The OAF Blog

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.

Recycling Capital

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.

http://www.theglobeandmail.com/arts/theatre-and-performance/making-way-for-new-blood-in-canadas-performing-arts-scene-without-killing-the-old-guard/article11415344/

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:

 Key Drivers

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….

Loyalty

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.

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 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.

http://millerthomson.com/en/publications/newsletters/charities-and-not-for-profit-newsletter/march-2013?print=true

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.)

Canada Cultural Investment Fund: Endowment Incentive

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 Incentive 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.
   

An immediate financial contribution, then a chequ or donation of securities is easily accomplished, 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.

It is important to understand the arts 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.

In the situation of honoring 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.

Lastly, 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.

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’…..

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

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.

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 “LYBNTS” – 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 “SYBNTS” – Some Year But Not This.

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

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.

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, 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.

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.

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 tax benefits to the business for their matching contribution, and this is 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. 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:

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.

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 the paper, and our Vice Chair John McKellar have stated – “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.

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.