Common Issues Facing the Arts in Canada and the U.S.
December 16, 2015
Canada does not have an annual gathering of arts funders that embraces private, government and public funders similar to Grantmakers in the Arts in the U.S. Therefore, it is always interesting to monitor the dialogue coming out of the organization’s annual fall conference. At the 2015 meeting, a couple of key themes were tabled that we feel are equally relevant to the Canadian arts sector.
Sustainability The discussion revolved around actions funders can consider to help arts organizations achieve long-term sustainability, and access capital resources to help weather economic fluctuations in the hopes of achieving stable operating revenue that is close to meeting operating expenses year over year. Many organizations are simply unable to move beyond the annual scramble to fundraise and/or meet earned revenue targets for the arts programs they deliver.
Building sufficient capital reserves is a strategy that is desirable, but seems today to lack the ‘sizzle’ of current themes of funding social enterprise/social impact investing. Practically, raising funds to meet current operations is critical to the delivery today’s arts programming (as well as the employment of artists, delivery of arts education etc.). The allocation of scarce resources is a common challenge. The attention paid by some funders to social impact/ social enterprise initiatives (totally laudable) inevitably means funding for operations gets squeezed.
Equity Allocating funding between established arts organizations and new and emerging organizations is also a common refrain. Where to place funds so that they do the most ‘good’ is a challenge, particularly at the government funding level where demand increases and funding dollars are flat or declining.
The dialogue continues...do we fund the established, well know organizations at the expense of investing in new, often culturally diverse arts organizations, or the reverse – insist on greater financial independence from the larger organizations and help support the next generation of artists and arts organizations? There is no common answer to the issue. Finding a balance between established and emerging is a continuing dialogue. Funding that reflects the cultural evolution and diversity in our communities does seem a reasonable approach.
Other topics raised at the U.S. conference included:
Tenure – how long should a funder support an organization? Should there be an expectation of achieving financial independence and allow funding to move to a new organization?
Reporting – understanding the effectiveness and impact of grants made to arts organizations. Has the investment generated positive results (a subtext is over what time should that be assessed).
Capitalization – helping organizations establish financial reserves to weather changing times and economic cycles. This is where the topic of endowment plays a role.
Where should the strategic emphasis be? Capacity, sustainability and engagement – what is a reasonable time frame for each?
The GIA website does not have open access to all conference presentations, but there are excellent blog summaries by Barry Hennius and Lara Davis on the conference proceedings. Always worth a read.
Ontario's Culture Strategy
November 25, 2015
The Ontario Arts Foundation is committed to the contributing to the success and financial stability of the arts in Ontario. We do this by connecting private donors and the arts through endowments largely established in response to government matching programs. The OAF has invested significant time in the past year to raising the profile of matching programs at the provincial and federal level. We have met with Artistic Directors and Arts Managers to provide information about long term funds and discuss whether the timing is right for their arts organization to raise endowment capital and apply for matching grants.
At the moment, the only active matching program is federally throught the Department of Canadian Heritage, Canada Cultural Investment Fund, Endowment Incentives Matching Program. We are in regular contact with senior staff at Ontario’s Ministry of Tourism, Culture and Sport to reminding government of the benefits of matching, the value over time of the provincial Arts Endowment Fund program (1998-2008) and encourage a new investment.
Ontario's Culture Strategy It is an opportune time to elevate the profile of endowment and matching with the Province of Ontario's Culture Strategy currently underway.
We met in September with Deputy Minister Drew Fagan and Assistant Deputy Minister Kevin Finnerty to share information about the compelling economic results of the Arts Endowment Fund program and to encourage the Ministry to invest in renewing the AEF program as an outcome of the Culture Strategy.
In October, we met Canadian Heritage Deputy Minister Graham Flack to express appreciation for the Federal government’s continued investment in endowment matching. Now that the election is over, we asked the Ministry to consider alternate ways to support arts organizations, specifically art galleries and museums currently ineligible for the Endowment Incentives program. We look forward to meeting Canadian Heritage Minister Joly and to learning more about the new government’s priorities as part of the 2016 Federal Budget.
Ontario Arts Foundation's Submission We are participating in the town hall Culture Talks sessions this November and December hosted by the Ministry of Tourism, Culture and Sport. We encourage all arts organizations, their leaders and board members to attend one of the remaining sessions if you haven't already, and to share your vision for arts and culture in Ontario. If your organization holds an endowment under the Arts Endowment Fund program, it is an opportunity to express in your own words, the stream of secure income you receive.
We are sometimes asked by an arts organization why the 2015 income paid from their endowment was 4.5%, when the Foundation earned investment returns of almost 14% for the year. There are two answers to the question:
Our investment policy goal is to earn returns ( interest, dividends, capital gains ) that allow for consistency in income payments year over year. In years where portfolio returns are particularly strong, we ‘bank’ some of that return so as to be able to keep income distributions stable against years where returns are lower/more volatile. The Board takes a long term view and considers long term results as well as short term returns making the annual payout decision. In 2014, one year returns were almost 14%, but looking at 10 year Foundation investment returns, the average is closer to 7%. An income return of 4.5% is in our view, reasonable and allows for a reserve (“cushion”) to cover future inflation and periods where markets are volatile or returns are lower.
The second reason is that the Board and our investment managers believe that the double digit investment returns of the past 3 to 5 years are not likely to continue.
Lower Investment Returns
Opinions will always vary, but there is a common view that suggests the world is moving, over the next 3 to 5 years to an environment of lower investment returns. Slower global economic growth, appears to be the new norm. This results from continued high levels of government and household debt, aging demographics as boomers retire (they save more and spend less which impacts government tax revenues), and slower transitioning of emerging economies. After a period of years where interest rates have been at low to near zero levels, it is anticipated the US Federal Reserve will begin to slowly increase interest rates in 2015. The increases are expected to be small and Canada will likely lag moves in the US. Canada’s economic growth is more mixed than the US, due to challenges faced by an energy and commodity led economy.
The US economy remains a global driver and is slowly improving, but at a slow pace. As it strengthens, US interest rates are expected to rise. High equity returns of the past 3 to 5 years have resulted in high asset valuations. Our managers don’t see this as sustainable. The likely outcome, in the near term are positive equity returns, but at lower levels closer to a 10 year average of 5 to 7%. Our expectation is that the managers the Foundation employs will achieve, and exceed those returns.
We believe that equity and fixed income markets will deliver positive, but lower total returns in 2015 and for the next 3 to 5 years. Our strategy and asset allocation policy continues to be biased towards equities, and is focused on high quality companies, well managed, holding conservative balance sheets and a history of generating positive returns.
We believe the beneficiaries of endowments want their capital to be protected, to grow and to deliver a sustained level of income. In times where other sources of income to an arts organization are more variable, this stability is important and a comfort as an organization builds its future arts programming.