment works in this way:
||Sell shares and
then donate cash
directly to charity
| Fair market value
| Your tax cost (ACB)
| Capital gain
| Taxable capital gain (50%)
| Tax credit on donation (46%)
| Tax on capital gain (46%)
| Net tax saving
The total benefit to you of donating $10,000 of securities that have a capital gain in contrast to an equivalent gift of cash is $1,840. If you sold the asset, and then donated cash, you first have to pay tax on the capital gain. Making the donation of the security directly to the charity results in a charitable receipt of $10,000, and you pay no capital gains tax. You end up with a tax credit of $4,600 which is $1,840 more than had you sold the security and then made a cash donation. It is much more tax efficient.
Every individual’s situation will be different and this example is very general to illustrate the benefits. If you aren’t familiar with the concept, we recommend you speak with your financial advisor as well as staff at the organization you wish to benefit for more detailed information. Canada’s tax laws continue to evolve and the charitable sector is working with the Canada Revenue Agency to expand this concept to other types of assets such as private company shares and real estate.
The Economic Impact of Arts and Culture
July 03, 2012
Most if not all, arts organizations are able to articulate the intangible, cultural benefits of their arts programs to their community and to society. Defining the economic impact, particularly when seeking funding, can be a tougher task. Arts and cultural organizations achieve much more than their specific art form. Arts programming contributes to a community at many levels. Documenting the positive impact of an event/arts program is important at the time the organization is seeking a grant renewal or discussing funding opportunities with a private donor or corporate sponsor.
Direct and Indirect Economic Contribution
It is straightforward for an arts organization to identify the direct economic contribution made – all spending by visitors who attend an event, as well as wages, taxes and goods and services purchased in the community. A second positive impact, but more difficult to quantify is the indirect economic contribution related to spending in the local community by visitors and participants of an arts program, event or performance.
A new US study, “Arts and Economic Prosperity” issued by Americans for the Arts relates how arts and culture impact the economy. It begins to quantify how arts and cultural organizations leverage additional event related spending by audiences into the local economy. The objective is to try and identify for funders that arts is an important component to a local economy and a support to economic recovery. It firmly suggests that private donors, corporations and government funders need not feel that a choice exists between arts funding and other means of economic prosperity. Both are important as our Vice Chair John McKellar stated in “The Arts Mean Business”.
The research indicates that every attendee of an arts event generates local income, an average of $24.60 in addition to the cost of admission. Non-local visitors to an arts event spend more ($39.96 vs. $17.42 ) than local attendees. A thriving arts community supports residents who spend ‘local’ but also attract visitors who spend money and further support local economic activity. Comparable data at the community or national level is not as available in Canada. We notionally know this, and referencing the American findings may be a useful tool for arts organizations when making funding requests or speaking with their donors.
You can access the study summary at www.artsusa.org/economicimpact - Report dated June 8, 2012.
Long Term Capital for an Arts Organization
June 18, 2012
Behind all arts programs and performances, lies the challenge for arts organizations of having financial stability in a continuing volatile economy. Should this take the form of a ‘reserve’ or longer term capital fund (‘endowment’). A reserve is attractive as the fund has flexibility and remains available to the organization at the discretion of the Board. An endowment has a long term focus, providing the security of an expected income, available to the organization without restriction and governed externally.
For the Executive Director or Board member, it is critical to think through the purpose of long term funds, who will decide how capital is to be managed and accessed. As an organization, you should understand your donors, what motivates their decisions to provide annual financial support and longer term gifts. At the end of the day, the yield from an operating surplus, reserve or endowment provides the means to help you ensure artistic vision and creative programming can continue.
A new dynamic phrase is emerging in the USA – ‘change capital’. This refers to financial support that supports improvements in the quality or efficiency of the arts organization’s programs, supports growth or ‘right sizing’ of an organization and enables the organization to take risks, innovate and remain vibrant. Characteristics of change capital are three fold:
- Funding is separate from regular earned or contributed revenue, and typically is received during a limited time frame
- Flexibility – how the organizations spends the funding is of lesser importance than what it achieves – does the use allow the arts organization to enhance how arts programming is delivered or build efficiency into its operating model
- Is the result increasing and reliable revenue that creates operating surpluses
Each form of capital – reserve fund, endowment and change capital have a place to help fund improvements in efficiency and quality of programming. They help to align the size and fixed costs of an organization with its sources of revenue (‘right sizing’) and are tools to help arts organizations take risks, be innovative and pursue new visions. A series of papers on capitalization of the arts that speak to this topic and illustrate how arts organizations put them to use can be found through the website of GrantMakers in the Arts – www.giarts.org – National Capitalization Project. All are worth reading, and the NonProfit Finance Fund paper titled “Case for Change Capital in the Arts” expands on the concept of change capital.
New Approaches to the role of ‘Capital’ in the Arts
June 04, 2012
One of the principal responsibilities of our Board is managing the investment portfolio for the Ontario Arts Foundation. We are long term investors (our investment time horizon is 5 to 10 years) and this drives our investment strategy. The Foundation looks to earn investment returns that will:
Create a stable flow of income for arts organizations and will fund awards and scholarships
Meet foundation operating expenses
Protect capital values against inflation
Making decisions on risk and asset mix strategy are critical to our achieving our investment objectives, particularly in today’s volatile political and economic climate.
Investment Policy Statement
Documenting investment strategy in a formal Investment Policy Statement gives our Board a framework for stating how investments will be allocated across asset classes (stocks, bonds). Investment policy creates the portfolio structure (how much is invested in equities – Cdn, US, Global ) and establishes a benchmark against which we monitor the investment performance delivered by our managers. It allows the board to know – has the portfolio achieved returns that meet or exceed our objectives.
Creating an investment portfolio starts with stating a goal or ‘required rate of return’ – returns we need in order to meet the objectives of the foundation – financial support for the arts. The Board establishes an asset mix that balances risk with the returns we expect to achieve. The asset mix is based on the level of risk the Board is comfortable with and drives the allocation of investments into equities, bonds and other assets. The foundation hires investment managers to manage the portfolio, invest in accordance with our investment policy and achieve results that we expect to add value.
We ask ourselves the question - ‘To achieve a particular portfolio return, how much risk is the Foundation prepared to accept?’ What is the appropriate level of risk we must accept to attain returns that meet our purpose. Every Board faces the challenge of bridging the gap between ‘required return’ and returns based on long term economic investment trends. We have learned there are no easy answers – higher returns imply taking on additional risk, lower returns mean less risk of loss but a lower investment return.
Recently, we updated our investment strategy and Investment Policy Statement. To increase the potential for higher returns, we introduced new asset classes (small cap equity and absolute return strategies). We are using different types of active portfolio management, but doing so in a way that diversifies our portfolio while lowering risk and volatility. This is an ongoing process – the Board will meet regularly with our investment managers and measure investment performance. Our objective is always to achieve investment results that meet our core objectives – protect capital, generate regular income and meet operating costs, and do so in a disciplined way.
Warren Buffett says it in this way,
“To invest successfully over a lifetime does not require an extraordinarily high IQ, unusual business insights or inside information. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework”.
Regular updates will be shared with arts organizations and private donors to keep you abreast of strategy, our manager’s views of the global economy and markets and investment results.