Planning for Economic Uncertainty
December 07, 2018
Much of what we read in the financial press these past few weeks and months speaks of increasing economic volatility and political and market uncertainty. Talk is less about will there be an economic recession, but when will we see the next downturn.
Long-term Perspective
At the Ontario Arts Foundation, we continue to hold a long-term perspective and our choice of investment managers and strategies is focused on a portfolio of assets well positioned to grow their businesses over time, are financially strong and able to weather the vagaries of the economy and political climate. That doesn’t mean, we won’t be subject to short term ‘swings’ in value, but a focus on capital preservation and growing it responsibly can mitigate the day to day and month to month market volatility. Most importantly, for our donors and arts organizations, our investment strategy is structured to continue to deliver a stable source of annual income, revenue arts organizations can count on for the long term.
But what should you do as an arts organization in this environment?
This recent blog post Barry’s blog – “What Do You Do if the Economy Goes South” offers suggestions, that make good sense for positioning themselves for financial stability. Arts and culture organizations are often under-capitalized and may not have deep operating reserves, and earned income is often not sufficient to offset changes in other revenue sources such as government grants, performance/exhibition revenue or donor gifts. The suggestions the article offers are simple and this is a good time for arts managers and their Boards to review their financial strategies.
First Spark – A New Initiative from Canadian Heritage
November 30, 2018
Arts organizations should be encouraged by a small, but easily accessible funding program launched in November by Canadian Heritage.
The First Spark Initiative
The First Spark Initiative is intended to support arts organizations to focus on innovation in solving common business challenges. An organization can apply for a $5,000 grant to organize a collaborative problem-solving activity which seeks to address the challenge. It offers a way for an organization to get together and use creative approaches to problem solving via partnerships and knowledge sharing. The Ministry hopes that the partnerships/collaborations will develop innovative business solutions facing cultural organizations. As examples of what the program will fund, arts organizations face challenges in dealing with:
• Data management
• Digital transformation
• Governance issues
• Marketing and audience development
• Revenue diversification and fundraising
Where organizations partner to work together, creative solutions may be identified.
Application Process
The application process is not complicated, and the program guidelines speak to funding decisions for the $5,000 grant to be made within six weeks of receiving an application. The initiative is time limited and will run from November 15, 2018 to November 15, 2019. Organizations may submit multiple applications, provided they are for distinctly different projects.
This is not a ‘large’ funding initiative, but one that can engage your teams, involve young and developing arts leaders, and lead to collective generation of solutions that are common to arts organizations.
Legislation changes affecting charitable organizations
December 06, 2017
A number of changes have been recently passed by government affecting charitable organizations. Changes worthy of taking note include:
Charities Directorate
At the federal level, the Charities Directorate, indicates:
• It will no longer review, as part of applications for charitable status, ‘draft’ governing documents. Governing documents must be in final form.
• Online services will come on stream, starting November 2018, to enable charities to file their T3010 annual returns on line, and to make updates their charitable account information.
Ontario Corporate Reform
In Ontario, corporate reform legislation, has now been passed. A couple of points for charitable organizations to note state:
• A person who is not a member of the organization, may be appointed a Director
• Member meetings may be held electronically ( as distinguished from regular board meetings )
• If approved by an extraordinary resolution of the Board ( 80% approval), the organization can decide not to have an audit if annual revenue is less than $100,000
Social Investments
Draft legislation amending the Charities Accounting Act in Ontario provides clarity around ‘social investments’ being made by a charity.
‘Social or impact’ investments by a charity generally represent an investment that provides both a financial return and a ‘social’ return that benefits the public and an organizations’ charitable purpose. Example will be social investments that earn below market rate returns. While such investments have been made for many years, it was always unclear, whether social investments met the ‘prudent investor’ criteria set out in Trustee legislation.
The proposed changes to legislation now introduce the term ‘social investment’ – one that furthers the purpose of the charity, and achieves a financial return. To meet this definition, there are a number of provisions within the legislation to consider.
Charities are permitted to make social investments, subject to the following conditions:
• The investment can be made, unless the charity is restricted from the investment under its governing documents. If there is no authorization to spend original capital (an endowment), a social investment should not be made if the expectation is that original capital will be spent. A lower financial return is permitted so long as the original capital value is preserved.
• The social investment will not be subject to prudent investor standards, applicable to other/portfolio investments. A social investment does not have to be made with the expectation of earning a ‘market rate of return’, such as can be achieved from a marketable security
• A charity (the Board) must consider whether it needs ‘advice’ when making a social investment and to follow such advice. It must (as with any investment), periodically review its social investments from time to time.
• The board must be satisfied the investment is in the best interests of the charity
The changes will be helpful to provide clear legislative authority for a charity to make social investments. Boards will want also to look at such investments with a view to CRA’s view that a charity can’t make investments at below market terms to ‘non-qualified’ donees, which could be considered to be a ‘gift’ to the person/entity receiving the investment. It will be important to ensure that the social investment is structured as a ‘program related’ investment (one linked to the organization’s charitable purpose), or is made to a qualified done within CRA requirements.
Boards considering social investments within their mission/investment strategies should consider carefully the legislative changes, and move forward with the benefit of professional advice.
