Nonprofit Earned Income by ork52719

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									      Revenue Sources for the Nonprofit Arts Industry


Income of nonprofit organizations nearly always includes both contributed and
earned income. Contributed income consists of a combination of public sector
sources, including federal, state, and local government grants and private sector
sources including foundation grants, corporate grants, corporate sponsorships, and
donations made by individuals. Earned income is generated from ticket sales,
concession sales, rentals, museum admission, gift shops, memberships, royalties,
and other products or services that are offered on a fee basis to the public. Earned
income can also be generated through interest earned from an organization’s
endowment.


The Americans for the Arts conducted a study from 1999 to 2001 of nonprofit
organizations, analyzing data from 22 contributed and earned revenue categories.
By aggregating these categories into private sector, public sector, interest earnings,
and earned income, Americans for the Arts found that 24.9% of revenue came from
private sector sources, 8.7% came from public sector sources, 12.2% came from
interest and endowment income, and 54.2% came from earned income.108 Figure II-
4 illustrates these results.


Figure II-4
Sources of Revenue for Nonprofit Arts Organizations




                                             Private Sector
                                                  25%

                                                                       Private Sector
                                                                       Public Sector
        Earned Income
                                                                       Interest/Endowment
            54%
                                                Public Sector          Earned Income
                                                     9%


                                      Interest/ Endowment
                                               12%




Source: Randy Cohen and Margaret Jane Wyszomirski, “National and Local Profiles of Cultural Support:
Executive Summary,” Monograph, (Washington DC: Americans for the Arts, 2002).




108
   Randy Cohen and Margaret Jane Wyszomirski, “National and Local Profiles of Cultural Support:
Executive Summary,” Monograph, (Washington DC: Americans for the Arts, 2002).



                                                                                                       60
The ratio of earned to contributed income varies between performing and visual arts.
For performing arts, ticket sales usually generate half of the organization’s earned
revenue. Some theaters, for example, can generate 80% of their income through
ticket sales, while some only generate 40%. This ratio usually depends on the
accessibility of the material presented and on the size of the institution. In other
words, a major theater company that produces well-known plays will tend to
generate more income from ticket sales than a small black box theater that produces
avant-garde productions. Visual arts organizations are generally more dependent on
contributed income. Usually, museums are able to earn 30 to 40% of their income,
but they depend on grants and individual donations to cover the majority of
expenses.




                                                                                 61
Earned Income


The largest source of earned income, especially for performing arts organizations, is
admissions and ticket sales (23.1%).109 Endowment interest earnings are the
second largest category. The following section discusses some of the trends in
admission spending among entertainment categories and endowment income
earnings.




109
      Cohen, “National and Local Profiles of Cultural Support: Executive Summary.”



                                                                                     62
Admissions and Ticket Sales
Over the last century, there have been several shifts in how people buy spectator
entertainment. Table II-13 and Figures II-5 and II-6 indicate these trends.
Although there has been an overall increase in consumer spending, the percentage
of income spent on spectator entertainment (sports events, movies, and
performances) has decreased since the 1950s. This means that people are spending
their money more in other categories.


Table II-13
Disposable Income Spending on Admissions
(Spending in billions, adjusted for inflation)

Years                     1929 1939 1947 1970 1975 1980 1985 1990 1995 1997
Total of all Spending     5.30 4.95 5.48 5.97 6.16 6.02 6.38 6.74 7.55 7.86
Total Spectator Entermnt. 1.12 1.18 1.19 0.46 0.38 0.34 0.31 0.36 0.37 0.40
 % of Total               21 % 24 % 22 % 8 % 6 % 6 % 5 % 5 % 5 % 5 %
Performing Arts           0.16 0.09 0.11 0.07 0.07 0.09 0.09 0.13 0.16 0.17
 % of Entertainment       14 % 8 % 9 % 16 % 18 % 27 % 28 % 37 % 43 % 43 %
 % of Total               3% 2% 2% 1% 1% 2% 1% 2% 2% 2%
Motion Picture            0.88 0.95 0.94 0.23 0.19 0.13 0.11 0.12 0.11 0.11
 % of Entertainment       79 % 80 % 80 % 49 % 51 % 39 % 36 % 34 % 29 % 28 %
 % of Total               17 % 19 % 17 % 4 % 3 % 2 % 2 % 2 % 1 % 1 %
Spectator Sports          0.08 0.14 0.13 0.16 0.12 0.12 0.11 0.10 0.10 0.11
 % of Entertainment       7 % 12 % 11 % 34 % 31 % 34 % 36 % 28 % 28 % 29 %
 % of Total               2% 3% 2% 3% 2% 2% 2% 2% 1% 1%

Source: U.S. Department of Commerce, National Income and Product Accounts of the United States,
various years (adapted from “Economics and the Arts” p215 in Management and the Arts by William J.
Byrnes and The Economics of Arts and Culture (Heilbrun and Gray: 2001, p15) years 1990-1997 from
Heilbrun)



In 1947, spending on spectator entertainment was 1.2 billion dollars (adjusted for
inflation), dropping to 457 million by 1970. In 1985, spectator spending hit a low of
314 million dollars and increased to 396 million by 1997. As a percentage of total
spending, spectator entertainment represented 22% in 1947, but only 5% of total
spending in the period from 1985 to 1997. The graph “Spectator Entertainment
Spending by Category as Percentage of Total Spending,” (Figure II-6) indicates that
the decrease in entertainment spending was due largely to a decrease in spending on
motion pictures. Performance spending and spectator sport spending remain fairly
constant throughout the century. Motion picture spending represented from 17% to
19% of total spending until just after 1947. From 1970 through 1985, spending on
motion pictures decreased from 4% to 2% of total spending. In 1997, spending on
motion pictures was 1% of total spending. Performing arts and spectator sports
spending remained between 1% and 3% of total spending throughout the century.


There are some noteworthy trends within spectator entertainment spending. The
1950s mark the most dramatic change (this may also be due to the gap in data from



                                                                                                     63
1947 to 1970 from this dataset). In the 1950s, the percentage of total
entertainment spending used for motion pictures decreased while performance and
spectator sports increased. From 1947 to 1985, the percentage of total
entertainment spending for motion pictures dropped from 80% to 36%. By contrast,
for the same time period, the percentage of total entertainment spending for
performing arts increased from 9% to 28%, and from 11% to 36% for spectator
sports. In 1997 spending on performing arts was 43% of entertainment spending,
while spectator sports were only 29% of total entertainment spending.


Figure II-5
Spectator Spending in Billions of Dollars




                 10

                  8
                                                                          Total of all Spending (billions)
    $ Billions




                  6                                                       Total Spectator Entertainment
                  4                                                       Performing Arts (billions)
                  2                                                       Motion Picture (billions)
                                                                          Spectator sports (billions)
                  0
                      1929 1939 1947 1970 1975 1980 1985 1990 1995 1997
                                        Selected Years


Source: U.S. Department of Commerce, National Income and Product Accounts of the United States,
various years (adapted from “Economics and the Arts” p215 in Management and the Arts by William J.
Byrnes and The Economics of Arts and Culture (Heilbrun and Gray: 2001, p15) years 1990-1997 from
Heilbrun)




                                                                                                             64
Figure II-6
Spectator Entertainment Spending by Category as Percentage of Total Spending



                                                                                                         Entertainment % of Total
                                       30%                                                               Spending
        Percentage of Total Spending




                                       25%                                                               Performance as % of
                                       20%                                                               Total Spending
                                       15%                                                               Motion Picture as % of
                                                                                                         Total Spending
                                       10%
                                                                                                         Spectator Sports as % of
                                             5%
                                                                                                         Total Spending
                                             0%
                                                     1929 1939 1947 1970 1975 1980 1985 1990 1995 1997
                                                                      Selected Years



Source: U.S. Department of Commerce, National Income and Product Accounts of the United States,
various years (adapted from “Economics and the Arts” p215 in Management and the Arts by William J.
Byrnes and The Economics of Arts and Culture (Heilbrun and Gray: 2001, p15) years 1990-1997 from
Heilbrun)



Figure II-7
Spending by Category as Percentage of Total Spectator Entertainment Spending
                     % of Entertainment Spending




                                                   90%
                                                   80%                                                              Performance as % of
                                                   70%                                                              Entertainment
                                                   60%
                                                   50%                                                              Motion Picture % of
                                                   40%                                                              Entertainment
                                                   30%                                                              Spectator Sports % of
                                                   20%                                                              Entertainment
                                                   10%
                                                    0%
                                                         1929 1939 1947 1970 1975 1980 1985 1990 1995 1997
                                                                            Selected Years




                                                                                                                                    65
Endowment Income
The other primary source of earned income comes from endowment interest.
Endowment income is an important source of income for arts organizations, despite
the fact that the principal is restricted and cannot be used for operating expenses.
(Note: the interest earned from the principal is not restricted and can be used for
operating expenses.) Endowments can be invested in order to generate additional
income for the organization. Thus, endowments increase the stability of the
organization. Since interest earnings are generated through investment, the
performance of the stock market over the past three years has affected this source
of earned income considerably. As mentioned in the first section of this chapter
(Earned Income), income from endowment and interest accounted for over 12% of
the total revenues for arts organizations.110 The stock market effects are discussed
in Economic Indicators in the National Economy section of this report.


Research, completed by the Theatre Communications Group, indicates that from
1997 through 2001, the 363 theaters surveyed experienced a decrease in earned
income that had to be compensated for by contributed income in order to cover
expenses.111 The Theatre Facts 2001 report is generated from annual surveys that
assess the fiscal health of American nonprofit theaters. The data indicate a 3.6%
increase in the proportion of total income derived from contributed income sources
as compared to earned income sources. The earned income areas that decreased
over the five-year period were capital gains/losses and education/outreach income.
Capital gains/losses refers to the change of the market value of investments, even
when they are not realized due to sale. Endowment income earned from capital
gains/losses dropped 180% over the five-year period studied, with a 163% drop
from the level in 2000. Although the reporting for education and outreach
sponsorship shifted from an earned income to a contributed income category based
upon the source of the contribution, the reclassification does not affect the total
amount received by the organization. Thus, the stock market performance has been
a more significant contributor to the decrease in earned income sources.

Overall, the performing arts depend on income from interest from endowments less
than museums and visual arts organizations. The “National and Local Profiles of
Cultural Support Executive Summary” indicates that the performing arts generally
rely on interest from endowments for only 2.6% of their income whereas museums
and the visual arts depend on this source for 17.9% of their income. 112 The
performing arts rely more on earned income and contributions from the private
sector. The decrease in income earned from endowments and capital gains,
therefore, affected the visual arts institutions more dramatically than performing
arts, because of their high dependence on it.




110
      Cohen,“National and Local Profiles of Cultural Support: Executive Summary.”
111
    “Theatre Facts 2001: A Report on Practices and Performance in the American Nonprofit Theatre Based
on TCG’s Annual Fiscal Survey,” TCG Centerpiece, July 2002, Theatre Communications Group, 20 Feb.
2003 www.tcg.org.
112
    Cohen, “National and Local Profiles of Cultural Support: Executive Summary.”



                                                                                                   66
Contributed Income

Private donated funds for the arts come from individuals, foundations and
corporations. Public funds are derived from federal, state, and local governments.
The following section will discuss the current trends in each of these funding sources.


In 2001, $212 billion was given in charitable contributions in the United States. This
was down 2.3% from the 2000 levels. According the Giving USA, 2002 report,
prepared by the American Association of Fund Raising Counsel Trust for Philanthropy
(AAFRC), individuals contributed $160.7 billion or 75.8% of total charitable
contributions, foundations contributed $25.9 billion or 12.2%, corporations
contributed $9.1 billion or 4.3%, and bequests accounted for $16.3 or 7.7% of total
charitable contributions.113 These funds are given to a total of 1.23 million charitable
organizations in the U.S.114


Figure II-8
2001 Contributions: $212 Billion by Source of Contributions




                 Individuals
                    76%

                                                                                         Individuals
                                                                                         Foundations
                                                                                         Corporations
                                                                                         Bequests
                                                                Foundations
                           Bequests                                12%
                             8%
                                             Corporations
                                                 4%

Source: “2001 Contributions: $212.00 Billion by Source of Contributions,” Giving USA, 2002, AAFRC Trust
for Philanthropy 24 June 2003 www.aafrc.org.



The arts are only one category of all recipients for charitable contributions. In 2001,
arts and culture organizations received 5.7%, or $12.1 billion dollars, of the total
charitable contributions made in 2001.115 Religious organizations received the
largest share of charitable contributions, totaling $80.96 billion at a share of 38.2%.


113
    “2001 Contributions: $212.00 Billion by Source of Contributions,” Giving USA, 2002, AAFRC Trust for
Philanthropy 24 June 2003 www.aafrc.org.
114
    Giving and Volunteering in the United States – 2001, Nov. 2001, Independent Sector, 24 June 2003
www.IndependentSector.org.
115
    “2001 Contributions,” AFRC Trust for Philanthropy.



                                                                                                      67
The recipients of the second largest portion of contributions were education and gifts
to foundations (grouped with unallocated giving). Education received $31.84 billion,
which was 15.0% of the $212 billion total. Foundations received $25.55 billion or
12.1%. These were followed by human services ($20.71 billion) and health services
($18.43 billion). Arts ranked sixth and was followed by public and social
organizations ($11.82 billion), environmental organizations ($6.41 billion), and
international affairs ($4.14 billion).116


Figure II-9
2001 Contributions; $212 Billion by Type of Recipient Organization




                      Arts & Culture
                           6%              Public-Society
                                                6%                         Religion
                        Health
                                                      Environment
                         9%                                                Education
                                                           3%
         Human Services                               International        Foundations/Unallocated
             10%                                          Affairs          Human Services
      Foundations/Unall                                    2%              Health
           ocated                                                          Arts & Culture
            12%                                                            Public-Society
                                                   Religion
                     Education                                             Environment
                                                    37%
                       15%                                                 International Affairs




Source: “2001 Contributions: $212.00 Billion by Source of Contributions,” Giving USA, 2002, AAFRC Trust
for Philanthropy 24 June 2003 www.aafrc.org.



The $11.8 billion contributed to the arts were giving by the four funding sources
mentioned earlier: individuals, bequests, foundations and corporations. The
Individuals section will discuss these funding sources in more detail.




116
      “2001 Contributions,” AFRC Trust for Philanthropy.



                                                                                                     68
Individuals
Individuals are the backbone to any arts organization, both for financial support and
volunteer time. Individuals give generously to annual campaigns, special events,
capital campaigns, and endowments, and they leave legacies to arts organizations
through bequests and planned giving. Individuals also offer important support to
organizations through volunteered time. The following sections will discuss the
trends of individual giving and bequests. It is predicted that in the next half century
the largest intergenerational transfer of wealth in America’s history will occur,
affecting the potential bequests received by charitable organizations. This event has
significant implications on arts organizations’ planned giving strategies.


In order to determine individual giving levels, the National Center for Charitable
Statistics (NCCS) conducted a study. In this study, Profile of Individual Charitable
Contributions by State, 2000,117 NCCS used adjusted gross income (AGI) and
deductions for charitable donations data gathered from the Internal Revenue Service
(IRS) Statistics of Income Bulletin. Since the Statistics of Income Bulletin only
records charitable contributions that are itemized, it accounts for only 33% of all
U.S. taxpayers in 2000. The remaining 67% use the standard deduction. With this
in mind, the amount of giving captured by itemized deductions reported to the IRS
was $137 billion. AAFRC’s Giving USA report estimates that total giving was $159
billion in 2000. Using these data, the NCCS profile report assumes that the IRS
itemized returns actually account for 86% of giving in the U.S.118


Donations made by individuals rose 50% between 1990 and 2001, to $160.7
billion.119 This is slightly higher than the Giving USA, 2000 report of $159 billion.
Based on itemized deductions, the National Center for Charitable Statistics found
that total charitable deductions increased 11%, from $123 billion in 1999 to $137
billion in 2000.120 Arts giving, however, only grew 31% nationally between 1990 and
2000. This indicates that other areas of charitable giving increased at a faster rate
than the arts did.121


Pennsylvania ranked thirty-third in all states for average charitable contribution per
income tax return. In 1998, Pennsylvanians contributed $4.1 billion to charitable
causes.122 The average dollar amount donated in Pennsylvania in 2000 was $859. 123
The average charitable contribution in the U.S. was $1,050 for that year.124 As a
percentage of income, the average charitable contribution per income tax return was



117
    Center on Nonprofits and Philanthropy National Center for Charitable Statistics, “Profile of Individual
Charitable Contributions by State, 2000,” (Washington DC: Urban Institute, 2001).
118
    Center on Nonprofits and Philanthropy, “Profile of Individual Charitable Contributions by State, 2000.”
119
    “Despite Weak Economy, Long-Term Outlook for Philanthropy Remains Positive,” PND News 10 Dec
2002, 13 Dec. 2002 http://fdncenter.org/pnd/news/story.jhtml?id=19300022.
120
    Center on Nonprofits and Philanthropy, “Profile of Individual Charitable Contributions by State, 2000.”
121
      Cohen, “National and Local Profiles of Cultural Support: Executive Summary.”
122
    Common Wealth, Grantmakers of Western Pennsylvania, 2 May 2003
www.gwpa.org/commonwealth/generosity.html.
123
    Common Wealth, Grantmakers of Western Pennsylvania.
124
      Center on Nonprofits and Philanthropy, “Profile of Individual Charitable Contributions by State, 2000.”



                                                                                                           69
1.9% of adjusted gross income.125 This is below the national average of 2.2%. The
state with the highest contribution as a percentage of income was Utah, at 5%, and
the lowest was West Virginia, at 1.3%. 126


Theaters have experienced steady growth in their individual contribution levels. The
Theatre Facts 2001 report found that their individual contributions were especially
strong because of an 80% increase in the level of board of trustee giving.127 The
average trustee gift was $7,278 in 2001, up from the $5,331 average in 1997.
Adjusted for inflation, this represents a 23% increase. Individual donations were the
single largest source of contributed funds for each year in the five years studied
(1997–2001) and covered 2.7% more expenses in 1997 than in 2001.


Intergenerational Transfer of Wealth
The largest transfer of wealth from one generation to the next in American history is
expected to take place in the next half century. The wealth transfer impacts arts
organizations because of the potential source of funds for building endowments,
making capital improvements, and securing planned gifts.


Paul Schervish and John Havens, two professors from Boston College, estimate that
the intergenerational transfer of wealth through the middle of the twenty-first
century will be between $41 trillion and $136 trillion, with $6 trillion to $25 trillion
going to charitable bequests.128 A bequest is the passing of personal or other
property at death to future generations, usually through a written will. The $41
trillion (in 1998 dollars) estimate is based on conservative growth and savings rate
projections accumulated for the 55-year period, from 1998 through 2052.


Schervish and Havens’ study was conducted just prior to the stock market peak in
1999. Because of the severe change in the economic picture since then, the
researchers were encouraged to review their original projections. In “Why the $41
Trillion Wealth Transfer Estimate is Still Valid,” they revisit their original estimates
and conclude that that the temporary market turmoil will not affect their long-range
projections, especially if the more conservative estimates are used.129


Based on this study, charitable organizations can expect to receive at least $6 trillion
in bequests over the stated 50-year period. Schervish and Havens base their low-
end estimates on the fact that over the past 20 years the average annual rate of
bequests has grown by 6.2%. This is substantiated by Giving USA data that
indicates that bequests have grown from $5.2 billion in 1982 to $16.3 billion in 2001.
If the average growth rate increased to 8.25% annually, the mid-range projection of

125
      Center on Nonprofits and Philanthropy, “Profile of Individual Charitable Contributions by State, 2000.”
126
      Center on Nonprofits and Philanthropy, “Profile of Individual Charitable Contributions by State, 2000.”
127
      “Theatre Facts 2001,” Theatre Communications Group.
128
    Paul G. Schervish and John J. Havens, Millionaires and the Millennium: New Estimates for the
Forthcoming Wealth Transfer and The Prospects for a Golden Age of Philanthropy, (Boston: Boston College
of Social Welfare Research Institute, 1999).
129
    Paul G. Schervish and John J. Havens, “Why the $41 Trillion Wealth Transfer Estimate is Still Valid: A
Review of Challenges and Questions,” The Journal of Gift Planning, 7.1, (2003): 11-15, 47-50.



                                                                                                           70
$12 trillion in charitable bequests would be reached. If the growth rate were
10.25%, the full $25 trillion would be attained.130


As the transfer of wealth takes place in the upcoming decades, certain charitable
organizations are likely to benefit more than others. Based on Giving USA, 2002
allocation rates, arts and cultural organizations will receive approximately 6% of total
gifts to charitable organizations.131 Assuming that this proportion holds true for
bequests, art organizations could receive $360 billion from this source.


In general, larger organizations with established planned giving mechanisms will
benefit more from bequests than their smaller sized peers. Planned giving is where
estate and financial planning overlap with philanthropic planning; it involves the
transfer of personal or other property upon or after the death of the benefactor.
Bequests can be made outright or deferred over a set period of time. Traditional
outright giving mechanisms include wills, living trusts, life insurance, and remainder
interests of retirement plans. Deferred giving has become more popular with the
current aging population. Deferred bequests include such tools as “split interest”
gifts, charitable remainder trusts, pooled income funds, gift annuities, charitable lead
trusts, and transfers of remainder interests in real estate.132


Grantmakers of Western Pennsylvania estimates the average Pennsylvania estate at
$2 million, which is slightly above the national average of $1.9 million. In 1999,
23% of Pennsylvania estates included a charitable bequest, compared to 17%
nationwide. The average dollar amount for bequests, however, was $630,000, which
is considerably lower than the national average of $909,000.133


Since bequests are a considerable source of income and stability, it would behoove
arts organizations to consider their planned giving options and pursue this
fundraising strategy with vigor, since the imminent transfer of wealth gives planned
giving a new prominence in the field of fundraising.


Tax Law
Since the 1970s, estate tax laws were designed to exempt all but the largest estates
from taxation. All estates valued at over $600,000 have been subject to the “death
tax,” as it has come to be known. Since many estates are currently valued above
$600,000, they are subject to federal estate and gift taxes that range from 37 to
55% of the total transfer of wealth.


All estate and gift taxes might be eliminated, however, since Congress passed bills in
2000 and 2001 to repeal them. There is considerable debate over whether the

130
      Schervish, Millionaires and the Millennium.
131
      “2001 Contributions,” AAFRC Trust for Philanthropy.
132
    Robert F. Sharpe Jr,“Charitable Giving and the Great American Wealth Transfer,” June 2001, Trusts &
Estates, 24 June 2003 www.sharpenet.com.
133
    Common Wealth, Grantmakers of Western Pennsylvania.



                                                                                                     71
proposed elimination of the estate tax would actually reduce the amount of assets
donated to charities through bequests. The arguments are divided, primarily
because they start from different premises. One side argues that eliminating estate
taxes would also eliminate the incentive for wealthy individuals to give to nonprofits
and that lost tax revenue for the government would hurt social programs currently
supported by these dollars. The other side argues that tax breaks do not influence
giving trends significantly, and benefactors and the heirs would retain an average of
45% more of their wealth to distribute as they wished.


According to the Philanthropy News Digest, in “Lobbying Group Worries Proposed
Estate Tax Repeal Will Hurt Donations to Nonprofits,”134 charities, churches and labor
groups are concerned about the effects of the Bush administration’s plan to eliminate
estate taxes on donation levels to nonprofit organizations. Americans for a Fair
Estate Tax (AFET),135 a lobbying group based in Washington, D.C., opposes the
repeal of estate taxes, arguing that Bush’s proposed tax bill will result in lost
government revenues and will reduce incentive for individuals to donate a part of
their estate to nonprofits. AFET estimates that the federal government would lose
$206 billion in revenues between 2002 and 2012, forcing budget cuts for many social
programs.


Advisor Robert F. Sharpe, Jr., of Robert F. Sharpe and Company, Inc., argues that
charitable bequests are not solely motivated through tax incentives, and without
estate taxes, benefactors will have significantly more wealth to distribute to
charities. Sharpe indicates that 91% of individual bequests to charity are from
estates that are not subject to estate taxes, since their estates are valued at less
than the maximum allowed $600,000. Additionally, he argues that people are
motivated to give because of religious, social, political, emotional, and economic
reasons.136 It is important, therefore, for charitable organizations to recognize these
motivations in the cultivation of planned giving prospects. Without estate taxes,
Sharpe believes that benefactors with large estates, who make charitable bequests,
would have approximately $450,000 more per every $1 million they distribute. The
37-55% that previously went to taxes would be distributed among children,
grandchildren, other heirs, and charity. Sharpe concludes that charity would, in the
end, receive 26% of the amount that would have gone to taxes.137


It is difficult to determine at this point what the outcome of changes to the estate
and tax law would be. There is little doubt, however, that changes to tax law will
affect the allocation of charitable donations, so arts managers need to stay abreast
of tax law developments and their potential impact on planned giving.
Volunteerism


134
    “Lobbying Group Worries Proposed Estate Tax Repeal Will Hurt Donations to Nonprofits,” Philanthropy
News Digest, 3 Dec 2002, Foundation Center, 3 Dec. 2002
http://fdncenter.org/pnd/news/story.jhtml?id=18500007.
135
    AFET includes the American Arts Alliance (http://www.americanartsalliance.org), the American
Association of University Women (http://www.aauw.org), and the AFL-CIO
(http://www.aflcio.org/home.htm)
136
    Sharpe, “Charitable Giving,” 5.
137
      Sharpe, “Charitable Giving,” 8.



                                                                                                     72
Nonprofit organizations benefit significantly from the volunteered time and services
of individuals. Volunteering is a prevalent practice in the United States and provides
a steady source of support. Some actions to take include:
  • Involving youth in volunteer capacities, since youth who volunteer tend to be
      more likely to support nonprofits as adults.
  • Developing a strong and engaged volunteer base, because volunteers also tend
      to give more in monetary donations than non-volunteers.
  • Asking people to volunteer, because studies indicate people are far more likely
      to volunteer if they are asked.


“Giving and Volunteering in the United States 2001,” Independent Sector’s seventh
biennial survey,138 indicates that nearly 50% of adults in the United States volunteer
at least once a year for one or more of the 1.23 million charities, social welfare
organizations, and religious congregations in the United States.139 The data were
collected in 2001 through a telephone survey of over 4,000 individuals over the age
of 21.


In 2000, 44% of American adults over the age of 21 volunteered. This amounted to
a total of 82.9 million adult volunteers contributing an average of 3.6 hours per
week, which amounts to 15.5 billion hours of volunteer time annually. The 2001
estimated value140 of a volunteer’s time was $15.40 per hour, bringing the total
dollar value of volunteer time to $239.2 billion.141 According to the Independent
Sector, 46% of the population contributed to charities only monetarily, 42% of the
population gave money and volunteered time, 2% only volunteered, and 10% did
not contribute to nonprofits.




138
      Giving and Volunteering in the United States – 2001, Independent Sector.
139
      Giving and Volunteering in the United States – 2001, Independent Sector.
140
    The Independent Sector calculates the value of the hourly wage annually. It is based on the average
hourly wage for nonagricultural workers, as published by The Economic Report of the President (2001
Edition), increased by 12 percent in order to estimate fringe benefits.
141
    Giving and Volunteering in the United States – 2001, Independent Sector.



                                                                                                     73
Figure II-10
Individual Contributions Made to Organizations


                  No Contribution
                      10%


      Volunteer                                             Money
         2%                                                  46%         Money
                                                                         Money and Volunteer
                                                                         Volunteer
                                                                         No Contribution



         Money and
         Volunteer
           42%

Source: Giving and Volunteering in the United States – 2001, Nov. 2001, Independent Sector, 24 June
2003 www.IndependentSector.org.



Findings show that two-thirds of the 44% of adults who volunteer had their first
volunteer experience as youths. Also, children involved with giving and volunteering
before the age of 18 continued to volunteer as adults. The number of hours
volunteered did not change regardless of youth experience in volunteering, religious
attendance, household giving patterns, age, gender, race or ethnicity.142


The report, Engaging Youth in Lifetime Service,143 by Independent Sector and Youth
Service America, found that adults who had volunteered as youth give more money
and volunteer time as adults. Of the adults who were volunteers as youth, 92%
contributed versus 82% who were not involved.144 The average gift of volunteering
households was $2,295, whereas non-volunteering households gave $1,009.145


Sixty-three percent of those people who volunteered were asked to volunteer versus
25% who volunteered without being asked. 146 Also, of the 56% of households that
were asked by a charitable organization to donate, 95% did, whereas only 78% of
households that were not asked donated. Those households that were asked to
contribute gave significantly more: $1,945 versus $1,109 from households that were
not asked.147

142
      Giving and Volunteering in the United States – 2001, Independent Sector.
143
    “Engaging Youth Report Demonstrates the Lifelong Impact of Youth Service,” Independent Sector
Press Release 20 Nov. 2002, Independent Sector, 24 Nov. 2002 www.IndependentSector.org.
144
    Giving and Volunteering in the United States – 2001, Independent Sector.
145
      Giving and Volunteering in the United States – 2001, Independent Sector.
146
      Giving and Volunteering in the United States – 2001, Independent Sector.
147
      Giving and Volunteering in the United States – 2001, Independent Sector.



                                                                                                      74
Foundations
Foundations are the second largest source of contributed income. Over the past
decade both the number of foundations and their asset bases have more than
doubled. Although foundations were able to maintain giving levels at the beginning
of the recession in 2000, by 2003 foundations reported a combined decline in the
amount of dollars granted. As a result, the nonprofit community is now feeling
several changes to granting behaviors:
  • Multiyear gifts are less prevalent.
  • Foundations are less eager to fund new organizations and new projects that
      may pose more risk.
  • Foundations are requiring more rigorous proof of the effectiveness of their
      granting dollars.
  • Foundations are even more likely to support program rather than operating
      expenses.
  • Foundations are more interested in organizational stability than growth.


The following section will describe the various types of foundations that exist. It will
also cover foundational statistics, their asset and giving levels, and trends in
foundation giving to arts and cultural organizations.


General
Foundations are non-governmental, nonprofit organizations established with the
intention of enriching the public welfare through making monetary contributions to
charitable causes. Foundations support nonprofit charities, which are organizations
dedicated to specific missions rather than making profits for owners or investors.
Foundations are generally established through an initial gift from a principal donor or
group of donors. This money is then invested in stocks, bonds, real estate, and
other investments, which generate income for the foundation.


There are six major types of foundations. Four are considered independent:
proprietary foundations, family foundations, trusts and professional foundations. The
remaining two types are community foundations and corporate foundations. The
type of foundations is determined by who manages them. In proprietary
foundations, the founding donor or founder’s spouse is active in the decision-
making for investments and disbursement of funds. In family foundations, family
members such as siblings, children, or grandchildren of the founders make decisions.
Trusts are foundations or funds in which decisions are the responsibility of friends,
partners, or business associates of the original donor. Professional foundations
are foundations that are controlled entirely by a non-family board of trustees.
Community foundations are established in a particular community with funds
donated by a group of individuals and are governed by a board of community
representatives. Corporations establish corporate foundations, and donations are
made that align with the mission of the organization. Not all corporations have
foundations, some prefer making contributions through charitable giving programs.
Operating foundations will not be discussed because these foundations support
their own charitable programs and services and have limited grant-making ability.




                                                                                      75
Foundations are required by the Internal Revenue Service (IRS) to distribute 5% of
the value of their asset holdings. The dollar amount of foundation distributions is
generally determined by a three-year rolling average of assets. This means that
donations made in 2003 would reflect the average value of the foundation’s assets
from 1999 through 2002. Due to this method of valuation, gifts in 2000, 2001 and
2002 reflected the positive economy of the 1990s. In 2003, foundations reduced
overall distributions for the first time, as a result of decreased valuation of their
asset holdings.


As mentioned previously, Giving USA, 2002 reports that foundations account for
12% of all charitable proceeds to nonprofit organizations.148 Foundations support a
wide range of social programs, including the arts. The ten categories employed by
The Foundation Center, an agency that conducts research and reports on trends in
American philanthropy, include: education, health, human services, arts and culture,
public affairs and social benefit, environment and animals, religion, international
affairs, science and technology, and social sciences.


The total number of foundations in the United States has more than doubled since
1987. Between 1987 and 2002 the number of granting foundations grew from
27,700 to 62,000.149 In 2000 alone, the number of foundations grew 12.7%,
accounting for 6,381 new foundations -- the largest reported increase in the number
of foundations on record.150 In terms of giving patterns, the top 1000 foundations,
ranked by giving level, gave nearly 65% of total foundation giving in 2001.151 The
other 61,000 foundations provided the remaining 35% of foundation giving.


The majority of new foundations were formed in 1998 and 1999 and began granting
in 2000. These newly active foundations accounted for 16.7% of the growth in
foundation giving between 1999 and 2000 and accounted for 24.9% of the growth in
assets.152 Two-fifths of the 21,000 large private foundations -- those that held
assets greater than $1 million or gave at least $100,000 -- were formed since
1990.153


The first sign of an economic downturn came in the year 2000, when foundation
assets increased only 8.4%, after five years of double-digit growth. From 2000 to
2001, foundation assets dropped 3.8% from $486 billion to $476 billion. This
marked a complete reversal from the prior six years of strong, steady growth. The
Foundation Center estimates that overall, foundations lost 10 to 12% of their asset


148
      “2001 Contributions,” AAFRC Trust for Philanthropy.
149
   “Foundation Center Announces estimates for 2002 Foundation Giving, Prospects for 2003,” Foundation
Center News Flash, List serve 31 Mar. 2003, The Foundation Center, 31 Mar. 2003 FoundationCente@e-
mail.fndcenter.org.

150
      Renz, Foundation Growth and Giving Estimates 2001 Preview.
151
    Loren Renz and Steven Lawrence, “Foundation Growth and Giving Estimates 2002 Preview.”
Foundations Today Series, 2003 Edition, (New York: The Foundation Center, 2003).
152
    Renz, Foundation Growth and Giving Estimates 2001 Preview.
153
      Renz, Foundation Growth and Giving Estimates 2001 Preview.



                                                                                                  76
base in 2002.154 This trend of negative growth in assets is expected to continue in
the near future. In fact, over two-fifths (42%) of the respondents to The Foundation
Center’s 2003 “Foundation Giving Forecast Survey” survey projected a decline in
giving for the year.155


Over half of the top 50 foundations, ranked by assets, experienced losses in the
economic downturn. Several high-profile foundations heavily invested in high-tech
industries have been most severely impacted by the economic downturn. For
example, the David and Lucile Packard Foundation, located in California, reported
sizable losses and were forced to lay off staff. The Packard Foundation’s value
dropped from over $15 billion in 2000 to $5 billion in 2002.156 Other affected
foundations include some traditional arts funders, such as the Lilly Endowment, Ford
Foundation, and the Paul Getty Trust.157 These three foundations are ranked second,
third, and fifth by total foundation assets in 2001, and will impact the status of
foundation giving significantly.158


Trends in Giving Strategies
The downturn in the stock market has shifted the behavior of some granting groups.
For example, the Ford Family Foundation, in Oregon, indicated that it would be more
cautious about making several-year promises because of the negative impact it felt
on its endowment levels. The Charles A. Frueauff Foundation, in Arkansas, was
unable to consider funding new agencies for 2002. The Jessie Ball du Pont Fund, in
Florida, will be cautious to assess start-up organizations’ financial stability before
offering funding. Camphill Foundation, in Pennsylvania, is focusing on program
versus capital support. These are a few recent announcements from foundations,
but it is difficult to assess the total effect these changes will have on the arts sector
as a whole. 159


The boom in the stock market through early 2000 and the explosion of growth in
new foundations changed arts funding for the top funders. Ford Foundation
surpassed all others in arts giving (from eighth to first in rank for its support of the
arts). Andrew K. Mellon rose in rank from ninth to second place. Also, two of the
top fifteen arts funders were newly formed including the Doris Duke Charitable
Foundation in 1996 and the Bill and Melinda Gates Foundation in 2000.160


Overall, the assets of foundations have increased significantly over the past decade.
Community foundations have experienced a 201% cumulative growth since 1993 in
inflation adjusted dollars; independent foundations have increased their assets by

154
      “Foundation Center Announces estimates for 2002 Foundation Giving,” Foundation Center News Flash.
155
      Renz, “Foundation Growth and Giving Estimates, 2002 Preview.”
156
      “Despite Weak economy, Long-Term Outlook for Philanthropy Remains Positive,” PND News.
157
    Loren Renz and Steven Lawrence. “Foundation Growth and Giving Estimates, 2002 Preview.”
Foundations Today Series, 2003 Edition. The Foundation Center. New York. 2003.
158
    Renz, “Foundation Growth and Giving Estimates, 2002 Preview.”
159
    Loren Renz, Assessing the Post 9/11 Funding Environment: Grantmakers’ Perspectives, Foundation
Center, 24 June 2003 www.fndcenter.org.
160
    Loren Renz, The Foundation Center’s 2002 Arts Funding Update, Foundation Center, 24 June 2003
www.fdncenter.org.



                                                                                                     77
132%; and corporate foundation assets have grown by 67%.161 With the increased
asset holdings, the giving levels of these foundations far surpass those of a decade
ago, the downturn in the economy notwithstanding.


Foundation Giving Levels
Since foundation giving levels are closely linked with foundation asset levels, overall
foundation giving has more than doubled since 1996. In 1996, foundations granted
$13.8 billion. Granting rose steadily to $30.5 billion in 2001.162 In 2002, the dollar
amount of grants fell slightly to $30.3 billion.163 This 0.7% decline of $200 million is
attributed to the three years of decreased stock value and the economic recession.164
In 2001, despite the economic downturn, foundation giving grew 5.1%.165


Stabilization Factors
The anticipated drop-off in foundation giving has been buffered by several stabilizing
factors. According to Foundation Growth and Giving Estimates: 2002 Preview, there
are four primary factors that worked to stabilize foundation giving. One, grants
given by newly formed foundations increased philanthropic resources. Two, high
levels of donations by individuals to foundations compensated for lost valuation due
to the stock market. Three, fulfillment of individual’s commitments after the 9/11
attacks bolstered foundation grants. Four, foundation’s efforts to maintain giving
levels in spite of the economic decline and political turmoil, have helped to keep the
overall giving levels stable.166


Independent Foundations
Nonprofit arts and cultural institutions tend to rely most on independent foundations,
since they account for the majority of foundation giving. For example, independent
foundations gave an estimated $23.3 billion in grants in 2002, or 77% of the total
$30.3 billion.167 In 2002, granting levels fell $364 million below the 2001 granting
level of $23.7 billion. Actually, independent foundation giving started to decline in
2001, when only 5.4% more was given than in 2000. This followed an 18.7%
increase in giving in 2000 and a 20.5% increase in 1999.


Community Foundations
Community foundations, like other foundations, have seen decreasing growth in the
past few years. In contrast to the 17.1% increase in giving in 2000, community
foundations – 560 by The Foundation Center’s count – gave an additional 4.5% in
2001 (from 2.2 billion to 2.3 billion). This substantially reduced growth in
community foundation giving reflects the sensitivity of individual donors to the
changes in the economy.


161
      Renz, “Foundation Growth and Giving Estimates 2002 Preview.”
162
      Renz, “Foundation Growth and Giving Estimates 2002 Preview.”
163
      “Foundation Center Announces estimates for 2002 Foundation Giving,” Foundation Center News Flash.
164
      Renz, “Foundation Growth and Giving Estimates 2002 Preview.”
165
      Renz, “Foundation Growth and Giving Estimates 2001 Preview.”
166
      “Foundation Center Announces estimates for 2002 Foundation Giving” Foundation Center News Flash.
167
      Renz, “Foundation Growth and Giving Estimates 2002 Preview.”



                                                                                                    78
In spite of the deceleration in foundation giving, community foundations, as a
foundation type, still outpace the growth in giving of the other type of foundations.
Since 1991, community foundations increased four-fold. Individual foundations
increased three-fold in the same time period, and corporate foundations increased
two-fold.168 Assets of community foundations increased 10.2% in 2000, from $27.6
billion to $30.5 billion -- nearly half the increase experienced in 1999.
Concomitantly, gifts to community foundations increased only 16.2% in 2000,
compared to 27.6% in 1999.169


Corporate Foundations
Trends specific to corporate foundations are discussed in this section. Similar to
independent foundations, corporate foundations must pay out at least 5% of the
value of their investments from the preceding year. However, because corporate
foundations tend to make grants based on annual contributions from the company
and retain relatively few assets, the ratio of giving to assets is higher than for
independent foundations. There are several ways in which corporations support the
arts: they contribute through corporate foundations, make tax-deductible donations
similar to individual giving, and pay for sponsorship out of marketing dollars.


There are 2,018 corporate foundations that report to The Foundation Center.170 In
sum, they gave an estimated $3.1 billion in 2001, up $78 million from 2000. This
amount, however, reflects the smallest increase since 1995.


In general, fewer corporations are giving larger gifts. The average corporate gift
grew from $8,017 in 1997 to $9,505 in 2001. When adjusted for inflation, this
equals a 10% increase between 1997 and 2001. 171 According to the Theatre
Communications Group study of theater data from 1997 through 2001,172 average
corporate support decreased in 2001. This one-year decrease notwithstanding,
corporate giving rose 22% (adjusted for inflation) over the 5-year period studied by
the Theatre Communications Group. 173


According to The Foundation Center report, “this slower growth in giving compared
to other types of foundations reflects the greater vulnerability of corporate
foundations to reduced profits.”174 Since profits are directly related to the giving
potential of corporations, these gifts decreased as the economy contracted.

Foundations Giving to the Arts
The following trends are apparent regarding foundation funding and the arts. The
arts remain a high-priority funding category for foundations. Performing arts still

168
      Renz, “Foundation Growth and Giving Estimates 2001 Preview.”
169
      Renz, “Foundation Growth and Giving Estimates 2001 Preview.”
170
      Renz, “Foundation Growth and Giving Estimates 2001 Preview.”
171
      Renz, “Foundation Growth and Giving Estimates 2001 Preview.”
172
      Theatre Communications Group, “Theatre Facts 2001.”
173
      Theatre Communications Group, “Theatre Facts 2001.”
174
      Renz, “Foundation Growth and Giving Estimates 2001 Preview.”



                                                                                       79
receive more grants and granting dollars than visual arts, and both of these
categories receive more funding than other arts disciplines. Although the amount of
funding to the arts has increased steadily over the past decade, with only a slight
decline in 2002 giving levels, a change in the disbursements of these funds has
occurred: the size of grants has decreased and the number of grants rewarded has
increased; and program support is now more readily given than operating support.


In 2001, foundations were the third largest source of contributed income for arts
organization. Individuals ranked first, followed by corporations.175 Of all foundation
giving, arts and culture represented 13.4% of total activity. This is down from the
14.8% share reported in 1998. In the 1999 sample, 88% of foundations (898 of
1,016) supported arts and culture.176


The arts ranked fourth in receiving grant dollars from the largest foundations in the
country, below education, health, and human services.177 Results from The
Foundation Center’s 2001 survey indicate that arts and cultural organizations
received 12% of grant dollars and 15% of total grants awarded. This reflects less
than a 1% change from The Foundation Center’s 2000 sample178 and the first decline
in giving since 1983.179


In 2000, foundations provided $3.69 billion for the arts, culture, media and the
humanities. This more than doubled the $1.83 billion support estimated for 1996.
The rate of arts funding since 1996 was 101.8%, compared to 99.2% for grant
making overall. Adjusted for inflation, this is an 83% increase over this period, or
an average of 16.3% per year since 1996.180


From 1998 to 1999, grant dollars for arts and culture from foundations reporting to
Grantmakers in the Arts (GIA) increased by $115.2 million, from $1.44 billion to
$1.55 billion. 181 In The Foundation Center’s 2000 sample, foundations awarded $1.8
billion, of the $27.4 billion total, to the arts in 2000, doubling the $899.9 million
awarded in 1996.


Although the dollar amount of grants decreased in 1999, the number of grants made
rose slightly between 1998 and 1999, from 14,105 to 15,878 – a 1,773 increase.
The median grant amount for arts and culture grants was $25,000 for 1999. The
median grant amount in all categories of granting was slightly higher, at $25,361.
The $25,000 level was the same in 1992 and 1995, but this data is not adjusted for

175
    Loren Renz, The Foundation Center’s 2002 Arts Funding Update, Foundation Center, 24 June 2003
www.fdncenter.org.
176
    A Snapshot: Foundation Grants to Arts and Culture, 1999, Fall 2001, Grantmakers in the Arts, 24 June
2003 http://www.giarts.org/pdf/snapshot.pdf.
177
    “Highlights of The Foundation Center’s Foundation Giving Trends,” 2003, Foundation Today Series,
Foundation Center, 24 June 2003 www.fdncenter.org.
178
    Renz, “The Foundation Center’s 2002 Arts Funding Update.”
179
      Renz, “Foundation Growth and Giving Estimates, 2002 Preview.”
180
      Renz, “The Foundation Center’s 2002 Arts Funding Update.”
181
      Renz, “The Foundation Center’s 2002 Arts Funding Update.”



                                                                                                     80
inflation. This means there was a drop in the real dollar value. The GIA study
cannot tell if grants are being distributed more broadly or if foundations are just not
keeping up with inflation.182


Data from the Theatre Communication Group report,183 Theatre Facts 2001, indicate
that theaters are receiving more foundation gifts, but the growth in average gift size
is not keeping pace with inflation. Inflation adjusted figures indicate a 3% drop in
foundation gift amounts from 1997 through 2001. At the same time, the average
number of gifts received by theaters increased from an average of 15 in 1997 to 23
in 2001. So, although foundation giving rose 64% over the five-year period of this
study, arts organizations had to apply for more grants in order to achieve the same
contribution amounts.184


In 1999, 66% of all arts grants in the GIA sample fell in the range between $10,000
and $49,999. In 1998, 69% of grants fell in this range. The number of grants in the
$50,000 to $499,999 range increased from 28% in 1996 to just less than 31% in
1999. Large grants, $500,000 and over, remained the same since 1996,
representing only 3% of the total number of arts grants. Their dollar amount,
however, increased 41% in 1996 and 50% in 1999. The foundations in this granting
range made a combined 54 arts grants of at least $2.5 million in 1999. 185


The largest grant in The Foundation Center’s 1999 sample was a $62.4 million in-
kind donation of artwork awarded from the Andy Warhol Foundation for the Visual
Arts’ (NY) to the Andy Warhol Museum in Pittsburgh. The donation included several
original pieces of artwork by Andy Warhol. 186


In 2000, performing arts received 32.2% of the grant money going to all arts
categories and 40.7% of total art grants. The strongest support was for music
(especially symphony and opera), performing arts centers and schools, theaters, and
dance. Museum activities (including art, science and children’s museums) received
29.1% of art dollars. Grant dollars for media and communications (including
journalism, literary publishing, public radio, television, film and video and new
media) totaled 9.9% of arts funding. Nearly nine percent went to multidisciplinary
arts, including arts centers, arts councils, and multicultural arts programs. The final
area of major support was for the humanities, historic preservation, and
architecture. 187


From 1996 to 2000, nearly every area of the arts experienced exceptional growth.
The arts, historically under-funded, benefited the most during this period. Funding
of the humanities and the multidisciplinary arts experienced the largest increase in

182
      Grantmakers in the Arts, “A Snapshot: Foundation Grants to Arts and Culture, 1999.”
183
      Grantmakers in the Arts, “A Snapshot: Foundation Grants to Arts and Culture, 1999.”
184
      Renz, “The Foundation Center’s 2002 Arts Funding Update.”
185
      Grantmakers in the Arts, “A Snapshot: Foundation Grants to Arts and Culture, 1999.”
186
      Grantmakers in the Arts, “A Snapshot: Foundation Grants to Arts and Culture, 1999.”
187
      Renz, “The Foundation Center’s 2002 Arts Funding Update.”



                                                                                            81
dollar amount received; humanities gained 218% in funding and multidisciplinary
arts gained 112%. Even the best funded arts fields benefited during this period.
Performing arts giving increased by 96% and museum support increased 81%. In
actual dollar values, funding grew by $284 million for the performing arts and by
$234 million for museum activities. 188


When arts grants are broken down for the year 1999 by the type of arts organization
receiving them, 34% of funding went to museums, 31% to performing arts. Since
the 1980s, performing arts have tended to receive more funding, but this balance
has been shifting. Museum funding surpassed performing arts in the late 1980s and
early 1990s, and again in 1998.189 The dollar amount of grants allocated to
museums increased by 10% between 1998 and 1999, from $479.4 to $528.6 million
and the number of grants increased by 15%. Of the sample of funders in the GIA
survey, 69% supported museums. Among museum types, art museums attracted
the largest proportion of grants: 46% in 1999, which is an increase of 44% from
1998.190


As mentioned previously, in 1999, performing arts received 31% of all arts dollars.
The dollar amount of performing arts grants increased by only 6%, compared to 14%
for museums. Giving in 1999 totaled $476.4 million, up from $451.3 million in 1998.
The largest amount of performing arts funding went to music (including symphony
orchestras and opera), performing arts centers, and theater. Although the
performing arts received less money overall, the number of grants increased, so the
average dollar amount of grants decreased that year. Of the survey respondents,
71% supported the performing arts.191


Support for media and communications represented 8% of arts funding in 1999,
which was only a slight increase over 1998. Seven grants of at least $2.5 million
each were made to the media and communications field in 1999; only three were
made in 1998. The other categories were preservation of arts and culture, receiving
7% (up from 5% in 1998); literature, receiving 5%; and architecture and visual arts
(exclusive of museums), receiving 4%.192


For the major categories of operating support, program support and capital support,
arts and cultural organizations received 30.2% for specific projects and program
support, 41.0% of grants for capital support, and 18.3% for general operating
support in 1999. 193 Capital support donations to arts and cultural organizations
have fluctuated more than operating and program support. Grant dollars for
operating support was higher for arts and culture (18.3%) than any other funding
area except for public and society benefit funding (i.e., civil rights and social action,
community improvement, philanthropy and volunteerism and public affairs), which

188
      Renz, “The Foundation Center’s 2002 Arts Funding Update.”
189
      Grantmakers in the Arts, “A Snapshot: Foundation Grants to Arts and Culture, 1999.”
190
      Grantmakers in the Arts, “A Snapshot: Foundation Grants to Arts and Culture, 1999.”
191
      Grantmakers in the Arts, “A Snapshot: Foundation Grants to Arts and Culture, 1999.”
192
      Grantmakers in the Arts, “A Snapshot: Foundation Grants to Arts and Culture, 1999.”
193
      Grantmakers in the Arts, “A Snapshot: Foundation Grants to Arts and Culture, 1999.”



                                                                                            82
reported 21.7% for operating expense. 194 The arts also received less money for
professional development when compared to overall giving. 195 Figure II-11
illustrates these statistics.


Figure II-11
1999 Funds Received for the Major Categories of Support

                                                   Project/Program
  General Operating
                                                   Support, 30.2%
   Support, 18.3%


                                                                            Project/Program Support
                                                                            Capital Support
                                                                            General Operating Support



  Capital Support,
      41.0%


Source: A Snapshot: Foundation Grants to Arts and Culture, 1999, Fall 2001, Grantmakers in the Arts, 24
June 2003 http://www.giarts.org/pdf/snapshot.pdf.

In 2000, 38.2% of grant monies went to specific projects and programs, 32.4% went
to capital support, and 21.9% provided operating support.196 When compared to
overall foundation giving, a large share of arts grant monies went to program and
capital support. Figure II-12 illustrates these results.




194
      Grantmakers in the Arts, “A Snapshot: Foundation Grants to Arts and Culture, 1999.”
195
      Renz,“The Foundation Center’s 2002 Arts Funding Update.”
196
      Renz,“The Foundation Center’s 2002 Arts Funding Update.”



                                                                                                      83
Figure II-12
2000 Funds Received for the Major Categories of Support


        Ge ne ral O pe rating
                                                  Proje ct/Program
         Support, 21.9%
                                                   Support, 38.2%



                                                                          Project/Program Support
                                                                          Capital Support
                                                                          General Operating Support

       Capital Support,
            32.4%




Source: A Snapshot: Foundation Grants to Arts and Culture, 1999, Fall 2001, Grantmakers in the Arts, 24
June 2003 http://www.giarts.org/pdf/snapshot.pdf.



Northeastern foundations accounted for nearly one-third of all arts funders (285) and
provided the largest share of support in 2000 and 2001. The Northeast ranked first
of the four regions. The Midwest ranked second and was followed by the South and
the West. Although it is true that many foundations give to organizations in their
area, many arts organizations in the West benefit from funds from foundations in
other parts of the country. More specifically, arts organizations in the West receive
one-fifth of grants, and foundations in the same area only provide one-sixth of all
arts funding.197




197
      Renz, “The Foundation Center’s 2002 Arts Funding Update.”



                                                                                                    84
Giving after 9/11
After the 9/11 terrorist attacks in 2001, organizations that rely on philanthropy were
concerned that the high level of giving in response to this event would decrease the
amount of money received by nonprofits for pre-existing programs and services.
Independent, corporate, and community foundations utilized different sources for
their contributions but, overall, employed strategies that did not lessen their normal
program grants. Funding groups also indicated that they did not shift their giving
priorities away from the arts as a result of 9/11.


The Foundation Center report, “Assessing the Post 9/11 Funding Environment:
Grantmakers’ Perspectives,”198 investigates the effect of 9/11 on giving. It focuses
on all charitable contributions, though, so it may not give a true indication of the
effect on arts funding specifically. The report does, however, look at the funding
priorities in the context of the arts. The goals of this report were to provide a
quantitative study on the sources and purposes of 9/11 pledges and to assess the
impact of the 9/11 response in relation to the stock market decline.


In its study, The Foundation Center asked questions to determine the extent to
which the 9/11 contributions were made from existing contribution budgets rather
than from alternate sources. The Foundation Center found that more than 56.7% of
the 240 respondents reported that they made 9/11 donations from their annual
contributions budgets. Almost 32% drew from reserve funds that did not affect their
contributions budget. Note: the overlap is caused by many organizations drawing
funds from a combination of sources.199


Trends of giving varied among the independent, corporate, and community
foundations considered. The report indicates that, although contributions budgets
were a source for 9/11 donations for more than half of the respondents, foundations
did not release the money by reallocating funding for other programs. Only 38 of
the 240 respondents (15.8%) reduced funding to other programs as a result of
donations given in response to 9/11.200


Independent foundations were more likely than corporate and community
foundations to use their contributions budget post 9/11. Nearly 70% of independent
foundations drew funds from their contributions budget. However, the largest
independent foundations were most likely to use discretionary budgets in their
exceptionally large 9/11 gifts. Overall, independent family foundations only reduced
year-end giving by 6%.


Corporate foundations made gifts related to 9/11 causes using employee matching
funds or discretionary funds. Nearly 40% of corporate foundations reported using
matching programs, and 60% drew on discretionary funds for at least part of their
9/11 donations. Half of the corporate foundations used contributions budgets as

198
      Renz, “Assessing the Post 9/11 Funding Environment: Grantmakers’ Perspectives.”
199
      Renz, “Assessing the Post 9/11 Funding Environment: Grantmakers’ Perspectives.”
200
      Renz, “Assessing the Post 9/11 Funding Environment: Grantmakers’ Perspectives.”



                                                                                        85
well. Corporate and public foundations were most likely to reduce other
programming as a result of donations given in response to 9/11.201


Community foundations were the least likely group to use their contributions budgets
(only 29.8%). One-third of community foundations used donor-advised funds and
22.8% used discretionary funds. Of the participants, 17% raised funds through
community efforts. In The Foundation Center report, community foundations
represented the second largest category of respondents. They were preceded by
independent foundations and followed by public foundations. This means that
community and public foundations are over-represented in the study. Also,
Pennsylvania had one of the largest proportions of respondents to the study. 202


The second focus of inquiry in the study was whether or not the heightened giving
for 9/11 indicated a permanent shift towards programming interests other than the
arts. The overwhelming response from grantmakers was that their programming
priorities did not change as a result of 9/11 (95% of the 333 respondents). On the
contrary, many foundations indicated that they recognized that granting was even
more important in difficult economic times. Out of all granting groups, corporate
donors were the least likely to change their programmatic interests.203


In conclusion, increased giving by individual, corporate, and community foundations
after 9/11 has not significantly decreased the normal contributions by these same
donor organizations. Instead, grantmakers recognize their support is all the more
important in tough economic times. As a result, many organizations were prompted
to adjust their policies to be able to give in times of catastrophic events, such as the
9/11 attacks.


Foundations in Pennsylvania
Pennsylvania in general, and Southwestern Pennsylvania in particular, have
benefited from a long history of foundation philanthropy. The Commonwealth’s first
foundations, the Female Association of Philadelphia and the Union Benevolent
Association, were established in 1810 and 1831 respectively.204 In 2001,
Pennsylvania was home to 3,005 grantmaking foundations.205


In 1999, Pennsylvania experienced an 87% giving rate by independent foundations,
versus the 77% found in the U.S. Giving by corporate and community foundations
was lower in Pennsylvania than in the United States: corporate foundations
accounted for 9% in Pennsylvania versus 12% nationwide, and community
foundations accounted for 3% in Pennsylvania versus 8% nationwide.206


201
      Renz, “Assessing the Post 9/11 Funding Environment: Grantmakers’ Perspectives.”
202
      Renz, “Assessing the Post 9/11 Funding Environment: Grantmakers’ Perspectives.”
203
      Renz, “Assessing the Post 9/11 Funding Environment: Grantmakers’ Perspectives.”
204
      Common Wealth, Grantmakers of Western Pennsylvania.
205
      Common Wealth, Grantmakers of Western Pennsylvania.
206
      Common Wealth, Grantmakers of Western Pennsylvania.



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When compared to the United States, Pennsylvania was more supportive of arts and
culture; education; the environment; and public/social benefit, and less supportive of
health; human services; international affairs; and science and technology.


Table II-12
Pennsylvania Foundation Support Categories Comparison to United States, 1999

                                  Pennsylvania       United States       Difference
Arts & Culture                    16%                13%                 3%
Education                         31%                24%                 7%
Public / Social Benefit           15%                11%                 4%
Human Services                    13%                16%                 -3%
Environment & Animals             11%                6%                  5%
Health                            8%                 17%                 -9%
Science & Technology              2%                 4%                  -2%
International Affairs             1%                 3%                  -2%

Source: The Foundation Center. U.S. based on a national sample of 1,016 U.S. larger foundations giving
grants of $10,000 or more. 1999 PA figures based on a sample of 53 larger PA foundations.



In 1999, Pennsylvania received $1.3 billion in foundation grants. These grants came
from a combination of independent, corporate, and community foundations.
Independent foundations gave the largest share of all grant dollars ($1.1 billion of
the $1.3 billion total). Community foundations gave $42 million, and corporate
foundations gave $109 million.207


Pennsylvania foundation grants awarded to Southwestern Pennsylvania recipients
increased steadily from 1992 to 1999. The cumulative increase from the 1992 level
of $101.2 million to the 1999 level of $222.8 million was 85%. 208


Corporate foundation giving increased from $107.3 million to $108.6 million from
1992 to 1999. When adjusted for inflation, this reflects a 15% decrease in
foundation giving. Increasing independent and community foundations have
compensated for the decrease in corporate foundation giving. Corporate giving has
decreased from 14% to 9% of total foundation contributions in Pennsylvania.
Nationally, corporate foundation giving has increased over the past decade, although
this group’s giving has slowed considerably with the downturn in the economy. 209


Of all regions in Pennsylvania, corporate foundation giving is strongest in
Southwestern Pennsylvania. Corporate foundation giving in Southwestern



207
      Common Wealth, Grantmakers of Western Pennsylvania.
208
      Common Wealth, Grantmakers of Western Pennsylvania.
209
      Common Wealth, Grantmakers of Western Pennsylvania.



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Pennsylvania totaled $66.3 million. By contrast, Southeastern Pennsylvania received
less than half of that, with $26.9 million. 210




210
      Common Wealth, Grantmakers of Western Pennsylvania.



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Government Grants


Federal Government
In 1992, the National Endowment for the Arts (NEA) funding level reached a height
of $176.0 million. Due to political controversy, the NEA appropriations budget was
reduced to $98.0 million in 1998 and remained at that level until 2001. The NEA
budget for fiscal 2001 was $104.7 million.211 This represents the first increase to
the NEA budget since 1992. The $7 million increase was allocated specifically for
Challenge America, which is a federal arts initiative targeted to enhance arts
education, access to the arts for underserved areas, and community arts
development. Challenge America provided $500,000 for Creative Communities, a
pilot partnership program between the U.S. Department of Housing and the National
Guild of Community Schools of the Arts.


The proposed NEA budget for fiscal 2004 is $117.5 million. This would be an
increase of $1.8 million over the fiscal 2003 appropriation for the arts agency. If
approved, the NEA Chair, Dana Gioia, will administer $30.2 million to support nearly
1,100 projects in artistic creativity and preservation; $4.5 million to support
performing arts on television, radio and film; $11.4 million to support 450 projects in
learning in the arts; $17 million for the Challenge America program; and $38.2
million for partnerships with state arts agencies, regional arts organizations and
other organizations.212 (Legislation is expected to be approved by early November
2003.)



State Government
The budget for each arts agency is different. As mentioned previously, state arts
agency budgets have been cut in order to balance state budgets. The Pennsylvania
Council for the Arts is budgeted for $14 million. Please see the section on State Arts
Agency.




211
      “National Endowment for the Arts: 2001 Annual Report,” National Endowment for the Arts.
212
   “Gioia Testifies on 2004 Arts Budget,” News From NASAA, National Association of State Arts Agencies,
4 Nov. 2002 www.nasaa-arts.org/nasaanews/gioia_budget.shtml.



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Local Government
The largest source of local government funding for the arts in Southwestern
Pennsylvania is the Allegheny Regional Asset District. The Allegheny Regional Asset
District (ARAD) was established by Allegheny County to collect a one-percent tax
mirroring the state tax. One–half of the income generated is distributed to civic,
cultural and recreational entities, libraries, parks and sports facilities within
Allegheny County, and one-half is distributed to fund other activities in Allegheny
County. 213
The allocation to the ARAD fiscal year 2003 is $75.3 million. Approximately 8%, or
$6 million, will go to arts and cultural organizations in Allegheny County. 214 The
funds are distributed between contractual assets and annual grants, and they
support operating and capital expenses. Contractual assets go to Allegheny County’s
Library Association, Carnegie Library of Pittsburgh, Carnegie Museums of Pittsburgh,
regional and city parks, the National Aviary of Pittsburgh, Phipps Conservatory, the
Pittsburgh Zoo, the Sports and Exhibition Authority, and the Urban Redevelopment
Authority. Grants go to 74 different arts and cultural organizations in Allegheny
County and range from $2,500 to $495,000.215




213
    For   a complete list please see “Allegheny Regional Asset District 2003 Final Budget.” RAD Works Here.
Online.   <http://radworkshere.org/finalbudget03.shtml>
214
    For   a complete list please see “Allegheny Regional Asset District 2003 Final Budget.” RAD Works Here.
Online.    <http://radworkshere.org/finalbudget03.shtml>
215
    For   a complete list please see “Allegheny Regional Asset District 2003 Final Budget.” RAD Works Here.
Online.   <http://radworkshere.org/finalbudget03.shtml>



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