Tuesday, May 5, 2015

The Future of Funding – Revisited

One of the best things about attending the annual AAM meeting is the serendipitous networking that takes place 24/7. For example, as I ran from event to event one evening, I connected for just a nanosecond with Carl Hamm, deputy director for development and external affairs at the Saint Louis Art Museum. That jogged his memory about a guest post he was writing for CFM,  inspiring him to polish it up when he got back from Atlanta. Carl is one of my go-to colleagues for analysis on trends in philanthropy, and I'm pleased to share this installment of his ongoing commentary on museum funding. Given the debate, at the conference, about ethics, donors and influence, I will add some questions for your consideration: if, as Carl projects, museums become even more dependent on a small, affluent pool of supporters, will the politics, policies and positions of these donors influence our own agendas? If those agenda's conflict with a museum's mission or goals, how do we brace ourselves to say "no" to much needed cash, or protect our credibility if we accept the funding? Even in the best cases, where a donor's influence reinforces the museum's own values, how do we avoid becoming disconnected from the opinions and needs of our audiences, if they don't wield the power of the purse?

Three years ago, the museum field was abuzz with notions that crowd funding would become a major source of funding for museums, fear that the 1% would exercise inappropriate influence, and the idea that the charitable deduction disproportionately benefits the rich. 

In that context, I wrote a blog for the Center in 2012 distinguishing ‘funding’ from ‘giving’ and suggesting that, for the foreseeable future, museums should still focus their emphasis on raising major gifts from individual donors and families as the primary effort of their sustainable fund raising programs. 

Reflecting on several pieces of disparate but connectable data over the past several months, it seemed time to revisit my earlier thoughts.  Have changes in the world over the past three years suggested that more populist giving strategies for museums might be imminent, or prudent as a primary strategy?

If anything, it seems to me that the future of charitable giving for museums is likely to be even more reliant on major gift philanthropy than it was three years ago.
In January, Oxfam released a study reporting that the richest 1% of people in the world now holds 48% of the world’s wealth and, if current trends hold, by 2016 this group will own more wealth than the remaining 99% of people on the planet. 

Andrew Carnegie's philanthropy. Puck
magazine cartoon by Louis Dalrymple, 1903
Oxfam’s point, and the recommendation of their study, is their belief that governments should implement policies to “redistribute money and power from the few to the many.” But wouldn’t this data also suggest that, as soon as next year, even fewer individuals and families will control the majority of resources available for discretionary charitable giving?

Giving by high net worth households continues to grow.  In October 2014, US Trust and the Lilly Family School of Philanthropy at Indiana University released its fifth biennial report on the state of giving among high net worth individuals and families, suggesting that practically all (98%) high net worth households gave to charity in 2013, compared to 65% of the general population.  And 70% of these households gave to the arts.

According to The Philanthropy Outlook for 2015 & 2016 published in February by the Lilly School and presented by Marts & Lundy, the percentage of giving by those who itemize deductions on their tax returns is expected to grow by 6% in both 2015 and 2016; yet giving by those who don’t itemize is predicted to drop to less than 10% of overall giving. This represents a significant shift: for more than two decades, non-itemizers’ gifts have represented some 15-20% of giving in America.

More individuals and families are establishing commercially-managed donor-advised funds every year.  According to the National Philanthropic Trust, the number of families with such vehicles grew to more than 217,000 in 2013, and giving through donor-advised funds comprised nearly $10 billion in charitable gifts in 2013, a 34% increase since 2007. Fidelity Charitable, the nation’s largest donor-advised fund program, reports that its donors now represent households in all 50 states and range in age from 20 to 100, and their program grew by 17% between 2007 and 2011.

On the heels of this year’s rejuvenating AAM annual meeting in Atlanta, I am reminded of the breadth and diversity among the types and sizes of museums in our country, and that so many of our wonderful smaller museums are located outside major metropolitan areas, far from the billionaire donors whose gifts tend to populate daily headlines in the mainstream and philanthropic press.

Yet, as the bestselling book The Millionaire Next Door suggested nearly 20 years ago, and recent compelling data by the US Census Bureau confirms, high net worth households are scattered in significant concentrations throughout the patchwork quilt of the American map, far more broadly than one might expect.

Three years ago, I suggested that museums should continue to diversify their revenue mix as part of an overall, comprehensive funding strategy; developing innovative, entrepreneurial strategies for earned revenue; continually broadening their base of philanthropic supporters with an eye toward the future; and adopting new fund raising tactics appropriate for their institutions – such as the Freer-Sackler’s successful crowdfunding initiative for its Yoga exhibition in 2013.

The undeniable shifts in wealth distribution in our country and trends in giving among high net worth households underscore for me the fundamental reality that the giving relationships museums develop with individuals and families of means in our communities are vital to our financial sustainability, today and for the future.  Sponsorships, grants and other singular funding opportunities are important for revenue in the short term, but companies, foundations and government programs don’t leave bequests or priceless art collections to their favorite museums when they are merged or dissolved!

The next generation will behave and respond much differently than their parents and grandparents, and engaging them in philanthropy will present its own set of challenges.  But I believe that it will be even more important in the years to come for museums to actively develop authentic, lifelong relationships with specific individuals and families who share the institution’s values and are committed to its present and perpetual success – especially those who have the discretionary resources to transform a museum’s potential through their engagement and generosity. 

In cities and the heartland, in museums large and small, the data pointing to the future of sustainable charitable giving seems pretty black and white to me.  Or is it green?

7 comments:

Elizabeth Stewart said...

So... how do we as directors rectify this advice with the other advice we've been getting about the need to better serve our communities in all their diversity, to become indispensable as learning institutions? Perhaps I am sheltered by the fact that I work for a small community museum that lives metaphorically from hand-to-mouth--or from grant-funded project to grant-funded project--every year. But I find it very pessimistic to say that we can assume that current trends will prevail, and we as museums should get on the 1% side of the equation. The 99% will not sit passively by as wealth becomes more and more stratified--look at Ferguson, Cleveland, and Baltimore, as a few recent examples--and as public institutions we should want to be on the side of social justice, income equality, and fairness. Let the directors of major museums with their MBAs chase the 1% if that's where they believe their missions lead them. I will continue to encourage my institution to represent our community in all its diversity and chaos, even if it means we struggle.

Bryan Alexander said...

This is a very realistic and, for me, depressing blog post. It accurately reflects the transformation of American society and economics.

Carl, you used to think crowdfunding was the way forward, but now it's all about the 1%?

Bryan Alexander said...

Powerful comment, Elizabeth.
Maybe we'll see a split in museum practice by class politics.

The Alliance's Center for the Future of Museums said...

Bryan--I agree that one likely outcome is a couple of kinds of splits: between museums that rely on major gifts and museums (probably mostly smaller museums) that build a base from smaller contributions; and maybe (as I think you imply) between museums that depend on major gifts but vet the donors by policies & positions. At which point, the culture wars become that much more fraught...

Bryan Alexander said...

Culture wars heightened by class.

Robert Putnam, Thomas Piketty and others have been making this case.

Carl Hamm said...

Thanks to you all for your thoughtful reflections on my post, which prompted me to clarify on a couple of points I had intended to make.

First, it’s not my belief that giving to museums will entirely depend on donors of the Gates/Rockefeller/Carnegie-type, as might be interpreted. Certainly, large, transformational gifts will continue to fund major museum projects and build endowments, but the ongoing funding to sustain institutions will continue to rely on a much broader base of support.

According to the map published by census.gov that I referenced, households considered "high income" represent millions of households scattered throughout counties across the country. Several hundred thousand donors across the country have now established donor advised funds. And the data suggesting that tax-return itemizers will be more likely to give than non-itemizers represents a potential donor pool of millions of Americans.

It’s been my observation that the majority of donors representing high net worth households participate faithfully at regular or higher levels of museum membership and make nice (but not necessarily the largest) gifts to capital campaigns and other special projects. These donors have little or no input into or influence on an organization’s governance or decision-making; they merely attend programs or special events a few times each year. They are passionate about supporting organizations they believe are doing good work, and they have the resources to so.

It was not my intention through this post to extend a value judgement about the economic shifts occurring in our country or address the potential for undue influence by major donors, the responsibility for which, I believe, relies on strong governance leadership on the part of institutions when choosing to accept a gift (or not). I think those are worthy, but different, conversations that should be undertaken.

The pertinent point I had intended to underscore is that I do believe it will be increasingly important for museums to actively develop authentic, lifelong relationships with specific individuals and families who share the institution’s values and are committed to its present and perpetual success. Crowdfunding and other project-based populist fund-raising strategies may be effective tools within the context of a museum’s overall philanthropic program, but barring another (or until our next!) economic collapse, the data suggests to me that millions of high net worth households in America will have increasing disposable resources to give, and we would be well served to strategically engage those of common mind and values in our cause.

I am so thankful to Elizabeth and the Center for providing this wonderful forum through which we can engage in stimulating, thoughtful dialogue about such topics. Thanks again for your comments and taking the time to read and consider my blog.

Bryan Alexander said...

Carl, thank you for following up with such thoughtful and sustained reflections.

I appreciate your focus on millions, rather than tens of thousands, of households. That keeps our focus on the 1%, rather than the upper echelons within that group.

"It was not my intention through this post to extend a value judgement about the economic shifts occurring in our country" - oh, I disagree. You have to. All of us in cultural heritage, education, and research ultimately must in this era, given the shifts that have occurred.
If we don't make such judgments, others will certainly judge us on our actions in this new context.