Deaccessioning and managerial incentives

At the Art Law Blog, Donn Zaretsky reports on the troubles at the Fresno Metropolitan Museum:

I found this part interesting. Apparently, a limited liability company called Friends of The Met was formed to raise money for the museum. If the museum were to close, the LLC "would be repaid at least in part by the sale of the museum's assets, including its art collection" (DZ's emphasis).

So let me get this straight. A struggling museum cannot sell art to keep from closing. That would be awful, a violation of the public trust, repulsive, Stalinesque, you know the rest.

But if it closes, what happens to the art?

It's sold, to pay off creditors of the museum.

Does that really make sense to anyone?

Sort of, yes. The problem is the incentives facing management. The ability to deaccession in a fiscal crisis causes a real problem of moral hazard - there will be less stringent financial management in the years prior to the crisis if the ability to deaccession is a safety net. Closing the place down, on the other hand, is a real threat to management, one they will try hard to avoid - it's the end of their jobs, after all.

I don't think selling art is repulsive or Stalinesque; I think the ability to sell art will lead to worse financial management.

The property tax exemption

The New York Times has a front page story on the possibility of the City of Pittsburgh levying a tax on student tuition fees in higher education, as a means of compensating the city for some of the property tax revenue lost to the exemption given to nonprofit colleges and hospitals.

I have written (here) about the rationale for the nonprofit exemption from corporate income taxes, and in general I support some sort of deduction in the personal income tax and estate tax for charitable giving (although it need not be in the form of a straight deduction from gross taxable income).

But I have always found the property tax exemption for nonprofits to be the more difficult tax expenditure to justify. It is very costly for cities whose land use leans more heavily to nonprofits, it distorts resource decisions by nonprofits, leading to acquisition of property that, in the absence of the tax exemption, might not make much sense, and large nonprofits, like other firms and households, ought to bear some of the burden of financing local government services. Property taxes, or other payments in lieu of taxes (known as PILOTs), by nonprofit organizations seem reasonable in the same way that nonprofits must pay wages and pay for other business inputs - the property tax as a payment for the benefits of local public goods.

The best book on the subject that I know of (and which carries justifications for the exemption) is Evelyn Brody (editor) Property Tax Exemption for Charities.

Band of the decade

I'm sorry.

Arts education

Via The House Next Door, Brian Cox teaches Shakespeare ... a nice way to start the day:

Chill

"Professor R, you used to teach in Saskatchewan ... what made you leave?"

The Regina Leader-Post reports:

Though winds weren't very strong, at speeds of 15 to 20 kilometres per hour, wind chills across Saskatchewan ranged from about -45 C to -53 C -- in Meadow Lake -- McDonald said. He noted Regina's lowest wind chill was -49 C at 2 a.m.

"Obviously, we still have a wind chill warning in effect," he said. "That will continue through the night and (Monday) morning, as well. It's going to be very cold out there. We certainly want people bundled up.

But, as prairie folk will remind you, "it's a dry cold, eh?"

More good, less great?

There are lots of "best ___ of the decade" lists circulating right now. I found this take on music of the decade by Simon Reynolds in the Guardian to be very interesting, going into bigger structural shifts on how we consume culture. Decade-by-decade, from the 1960s through the 2000's, are we getting more and more good music (or, pick your genre) but less great music? Via Jessa Crispin.

Sunday night

At the recital...

John



Margaret



Paul

Saturday night

Classes are done ... dance like the girl at 1:26:

Menus

In our cultural sector class this past semester we spent a lot of time on how arts organizations go about setting "menus" of prices for their performances and exhibitions. We worked simply with numbers and relative values and bundles, and not on the graphic presentation of options. And so, via Tyler Cowen, this guide from William Poundstone in New York on how to present a menu - if nothing else it will make you a smarter customer next time you go out for a meal.

Building

A very good article in today's Times on over-building by museums, structures that come with heavy operating costs that can be unsustainable. Deep in the article, I think Adrian Ellis gets it right:

“Cultural buildings became the way in which cities articulate their identity and vitality — they were driven not by the artistic community but by a civic agenda,” he said. Now the economy is pushing organizations into “deep reflection about what their purpose is and how best to realize it,” he said — reflection that can lead back to an arts-focused agenda, and to a renewed concern about “protecting their capacity to take artistic risks.”

“When you overexpand, you limit your ability to take those risks,” Mr. Ellis said. “Although expansion is usually seen as a sign of health, it is not always a sign of vitality.”

Read the whole thing.

You can be good without mauve

Bloomington is not the only city dealing with controversial ads on public transit - the Globe and Mail reports from Toronto:

The eye-catching wraparound streetcar ad, with oversized white print on a mauve background, reads “Life is short. Have an affair.” It directs viewers to the company's website, whose featured package guarantees “an affair to remember” in three months or your $249 back.

The ad doesn't jive with taste or community standards criteria for public transit ads, said councillor and committee member Suzan Hall.

“What individuals choose to do is what individuals choose to do, but as far as the TTC [Toronto Transit Commission] is concerned, I am never going to support that we promote infidelity.”

It's interesting how "community standards" have evolved. The content of ads generates debate, but there is little chance for the public to comment on the aesthetics of the whole thing. Buses and streetcars completely covered with garish ads are ugly, mobile billboards moving through parts of town that would never allow stationary ads of that type, and they are ugly even if the "content" is promoting cherry pies and puppy dogs. The problem isn't just the words. It's a mauve streetcar. Blech.

Innovation and pilots

At the New Yorker, Atul Gawande has another excellent article on health care reform, this time on how to get control of the crazy (and rising) expense in the US of delivering what amounts to, by world standards, pretty ordinary health outcomes. We know that some health care centers are actually pretty successful at keeping costs down and outcomes good, but it is a very heterogeneous system, and what works in one state sometimes, for unclear reasons, doesn't translate well to other parts of the country. What to do?

He looks back one hundred years, to the great troubled industry of that era, agriculture, which was a huge portion of our budget and labor force, inefficient and costly. The USDA attacked the problem not through promoting major legislation, but instead through the funding of lots and lots of small pilot projects. These were useful because they allowed experimentation at relatively low cost and risk, and allowed sceptical farmers to see up-close the results of improved management of land, crops and livestock. It worked. And Gawande is please to see that the version of the health care bill now in the Senate indeed features lots of funding for pilot projects.

For arts policy? Given the heterogeneity of the arts, and pockets of the nonprofit high arts with significant inertia when it comes to innovation, what would we think about arts funding that increased its focus on funding pilot studies of innovations, and less on funding to existing programs? The spillover benefits might be quite large. Not everything would work, but that's the point - we don't know what works or what doesn't until we really try it out, but many arts organizations cannot bear the risk of major experiments in organizational design or programming. It suggests a helpful role for public arts councils, no?

Performance indicators for nonprofits

BG sends along this article from Forbes that ranks US charities on "financial efficiency." They explain the performance indicators as follows:

With these ratios, higher is better. Here's what they are and what they mean:

Charitable Commitment: This calculates how much of total expense went directly to the charitable purpose (which is also known as program support or program expense) as opposed to management, certain overhead and fundraising. The average this year is 86%, up from last year's 85%. At the low end are Paralyzed Veterans of America and Northern California Public Broadcasting (each 63%). At the top, all gift-in-kind charities are at 100%: Brother's Brother Foundation, Children's Network International, Gifts in Kind International, Heart to Heart Foundation and Operation Compassion.

Fundraising Efficiency: This important statistic shows the amount of contributions left after subtracting the cost of getting them. The average this year: 91%, also up 1% from last year. We have long recommended close scrutiny of any nonprofit with a fundraising efficiency below 70%. There are three this year: Veterans of Foreign Wars of the U.S. (60%), Father Flanagan's Boys' Home (63%) and Paralyzed Veterans of America (68%). At the top, 19 share a 100% rating.

Donor Dependency: Thanks to those investment losses and accounting changes, here's where the blood really fell upon the water. This volatile statistic measures how badly a nonprofit needed your contribution to break even. We subtract the annual surplus or deficit from gifts, then divide this figure by the gifts. The higher the percentage, the more the charity, well, needed the charity. A ratio of 100% means the nonprofit spent all the gifts but didn't run a deficit. A result above 100% means the nonprofit ran a deficit. This year's average is 95%--way, way up from last year's 60%. Some 90 charities had donor dependency ratios above 100%, meaning they lost money.

Let's consider these in turn.

"Charitable commitment": there are a few problems here. First is the obvious incentive, and means, to game the indicator - call as many expenses "program expenses" as you can get away with (note that colleges trying to game the US News rankings have all kinds of incentives for re-labeling certain expenditures in much the same way). Second, why would we believe that a higher proportion of spending on programs is always better? Suppose that re-allocating $100,000 out of direct program spending into administration would make the programs run so much better that outcomes would actually improve, even though there is $100,000 less in the program budget? That's not a crazy scenario, is it?

"Fundraising efficiency": Their average is 91%, which I take to mean that a nonprofit that raises $1 million probably had fundraising expenses around $90,000, leaving $910,000 net for the organization.

But the question to ask is this: would increasing fundraising expenditures from $91,000, at the margin, yield an increase in donations higher than the increase in fundraising costs? If so, then you ought to spend more money on development. Now, suppose this organization increases its fundraising budget to $200,000. And suppose the total annual donations rises to $1.2 million. Good deal, eh? You spent an extra $110,000 on development, and it brought in an extra $200,000. But according to the "fundraising efficiency" metric, your organization is now worse! It's efficiency is now just 83% ($1 million / $1.2 million).

The people at Forbes don't know that efficiency is determined at the margin, and not by looking at ratios.

"Donor dependency": This is a strange one - it essentially asks whether the nonprofit was in the red or the black, and to turn the usual dollar figure into something that might be comparable across nonprofits of different sizes, comes up with a way of comparing the size of the budget balance to gifts. I'm not sure why deficit-as-a-proportion-of-budget isn't a simpler number, that tells you something about finances without confusing it by bringing in donations as something separate from earned revenues. What am I missing here? Why is "donor dependency", as constructed, interesting?

Khakis

My work uniform consists of button-down shirts, a tie on days I am teaching, an occasional sweater-vest (when I want to do the full middle-aged-academic) and khakis. I never imagined that khakis made me a manly man. Or maybe this Dockers ad is ironic? I don't get it. Via Matt Yglesias.



UPDATE: Via the New Republic, Reebok's new ad, on a comparative sexism scale, might even be worse than the Dockers. Even the guys at Sterling Cooper would have blanched. Who are the people who think up these things?

State of the world

Look at me, I'm reading The Economist. There are two good articles from the November 28 - December 4 issue on markets in the arts. Fiammetta Rocco and Sarah Thornton (author of the highly recommended Seven Days in the Art World) give a lengthy survey of the market for visual art, the post-September 2008 crash, and the increased globalization of the market (note the article is in a few parts - at the bottom of the first page click "next article" to continue). And there is also a briefing on the blockbuster vs "long tail" debate for movies, television, books and recorded music. Also, Indonesia is at a crossroads.