jwilzewske: economy

Showing posts with label economy. Show all posts

Sunday, January 30, 2011

Chamber Music Ensemble Finance: Incorporating as a Non-Profit

W e have thought about incorporating and/or becoming a not-for-profit but just haven’t made the time to speak with someone about the technicalities of it all, while adding up the pros and cons... If we had our way, practicing, playing, teaching, and performing would be all that filled our days! Each of us in the quartet feels anxious about how we can make a ‘go’ of it, financially. This adds to the stress in our lives. And stress no doubt affects the practicing, playing, teaching, and performing. So I’m not really sure why we haven’t yet made the time to speak to someone about creating a nonprofit org to help the quartet’s finances...”
— Anonymous, first violin, leading string quartet, via email.

T he weeks my wife and I spent in England last November revealed to us just how prevalent forming non-profit ‘friends’ or ‘affinity’ organizations has become, for soloists and small chamber ensembles and composers, in the wake of recent years’ public-sector budget cuts and lower concert ticket sales during the recession. Standing chamber orchestras and choirs and annual music festivals and presenters and the like have typically had non-profit friends orgs for fund-raising and financial support, but what we saw in England, in concert after concert, was that individual artists and trios and quartets, etc., now had formed them as well.

I n the U.S., finances for people in the arts are at least as tenuous as elsewhere, but there has not yet, so far as I can tell, been such a move en masse to incorporate as a nonprofit organization and to use this org as a vehicle for increasing and stabilizing a group’s finances as is being so frequently done by chamber performers and composers in the U.K.

B ut the trend in the U.S. has begun. The variety of purposes and budgets is quite large. For example, composer friend of mine has recently used her 501(c)(3) to successfully raise the funds necessary for having a new work performed and recorded in Europe. A quartet I know has recently had their 501(c)(3) run a campaign to raise the money needed to cover expenses for an Asian performance tour. Campaigns like these entail extra effort for the artists above and beyond their existing commitments—‘Friends Association’ gatherings, green-room and aprés-performance meet-and-greet activities, and so on. But the process can be far more successful financially—and far faster—than trying to raise money through grant applications, residencies, adding yet more performances to already-packed schedules, and so on.

T his CMT blog post gathers together some resources/links that may be of interest to you if you are considering incorporating as a nonprofit 501(c)(3) org. Here is a list of the basic steps:

Determine what type of nonprofit organization you are. Some links below provide information needed to establish a new non-profit.
Write your mission statement. The mission statement is a concise expression that covers in one or two sentences who the organization is, what it does, your purpose, services and values.
Form your Board of Directors. Each state has regulations that set the minimum size of a Board (typically, three) but the best number of people for you should be determined by the needs of your organization. Based on what your organization would like to accomplish, you should decide what skills you need the people on your Board to have. You want qualified individuals who are passionate about your mission, who are willing to give of their talents and time and money, and who will be able to effectively attract other people to do the same.
File your Articles of Incorporation. These are written statements of creation of an organization files with the appropriate state agency. They protect both you and your Board members from legal liabilities that may be incurred by your organization, making your corporation the holder of debts and liabilities, not yourself or other individuals and officers who work for your organization. In the U.S., the specific requirements governing how to incorporate are determined by each state. You can obtain the information you need to proceed with this step from your state Attorney General’s office or your Secretary of State’s office. I highly recommend consulting with an attorney who is experienced in the area of nonprofit law so that you do not make one of the many mistakes that people make when they try to incorporate by themselves. In most cases, this should cost less than $1,000 to do, money well-spent.
Draft your Bylaws. Bylaws are the written rules that say how the organization operates. Although bylaws are not required to file for 501(c)(3) status, they will help you in governing your nonprofit org. Bylaws should be drafted with the help of an attorney and approved by your Board early in your organization’s development.
Prepare a written budget document for your non-profit org for the current year, in an Excel or OpenOffice or GoogleDocs spreadsheet. A budget is the dollars in anticipated income and expenses, for your operating plan--the cashflows to achieve the objectives of your organization. Your new org may create a budget by projecting potential income and expenses: figure out how much money you have to raise and spend to accomplish what you intend to do during the current year.
Establish a record-keeping system for your non-profit org, separate from the record-keeping for your group or for each of you as individuals. Legally, you must save all Board documents including your meetings’ minutes, your financial statements, Bylaws, Articles of Incorporation, financial reports, and other records. You should contact your appropriate state agency for more information on what records you are required to keep in your files and for how many years you are required to retain them.
Establish an accounting system for your nonprofit group. QuickBooks®, Quicken®, or other software can help.
Apply for your federal Employer Identification Number. Regardless of whether or not you have employees, nonprofits are required to obtain a federal Employer Identification Number (EIN), also referred to as the federal ID number. Available from the IRS, this number is used to identify the organization when tax documents are filed. You use Form SS-4 when applying for your EIN.
File for 501(c)(3) status for your org. To apply for recognition of tax-exempt, public charity status, obtain Form 1023 and Publication 557 (links below) from the local IRS. The filing fee depends upon the size of the organization’s budget. I strongly recommend getting the assistance of a certified public accountant (CPA) to help you prepare your Form 1023 filing.
File for state and local tax-exempt status for your org. Contact your state Department of Revenue, your county or municipal Department of Revenue, local Departments of Revenue, and county or municipal clerk’s offices for information on how to do this in your jurisdictions. Your lawyer or your CPA can help you with this.
Fulfill the applicable ‘charitable solicitation law’ requirements. Your organization’s plans include fundraising, so be aware that many states and a few counties and cities regulate organizations that solicit funds within their borders. Usually compliance involves getting a permit or license and then filing an annual report and financial statement. Contact your state Attorney General’s office, your state Department of Commerce, your state and local Departments of Revenue and your county or municipal clerk’s offices to get more information. Save copies of the letters you sent to these offices in your org’s files, plus copies of whatever correspondence you receive back from those offices.
Apply for a nonprofit mailing permit. Second- and third-class rates are substantially less when nonprofits mail to a large number of addresses. For more information on eligibility, download a copy of U.S. Postal Service Publication 417, ‘Nonprofit Standard Mail Eligibility’ (link below). In order to qualify for nonprofit rates, your mailings must be soliciting monetary donations and not promoting or otherwise facilitating the sale of any goods (e.g., CDs) or services.

Wednesday, November 10, 2010

Chamber Music and the Recession: Patron Events and Special Marketing to Immunize against Funding Fluctuations

I n the U.S., many chamber music presenters and ensembles rely heavily on financial support from a modest number of wealthy patrons or foundations year after year. There is comparatively little public-sector funding or grant-making for serious music in the U.S. and almost no programs cover general operating expenses.

I n other countries, the sources of financial support are historically more diverse, and the greater variety makes the whole enterprise more resilient, less vulnerable to year-to-year changes in the budgets or grant awards from any one funder.

D uring my holiday in the U.K. this past week, it has been remarkable how many novel ‘patrons’ programs have appeared—particularly new or more prominent ones this year. It is anticipated that the U.K. budgets for the arts will be cut by about 15% next year, this after some substantial cuts already over the past two years of recession.

F or U.K. ensembles and presenters and other arts groups, though, those projected cuts are only overall ‘averages’ or ‘target’ annualized figures in aggregate. For some organizations, their government funding may be cut to zero; for others, 30% or 50% cuts are anticipated.

T o defend against insolvency if funding from their normal sources is curtailed, a number of presenters and ensembles (and individual artists as well) are ramping up their solicitation of donations. Green Room ‘meet-the-artist’ and other post-performance contact opportunities are associated with many of these fundraising ‘friends’ programs. Intimate dinners with artists, wine-tasting receptions, intimate dinners in elegant homes, and longer holiday retreats in resort locations are sometimes offered. For composers, special commissioning programs (with special formats and lengths, and special promotional prices or donation-amounts) are involved.

A ll of the programs aim to attract a large number of mostly relatively modest donations, most from donors who otherwise may not have been giving on an annual basis. Obviously, this entails a great deal of commitment and effort on the part of the artists and the presenters, compared to more conventional donor development programs in conventional years.

B ut in an era when corporate donations to the arts have dried up and large donations from traditional wealthy individual benefactors have also diminished, the arts groups' marketing and development efforts are compelled to seek funds from other sources.

H ow ‘sustainable’ these programs turn out to be is anybody’s guess, but it has been really encouraging to see so many of these underway here in the U.K., and to see them so heavily subscribed to. [For example, there must’ve been at least 30 donor friends headed into the Wigmore Hall Green Room last week, to meet Melvyn Tan after his performance.]

I hope that organizations in the U.S. do more of this in future than has been their custom. First-hand on the ‘ground’ over in the U.K., it looks like it’s really working wonders in this difficult time. There seems no reason why ‘Patrons’ Association’ activities could not grow from about 5% of operating budget for many organizations to 20% or higher, substantially replacing loss of grant income during the present economic down-turn.

S ome links below may be of interest…

Thursday, March 12, 2009

Matthew Fields: Composer. Humanist. Just-in-Time-Activist. Computer Scientist.

A    ctually, business isn’t always ‘purely Darwinian’. (Please allow me this term because we all know what I mean even if it isn’t what Darwin meant—sorry!)
  Wed, 11-MAR-2009, P. SanGregory / S. Chien
--------
Nope, stop right there. The English language provides ‘cut-throat’, ‘ruthless’, ‘merciless’, ‘relentless’, ‘callous’, ‘cold-blooded’, ‘dog-eat-dog’, ‘inexorable’, ‘iron-fisted’, and many other terms closer to your probable meaning. In contrast, 'Darwinian' selection includes selection for those who are particularly merciful towards kin and whose genes thus survive more frequently than the selfish. ‘Darwinian biology’, i.e. real biology, observes and explains patterns in nature and does not judge them. Let us stop this misuse of the term [‘Darwinian’]. It’s part of the propaganda of the worldwide anti-science [anti-intellectual] movement ... and it undermines the very civilization which affords us [musicians] our roles.”
  — Matthew H. Fields, Society of Composers listserve, 11-MAR-2009, commenting on draconian MTSU funding cuts, eliminating ~40 non-tenured faculty positions, including ones in Music.

I t’s been some years since I met Matthew Fields, in Winter of 1996 I think, in connection with one of my visits to the Medical Center Information Technology Dept at the University of Michigan Health System in Ann Arbor. His fiery temperament was (and is) propelled by a passionate wish for the world to be a better place. I had not known back then of Matthew’s accomplishments as a composer.

B orn in 1961, Matthew was trained at Oberlin and Stanford, and received his 1991 DMA/PhD at Univ of Michigan. Among other things, he was involved with the [now-defunct] ‘Just In Time Composers of Boston’. He received first prize in the 1991 composition contest of the Ferruccio Busoni Memorial Society, honorable mention in the Harvey Gaul Composition Competition of Pittsburg New Music Ensemble (2000), second place in the composition competition of the Utah Composers Guild (2002), and was co-winner of the League-ISCM Composer’s Competition (2006). There are a couple of CD recordings of his music that have appeared.

H is chamber music compositions are pretty diverse, but I especially enjoy Matthew’s writing for cello.

Matthew Fields: ‘Rollerchant’ for cello, 2002

[50-sec clip, Matthew Fields, ‘Rollerchant’, 1.2MB MP3]

Matthew Fields: ‘Progeny of Memory’ for cello and harp, 2006, Mvt. 1

[50-sec clip, Matthew Fields, ‘Progeny of Memory’, 1.2MB MP3]

A nd I particularly enjoy his frequent interactions on SCI and other composers’ websites. His remarks are always forthright, incisive, and, in general, address these issues:

Where is composing heading? What is being written and why?
How is the the art of composing approached today?
What obstacles are professional and amateur composers facing in today’s society, in North America and elsewhere?

I n case you are unfamiliar with Matthew’s work, I thought I’d put up this little post with a couple of clips and links. M.H. Fields: thoughtful humanist, innovative computer scientist, progressive activist, pragmatic advocate for peace and community, committed composer-artist ... with a day-job and family.

P erfect is the Enemy of Good.”
— Voltaire.

Saturday, October 11, 2008

Econometrics and the Separation of Music and State

B elieving with you that [Music] is a matter which lies solely between man and his God, ... and that the legislative powers of government reach action only and not opinions, I contemplate with sovereign reverence that act of the whole American people which declared that their legislature should make no law respecting an establishment of [Music], or prohibiting the free exercise thereof, thus building a wall of separation between [Music] and State.”
— Thomas Jefferson, letter, 01-JAN-1802.

The case of independence between music and state is often considered as being an ideal towards which all societies should aim. Social scientists of music have long anticipated the gradual separation of music from state as one of the predictions of the well-known secularization theory. But independence appears to be far from being the norm in the world today, however. In the U.S. it is not clear how the First Amendment should apply to the separation of Music and State.

It is common for states to fund the provision of some musical goods and to exert influence on musical practices, such that a surprisingly small proportion of countries in the world have fully achieved independence of Music from State. Alarmingly, lawless cooptation of music by political parties—in political contests in which the state itself does not participate—is also increasingly common. “Get Off My Lawn” McCain and “Barracuda” Palin, for example, have belligerently refused to cease and desist from playing certain music for promotional purposes at rallies and campaign events without consent and without paying any fees or royalties, thereby flouting the property rights, financial interests, and wishes of the composers and copyright holders of that music (for example, Ann & Nancy Wilson (Heart), Chuck Berry, John Hall, Jackson Browne, John Mellencamp, Tom Scholz, ABBA, and their respective publishers/record companies). Illegal behavior like this by elected officials is beyond appalling.

Some form of state influence or control over the provision of musical goods is typical in traditional societies. By contrast, state ‘control’ of the music is relatively uncommon in modern times. In the ancient world, musical institutions were typically subordinated and controlled by the state or by clerical authorities. In some societies, the ruler was also the musical leader, as was the case for gamelan music in Indonesian states. The ruler’s control of music has also been the norm among tribal societies throughout the world.

The Arts and State are arguably the two most important social institutions created by humankind. Not surprisingly, therefore, the history of their relationship has been stormy, ranging from cooperation to conflict. It would be desirable to develop a quantitative econometric model that accounts the relationship from an economic perspective. Such a model would answer the question as to what role does Music play in supporting the ability of the sovereign to extract resources from the people through taxation? The idea that Music, through its motivations (or ‘doctrine’ inducing citizens’ beliefs and actions) can facilitate this function of the State is an inchoate one, underlying both ancient and modern civilizations but never stated outright.

A proper model might posit two avenues by which an alliance with Music benefits the State. The first is the [Marxian] notion that musical goods pacify the populace, allowing the state to extract more resources before citizens reach the threshold of revolt. The second is the fact that citizens pay taxes more willingly (i.e., tax evasion declines) when the State is seen as musico-motivationally more legitimate.

This second avenue that potentially makes state control of music—i.e., the establishment of a State-funded Music or, conversely, the indirect repression of certain music—desirable. The reason is that an independent Music serves the pacifying function without the need for distortionary tax financing. If this were Music’s only function vis-à-vis the State, an independent Music would be optimal. However, an independent Music will not provide the sovereign’s ideal level of legitimacy. As a result, it may pay the sovereign to seize control of Music, even at the cost of having to finance it out of taxes, in order to maximize the State’s net gain.

A crucial factor in this decision is the nature of musical doctrine—that is, how favorable or unfavorable is musical teaching toward the State? The more favorable is the music’s doctrine, the more likely it is that the State will benefit by taking control of music. In contrast, when Music is regarded by the State as antagonistic to its power over the populace, the State may act to suppress Music.

A useful consequence of the model would be to better define the nature of musical doctrine. This poses a significant challenge, since Music and music organizations are complex, and distinct institutions, the former being a collection of “texts” and “teachings” aimed at illuminating the mysteries of the universe and humankind’s place in it, and the latter being the organizational structure supposedly established to inculcate and spread those teachings. Music doctrine therefore must be comprised of a constellation of rules and ideas that reflect an amalgam of practical considerations and genuine “revelations,” and any attempt to explain them as originating from a single decision maker or as the product of a single econometric ‘objective function’ is unrealistic.

One possible model is a direct adaptation of one developed by Brennan and Buchanan (2006), and extended by Wintrobe (2000), in which a self-interested sovereign maximizes the surplus of taxes over spending on a public good. To keep the model simple, we only consider spending on a “musical good,” either by the State (in the case of a State-run Music), or the musical community (in the case of an independent Music). The basic conclusions of the model would not be affected if the state also provided a public good.

In the model, the representative citizen has a utility function given by:

U = x + v(q), (1)

where x is composite consumption, and q is the quantity of a musical good, where v' > 0, v˝ < 0. The musical good consists of those services typically provided by Music. The citizen is endowed with wealth of E, an amount T of which the government confiscates in taxes. The citizen therefore has after-tax wealth of, E–T, which he or she can spend on x and, in the case of an independent Music, on musical goods.

Tax collection is costly to the government because of resistance by citizens to having their property confiscated. We capture this by assuming that a fraction δ of each tax dollar collected must be spent on enforcement. This cost will tend to be lower, however, as the government is seen as being more legitimate. As noted, musical spending can potentially provide this legitimacy, for example by proclaiming that the sovereign is divinely inspired (or is himself a classical music prodigy or rock-star). We thus write δ = δ(λq), where λ is a parameter that reflects the extent to which musical goods convey legitimacy, δ' < 0.

W e do not restrict λ a priori in magnitude or sign; λ > 0 means that Music legitimizes the State, λ = 0 means that music is neutral regarding the state, and λ < 0 means that Music de-legitimizes the State (e.g., incites resistance). Thus, we assume that for q > 0, δ —> 0 as λ —> +∞ and δ —> 1 as λ —> -∞. We also assume that δ(0) ≡ δ₀, where 0 < δ₀ < 1. The objective for the State is to maximize tax revenues net of enforcement costs and, in the case of a State-run Music, the cost of the music good.

Over the range where λ < λ₂, the State suppresses Music (that is, takes over Music and sets q = 0). Here, the de-legitimizing effects of Music are so detrimental to the state (or political parties) that the State (or political parties) finds it advantageous to eliminate Music altogether (or to curtail music spending, or to refuse to seek consents or pay royalties, or to embroil music rights-holders in ruinously expensive litigation).

It cannot be disputed that throughout history that there have been cases where Music has manifested motives other than beneficence toward its public. So a proper econometric model of Music and the State ought also to examine the implications of allowing independent Music to act in a self-interested manner; specifically, to maximize profit to the detriment of the public and the State.

Let π be the profits earned by a hypothetical ‘non-beneficent’ Music, where π > 0. That is, R - c(q*) = π or R = c(q*) + π. Solving for T yields the citizen’s tax payment:

T = E + v(q*) – c(q*) – π - U , (2)

and the corresponding return to the State:

V₂(q*, π) = [E + v(q*) – c(q*) – π – U] (1 – δ(λq*)). (3)

Higher values of π reflect a stronger Music in the sense that a stronger Music can extract a larger share of the citizen’s total ability to pay. (So π is bounded above by E – v(q*) – c(q*) - U, the point at which T = 0.)

Consider how an econometric model can show the relationship between independent and State-run Music. As π gets larger, the less desirable independent music is from the State’s perspective. Figure 1 summarizes the various regions where each of the three regimes dominates, depending on the political content of music doctrine (λ) and the degree of music power (π). As the diagram reveals, an independent Music occupies a region where doctrine is neither too overtly favorable nor too detrimental to the state, and where the Music’s power is limited.

In an economic downturn such as the one that’s presently upon us, the private economy makes a truly independent Music less and less viable. Circumstances like these foster a larger role for governments and public-sector econometrics, augment Music’s vulnerability to political ideology, and make stewardship of Music as a pluralistic public good more vital than ever.

T homas Mann often spoke in the face of would-be synthesizers. They were prophets who foretold that there would eventually be a gathering of the separate forces, a centering and synthesis among the world’s legal systems and the religions. People like Mann instead contended that the world has many centers. There is no single organon, encyclopedia, summa, canon, legal code, or synthesis available to and accepted by all the people or all the peoples. Ours turned out to be a century when science propounded the indeterminacy principle and chaos theory. Indeterminacy rules religion and law when they interact... No single symbol system unites the arts or makes them intelligible to all... This decentered and decentering scene demands attention.”
— Stephen Feldman, Law & Religion, p. 26.

Thursday, July 17, 2008

Non-Profit Chamber Music Orgs and the Recession

U.S. Dept. of Commerce, Bureau of Economic Analysis, Balance of Trade, 1Q2004-2Q2008, seasonally adjusted (no CPI or other adj)

C ore June retail sales fell 0.7%, versus the Federal Government's report of 0.1% core retail sales gain. June data showed payrolls turned negative 2008-over-2007. Monthly payrolls dropped by 147,000 net of concurrent seasonal adjustment bias. Broadest Unemployment Rate jumped by 0.2%. Purchasing Managers Manufacturing Index (PMMI) ‘gain’ reported in June was due to [the government’s gratuitous—] re-weightings of the Index’s components [for the June reporting interval].”
— John Williams, Shadow Government Statistics newsletter, 15-JUL-2008.

The economy looks grim. And here in the U.S. you can see signs of radically altering consumer spending of disposable income. You see it in every restaurant—many of them with only one or two tables occupied during prime suppertime hours. You see it in mostly-empty retail-shopping car parks. You see it in drycleaners’ rotating racks, half-empty. You see it in dramatically lower attendance at sports and arts events. Will chamber music presenters see the effect this Fall, in terms of decreased subscription renewals? Almost certainly, yes.

Part of the frustration here in the U.S. is that the current government administration has for years persistently denied and obfuscated the economic facts, presumably for political reasons. Not conspiracy or malfeasance, exactly. Just a succession of convenient restatements of the rules for how the indicators are calculated and which data shall henceforth be excluded from which metrics.

Housing prices going up? Take them out of the calc and insert a bogus government-agency estimated 'equivalent rent'. Food and energy going through the roof? Exclude them and call the remainder 'core inflation', as if food and energy were not inconvenient core truths. Unemployment surging? Quit counting people who've given up looking for work. Averages higher than you'd prefer? Then use geometric means [e.g., Nth root of the product (a(1) * a(2) * ... * a(N))] instead, which will deemphasize high values and give extra weight to low ones. Presto! More favorable-looking numbers!

Federal Reserve Bank Chairman Ben Bernanke’s testimony before the U.S. Senate Banking Committee this week is perhaps the first forthright admission by a government official, that the economy in the U.S. is seriously troubled and will not likely recover anytime soon.

Non-profit executives have the skills and resilience to cope with economic down-turns, even prolonged ones. But their operational planning and financial planning depend on having factual information. Rosy, erroneous economic data from the federal government seriously undermine any manager’s effort to plan and manage an enterprise rationally.

One alternative is to utilize John Williams’ ShadowStats.com and other sources of independent data that are not susceptible to gratuitous political manipulation.

ShadowStats.com: CPI trend, 1980-2008, under evolving Federal policies for calculating CPI; vs. CPI trend for same period using same calc method as Federal govt used in 1992

Another alternative is to follow the international foreign-exchange and other indicators and commentary that reflect how other countries perceive the economic situation in the U.S., in a way that is entirely independent from U.S. government messaging (for example, the USD-EUR exchange rate, below).

Yet another alternative is to follow the Financial ‘prediction futures markets’, on InTrade or similar web-based services. Still another alternative is to utilize financial measures that are decoupled from the markets themselves, such as the Silicon Valley Venture Capital Index. The Silicon Valley Venture Capitalist Confidence Index (Bloomberg ticker symbol: USFSVVCI) is based on a quarterly survey of 27 San Francisco Bay Area venture capital firms. The Index measures and reports the opinions of professional venture capitalists in their estimation of the highgrowth venture entrepreneurial environment in the San Francisco Bay Area over the next 6 - 18 months. The Silicon Valley Venture Capitalist Confidence Index for the second quarter of 2008, based on a June 2008 survey measured 3.07 on a scale with 5 denoting high confidence and 1 low confidence. In just 3 quarters’ time, by the end of the quarter just completed (2Q2008), the USFSVVCI index has fallen 32% from its 2004-2007 average, to a third consecutive new low since the Index’s inception. (The 32% is referenced to bottom = 1, since there is no zero score possible.)

Univ San Francisco Silicon Valley Venture Cap Index trend

It’s a recession. We feel it. We see it all around us. We smell it. Don’t keep misleading us with conveniently-revised, ever-evolving economic indicators. Call the recession by its proper factual name, please—won’t you?—you in the media and government. And do something major about it, quickly!

I t’s a Recession when your neighbor loses his job; it’s a Depression when you lose yours.”
— President Harry Truman, 1948.

The alacritously-repeated claims in the media—to the effect that ‘These are un-charted [economic] waters. No one can predict what will happen. No one knows how these [economic] things work.’—are disempowering and inertia-enabling, and interfere with managers’ planning as well.

T his is the worst financial crisis since the Great Depression and the worst U.S. recession in decades.”
— Nouriel Roubini, 16-JUL-2008 on BloombergTV.

There are past deep recessions and inflationary periods about which we do know quite a lot, to which we can turn for clues and predictions and ideas as to what we should do and what results we should expect and how soon. Ruth Towse’s excellent book, for example, shows how the non-profit economy contracted from 1991 to 1994 (see esp. pp. 144ff) before recovering. Similar economic and inflationary trends between 1978 and 1983 are also germane. For the authorities and media pundits to bloviate on about “No one could’ve predicted … No one can say …” disserves the entire society. Non-profit organizations are probably among those most vulnerable during such periods.

S ocial capital [represented by the arts] ... is largely forgotten by governments pressurized to treat the arts in the short to medium term as a set of sectors within a creative or cultural industry, for economic gain mostly.”
— Lorelei Loveridge, 2008.

Have a look at the book co-edited by Steinberg and Powell. Steinberg continues his extensions of Weisbrod’s work, identifying and characterizing three types of economic failures in the non-profit sector:

Market failure;
Voluntary failure; and
Government failure.

The choices (for possible actions that chamber music orgs’ executive teams and Boards of Directors can take) are substantially different for addressing each of these three failure types. Therefore, it’s wise to have a clear notion of what’s happening and what failures are in-play as you plan and execute your operating plan in these tough times.

I n uncertain economic times—especially when the airwaves and the front pages are abuzz with talk of recession—non-profit executives may overreact. Under pressure from their boards of directors, they all too frequently take ‘cost-cutting’ too far. The greatest victims are new-donor acquisition, which is often sharply cut back or even eliminated temporarily, and donor cultivation programs such as donor acknowledgments communications.”
— Mal Warwick & Dan Doyle, NonProfitTimes, MAR-2008.

Adverse economic conditions affect fundraising results in multiple ways and do not hit all nonprofits equally. For example, the rise and fall of the stock market strongly correlates with the ability and willingness of foundations and big individual donors to give to the arts. Foundation grants are especially prone to dramatic curtailment, since most foundation assets tend to be in equities, and U.S. nonprofit regulations and foundation boards tend to limit their annual giving to five percent of assets at the most. This effect tends also to kick in later than the economic downturn itself, as grants are typically made on the basis of the previous year’s asset valuations.

Corporate giving to nonprofits shrinks as corporate profits decline. This is a big deal as the spend on energy and materials has skyrocketed in the months past. But the impact of a poor economy will affect different companies in very different ways. Many companies manage to preserve their profits for many quarters through cost-cutting, even in a prolonged ‘down’ economy. And there are some businesses in “countercyclical” industries—ones that serve basic human needs such as groceries and gasoline and heating that don’t go away in a recession—which are profiting from a downturn despite the adverse impact on everybody else. Corporate donors (or big individual donors) associated with such businesses might increase giving. So you might look to cultivate those donors this year. Probably you won’t be looking to see big giving to non-profits by, say, banks and other hard-hit businesses this year.

In summary, if you’re a chamber music presenter or other non-profit arts manager, factually fore-warned is fore-armed. Avail yourself of the trustworthy, untampered-with data that are out there. Become a more discriminating data-consumer, as Prof. Menzie Chinn says. And start looking to potential donors whose businesses are maybe more resilient than your traditional donors, or to some whose businesses may somehow be backhandedly benefiting from the economic pox that’s upon us.

E xcept in cases of severe economic downturns, the effects tend to be much less pronounced on membership renewal rates, average gifts in direct mail and telefundraising ... and other barometers of giving by people who aren’t necessarily wealthy. However, as a recession drags on, donor acquisition efforts may become even more challenging than they already are. Even those people whose day-to-day finances aren’t curtailed by a recession tend to become more cautious, and response rates in acquisition may shrink because donors hesitate to expand their giving choices. Shrinking personal income and a bear market on Wall Street take their toll.”
— Mal Warwick & Dan Doyle, NonProfitTimes, MAR-2008.