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Friday, March 19, 2010

4Culture Already Dipping into Reserves, Facing Cutting by Half Next Year

Posted by on Fri, Mar 19, 2010 at 9:32 AM

I wrote a few weeks back that 4Culture needs your help. Well, it still does. Legislation to secure a perpetual funding source for the venerable segment of the region's culture system still has not been passed. Write your legislators.

A little more on what's been going on from 4Culture spokeswoman Sara Edwards, via email:

Essentially, the recession has impacted the lodging industry, and therefore the amount that is funding our current programs has been down the last 18 months or so. In the winter, the board voted to use a little bit of the interest income from our endowment to help bridge the gap in the 2009 budget, so we could keep our funding programs stable (what we distribute to the field through grants). They felt this was really important in a year when orgs and individuals were seeing a lot of other revenue streams down.

But, if legislation is not passed this year, and the lodging tax revenues continue to be down due to the recession, our funding programs in 2011 will be half of what they are in 2010. The Board may not be inclined to dip into reserves again in 2011 without the guarantee of a stable future. At some point, in anticipation of the worst case scenario, the Board has to protect the endowment and not further erode future interest income. That is likely to mean program cuts and staff cuts, starting as early as January 2011, and continuing until either we reach 2012 and have to develop a new business model that can be impactful with only $1.3 million, or until legislation is passed and we can begin to build back the programs we’ve cut. Conversely, if we are successful this year, and we know that we have healthy funding into the future, the Board may be more willing to dip into reserves again so that we can avoid the 2011 cuts.

And more details from a conversation Edwards had with another reporter, Jeremy Barker, of The Sunbreak:

How much was dispensed from a rainy day fund and when was that done? FY 09, or current fiscal year?
The Board allocated $1.1 million from reserves to bolster the 2010 grant programs. The way we operate is that we take in money one year and program it for grants the next year. So the money we distribute in 2010 is lodging tax revenues collected in 2009. In 2009, we distributed revenues collected in 2008 and so on. This ensures that we know exactly what we have available. Lodging taxes were down 18% in 2009 compared to 2008. The recession is hitting the lodging industry pretty seriously. Since so many corporate and foundation funders were also reacting to the recession, the outlook for arts groups was not good. We achieved about $500k in savings in 2010, by reducing administrative costs and recapturing grants awarded in previous years for projects that are not going forward, for any of a number of reasons. All staff is taking eight furlough days this year, a 1% COLA increase (instead of 2.5%), no merit pay. All these efforts helped us bridge some of the gap between 2008 and 2009 funding to the field.
But, had the Board not allocated reserves, our funding in 2010 would have been about $3 million in 2010 compared to $4.5 in 2009. The $1.1 didn’t fully restore funding to 2009 levels, but it helped keep core programs at previous levels.
What's the source of that revenue? Interest on endowment?
Yes, the source of the reserves is interest income generated by the endowment. We began building the endowment in 2001, as required by state law. Unless the state legislature acts, after 2012 all 4Culture programs (except public art which uses funds generated by the 1% for art program) will be funded exclusively by endowment interest. The endowment at the end of 2012 will be about $40 million. It earns a little over 3% interest, because it is capitalized with public funds and there are many restrictions in Washington State about how public funds can be invested. We anticipate that the interest generated by the endowment in 2013 will be about $1.3 million. Compare over $4 million given in grants this year to $1.3 for everything (programs, smaller staff, rent, utilities, IT, etc.) and you begin to understand how dire the future could be. Not for 4Culture, but for the arts and heritage fields we serve.
For this reason, the Board has been saving the interest to try to build the endowment to the largest possible size. However, given the current state of the economy and the hardships being experienced by arts and heritage organizations, the Board decided to take a stand and maintain 2010 levels of funding as close as possible to 2009 levels, allocating 1.1 million of the saved interest income for 2010 programs.

 

Comments (12) RSS

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1
cut in half is good
Posted by cut out all together would be better on March 19, 2010 at 9:56 AM
2
To quote afta: "Support for the nonprofit arts in the United States is a mosaic of funding sources—an ever-changing mix of earned revenue, government support, and private-sector contributions. Nonprofit arts organizations are generally able to earn only half of the money it takes to sustain their operation. The other half must be raised through contributions and grants. Even small fluctuations in contributed revenue can mean deficits for many organizations. Why the high costs? One reason is that the arts are a labor-intensive industry, one that employs people locally." There are tens of thousands of individuals that are employed in the arts in King County and tens of thousands more that are employed because the arts are so vibrant in this area (arts patrons are far more likely to stay in hotels, go to fine restaurants, and spend more money in local shops). If want to see this areas economy become Michigan's economy then, well you get the picture... Writing my legislator now Jen.
Posted by Marine Mammal on March 19, 2010 at 10:23 AM
TheMisanthrope 3
All staff is taking eight furlough days this year, a 1% COLA increase (instead of 2.5%), no merit pay.

Awwww. We have to take pay cuts to help out. Sorry, not pay cuts, but smaller pay increases. I took 6 furlough days since September. And, I don't get COLAs. And, I've watched the company I work for (a small company) shrink in size by firing a lot of people. So, welcome to the recession.
Posted by TheMisanthrope on March 19, 2010 at 10:27 AM
4
This has nothing to do with the recession, per se--it has to do with whether or not they're going to continue receiving the same funding they always have. The organization has done a pretty good job managing its finances, but the question is whether they're going to continue being funded through the lodging tax, or whether they're going to have to shift in 2012 to living on their endowment interest, which would slash their outlays to the community by 80% or so. Get the facts straight.

Passing these bills in the legislature keeps funding generated by the tax in King County, supporting arts and culture (through 4Culture), as well as youth sports, open spaces initiatives, and, probably, Husky Stadium funding. This has nothing to do with the current budget, so the money won't help the state's bottom line in the current crisis. This is about being ever so slightly forward thinking, which is apparently too much to ask most legislators. In the end, they all pretty much support the idea--what legislator doesn't want to secure part of taxes collected in their district FOR their district?--but it's been a low priority. But waiting until the 2011 session to pass the bills has a consequence: 4Culture can't assume that the funding after 2012 will come through, so they're not going to spend their rainy day money to keep 2011 outlays around the same level as 2010 or 2009.
Posted by jray745 on March 19, 2010 at 10:46 AM
gettingtoknowyoubetter 5
:(
Posted by gettingtoknowyoubetter http://gettingtoknowyoubetter.wordpress.com/ on March 19, 2010 at 11:04 AM
6
@1 and @3: Ooooh, straight talk from gritty, tough-minded realists. How novel.
Posted by Mas Macho on March 19, 2010 at 11:11 AM
TheMisanthrope 7
@4 Are you saying that the taxes from the lodging will be eliminated, and lodging taxes will go down? Or, are you saying that the lodging taxes will stay the same, and THAT the funding will go into the normal budget, which is currently in a deficit in most places?
Posted by TheMisanthrope on March 19, 2010 at 11:32 AM
8
6 Desitin might help that ButtSore
Posted by Oooooh on March 19, 2010 at 11:59 AM
9
@8: A diet might help you lose some of that unsightly weight.
Posted by They're Not Love Handles If Nobody Loves You on March 19, 2010 at 12:05 PM
10
@7 - The tax will continue to be collected after 2012; it's a state tax. All that changes is that the county no longer gets the money, it goes into the general pool. However, because that's not for two years, it has no impact on the current budget; if it did, legislators might have more cause for wanting the credit to expire.
Posted by jray745 on March 19, 2010 at 4:27 PM
COMTE 11
@10:

That's true so far as it goes, but 4Culture has to start budgeting NOW for the 2011-2012 funding cycle, which means they have to anticipate how much they think they're going to be getting from the hotel tax. Without some assurance from the legislature that the tax will continue to be allocated to county arts funding, it's prudent on their part to assume for the moment the money won't be forthcoming.

Better to make the cuts now, and be pleasantly surprised if the funding is restored, rather than hope it will be restored and be unpleasantly surprised if it isn't.
Posted by COMTE http://www.chriscomte.com on March 19, 2010 at 10:26 PM
12
Testified twice in Olympia to help 4culture, which has been sustaining me for my music through the Touring Arts Roster. Everyone who is an artist or knows an artist should ACT NOW to save 4culture. Contact the lawmakers. NOW.
Posted by Paul Pauper on March 21, 2010 at 5:06 PM

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