2008 Portfolio Presentation


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  • Good afternoon everyone, and thank you for inviting me to be here today. The research I’m about to share with you comes from a report released in September, the 2008 Portfolio. It’s the second publication of its type, updating a similar report released back in 2006. That report broke new ground in measuring the size and health of the cultural sector. The report’s facts and figures come from the Pennsylvania Cultural Data Project, a joint effort of foundations and arts service groups to create a reliable, ongoing, set of data about the nonprofit cultural sector. It’s a wonderful success story that’s now being adopted nationally, and we wouldn’t have this report or presentation without it. We lead the country in this area of arts research and reporting, and the model we’ve created is now being adopted in many other states. As a result of this work we’ve been quoted extensively in the media and other national studies, and we have been invited to speak all over the country. Locally, Portfolio’s conclusions have shaped the policies and positions of our elected officials. The impact of our sector, long understood intuitively, is being captured quantitatively. And that distinction has taken us to the next level. The information you’ll hear today is based on 281 cultural organizations, nonprofits of many different artistic disciplines located here in our region. You’ll also hear about a subset of just over a hundred of those organizations for whom we were able to track changes over time from 1995 to 2005. But before I show you the numbers, I want to take a moment to thank PNC. Without their generous grant this report would not have been possible, but their support goes much deeper than money alone. PNC employees have been members of our board of directors for many years now, from Jean Canfield(?) to John Conaway, who currently serves on our board. John, Jean, and Rebecca Quinn-Wolf graciously coordinated a preview presentation of this report for business and civic leaders, and their support has enabled us to literally take this show on the road, with custom presentations and discussions for cultural managers here in Philadelphia, for the boards of directors of numerous cultural organizations, for the general public in West Chester and Doylestown, for foundation leaders, and for university students. Next week, I’ll share it with cultural leaders in Palm Beach, FL, and later this spring we’ll be talking about this report at the national conferences of the Association of Children’s Museums and the American Association of Museums. This research is important, and we have PNC to thank for helping us bring its message to so many different audiences, including all of you here today. So, here it is, the 2008 Portfolio (hold up copy). We have a copy for each of you to take home tonight, and now I’ll take the next few minutes to highlight what we learned.
  • The central message of the 2008 Portfolio is that the Cultural sector is vibrant…valuable,….but vulnerable. Let’s talk about each of these three themes, starting with Vibrant.
  • As you can see on this first graph, the Consumer Price Index grew 28% between 1995 and 2005.
  • During the same period expenses at cultural organizations grew 49%, almost double the rate of the CPI.
  • And growth at suburban organizations was even higher at 76%, almost triple the rate of the CPI. Let me just stop here for a second. This may be one of the key takeaways from this report—the tremendous growth of the sector. We’ve been able to expand public access and activity, despite the increasing cost of doing business, and growing competition for consumers’ leisure time. Now let’s look at take a look at what this means in terms of employment .
  • During the past 10 years, our sector’s job growth was 53%, which as you see in the top row on this chart compares very favorably with other sectors, including education, hospitality, health care, law, finance and manufacturing. ( Pause for 5 seconds.)
  • Going one level deeper, we now examine the composition of jobs. Full-time positions at cultural organizations grew 9%, exactly keeping pace with full-time employment growth in other sectors. What emerges from the data is the explosion in part-time jobs generated by the cultural sector. As you can see on this graph, in the past 10 years, we’ve doubled the number of part-time positions. So the ratio of part-time to full time jobs which had been 1:1 in 1995 is now 2:1 in 2005. This is a bit of a mixed message, which we’ll talk about in a few minutes. But first, let’s look at something just about every employee values – health care coverage.
  • And when we examine the benefits that go with those jobs, we see that for the most important employee benefit, health insurance, Greater Philadelphia cultural organizations generally keep pace with national standards. Nationally, the average employer pays 84% of the premium expense for employees. For all but the smallest organizations in Greater Philadelphia, our sector has been able to provide comparable coverage. The dramatically low # for small orgs (seen on the far right) is a warning bell, because those are the most numerous of organizations, and their existence is a key part of the cultural system. So we’ll get back to that, after we take a look at the vibrancy of the products of our cultural community.
  • One gauge of cultural vibrancy is the overall level of activity. If you wanted to participate in every cultural activity in greater Philadelphia, you would be very busy. You’d have to attend 3 performances an hour, take 13 tours per day and attend 777 events every week. On an annual basis, when you total up every cultural visit by everyone in the region, it comes to 15 million. That’s four per year for every man, woman and child.
  • And what does it take to present all those events? Well if the old adage says, “It Takes A Village”, we might say about Arts & Culture that “It Takes a Region”. In fact, there are 43,000 paid and volunteer positions running our organizations.
  • Of those 43,000 people helping to make arts organizations run, more than half--24,000 of them are unpaid volunteers. Note on this chart, the extent of volunteerism going on at organizations of all sizes. 5,000 are board members, shown here to the right of each row in purple. The other 19,000 volunteers are shown in the brown section of each row. Clearly citizens throughout our community are actively engaged in culture at all levels, giving their time and service to ensure the success of our sector. (People like all of you!)
  • The value of cultural organizations is expressed not just in public attendance, but also in donations. In fact, 45% of our income is contributed. Fundraising is not only a key element in the revenue mix, it turns out to be an efficient one. For every dollar invested in fundraising, nine dollars are returned.
  • Here’s another way to understand the growing importance of development. Over the past 10 years, total income grew 52%. Of that, three quarters of the new income coming into the sector was contributed, which you can see represented by the top portion of the bars. This graph shows that ten years ago the contributed to earned ratio was 1:2. Now, it’s an even 1:1.
  • And, our increased fundraising success translates into good news for the public. The arts are more accessible and affordable than ever, with the median price of attendance holding at $14.
  • But that $14 price is only a fraction of the full $46 per ticket cost of producing an event. With attendees paying less than a third of the true cost of production, that makes culture a real bargain. It also reinforces the reason that we exist. Cultural organizations are driven by mission, not profit, to serve and be accessible to citizens. But, let’s take a minute to talk about profitability. We’ve just seen that arts and culture are vital and valuable, but as you’ll see here they’re also vulnerable.
  • While overall budgets have grown sizeably over the past ten years, margins, shown here in red, still remain relatively thin. The average operating margin in 2005 was 5%, slightly better than the 3% margin reported 10 years earlier.
  • The issue of vulnerability also becomes clearer when we realize that 40% of the organizations were in deficit, and more than half of those had deficits greater than 10%.
  • We have a lot of conversations in the field about the differences between operating small and large organizations. It turns out that one of the important distinctions is the composition of income. This slide shows income for cultural organizations grouped into four budget categories by their overall budget size.  Going from your left to your right are bars representing Small, Medium, Large, and Very Large organizations.  In the smaller organizations in Portfolio, there is much greater reliance on contributed income than earned. In particular when you look at this graph comparing different size organizations, note that Contributed income, shown here in gray, accounts for more than half of revenues at Small, Medium and Large organizations. Only the Very Large organizations derive more than half of their income from earned sources, shown here in blue.
  • Now, I want to call your attention to two elements of income in particular. First, let’s take a look at foundation contributions. You can see in this graph, that Small and Medium organizations, at 25% and 23% of their total income, are almost twice as reliant on Foundation support as Large and Very Large organizations.
  • In this next chart, you can see that for the Large and Very Large organizations, investment income is a critical component of their financial viability. Interest and investment income for Large organizations accounts for almost 20% of total income, and it’s almost 30% at the Very Large organizations. Now consider that, because of the natural lag in data collection, the period measured in Portfolio was actually one of relative strength in the equity markets. With recent stock market instability, this investment income, which appears as such a source of strength, may decline going forward. Moreover, the performance of equity markets will impact organizations of all sizes because it affects not only the investment portfolios of organizations with endowments, but also the endowments of foundations, and the confidence and capacity of individual and corporate donors.
  • One of the other important trends we detected in our ten year analysis was a dramatic shift in government support. In 1995, state and federal support was about even, with a ratio of 1:1.
  • But by 2005, with growth of 144% in State support and a 72% decline in Federal support, that ratio changed to 9:1.
  • So, to summarize our key findings from 2008 Portfolio, we come back to those three key words: vibrant, valuable vulnerable. “ Vibrant” based on the overall growth of arts and culture in Greater Philadelphia. We’ve played a signature role in leading the region’s renaissance of the past ten years. Our growth has outpaced the rate of inflation, almost by a factor of two. Employment has grown. Attendance is strong and widespread, and the arts are increasingly affordable and accessible. Most importantly, elected officials and civic leaders increasingly recognize the role that cultural organizations play in economic and community development. But we are also vulnerable. 40% of our organizations are operating at a loss, and almost a quarter have deficits greater than 10%. Moreover, financial market volatility is a real threat. As our funding streams have diversified, and our development efforts and investment income are increasingly subsidizing the cost of operations, our vulnerability to financial markets is much higher. We have managed tightly, exemplified by the dramatic expansion in our use of part-time employees. But these positions are typically unbenefitted and turn over more quickly. With this staffing structure, the cultural sector needs to ask whether we can retain the best and brightest employees and preserve the institutional memory that are key inputs to successful management .
  • That’s the story of our data, and now I imagine you might be wondering just what this means for the organizations whose information I’ve shared with you today. What’s happening to them right now? What’s on their minds as they see this story unfold, particularly in light of the current economy? Basically, they’re worried about four key things, which I’ll briefly outline for you now. The first deals with Market Forces, or more simply put, “What’s happening in the general economy, and how will that impact my organization?” You’ve seen that cultural organizations operate with very slim margins – just 5% -- and that 40% of the organizations we studied ran a deficit in the year we examined. And that was in a time when the market was strong. In addition to concern about their own margins, organizations are increasingly concerned that even though they have successfully worked over the last decade to diversify their income sources, all of those sources are vulnerable in the current economy. Add to that the fact that funders are increasingly interested in very specific, individually-tailored outcomes and reporting, and you have a mix that causes concern within the cultural community. For smaller organizations, a decline in foundation assets could lead to a decline of a critical source of support. For the largest organizations, market forces are felt more directly, through a declining value of endowment principal, which leads to fewer earned income dollars from the returns on those investments. Organizations across the board are also concerned that patrons may need to cut back on their visits, and that individual donors may have less to give. At the same time, cultural organizations, motivated by their social mission as nonprofits, want to be there for their communities. Many are actually trying to increase programming in their local communities, seeing their work as a vital source of hope and optimism during a difficult time, and they’re looking to find ways to make admissions even more affordable than they already are. The second area of concern is Workforce Development. Organizations are asking themselves, “What’s happening to my employees?,” and the answer is often difficult to assess. As I noted, most small cultural organizations aren’t able to offer adequate health insurance coverage to their employees, and given that 2/3 of the employees in the field are part-time, we’re not fully sure who has a safety net and who doesn’t. As many organizations have small numbers of staff, it can also be difficult for employees to advance in the field unless they move to another cultural organization. Finally, though most cultural organizations don’t pay high salaries, the fact that personnel costs comprise 41% of overall expenses makes it difficult to overcome the perception that staff costs are too high, and are an easy cut to make when expense reductions are necessary.
  • Two other areas of concern for cultural organizations are Building Maintenance and Consumer Patterns. “ What’s happening to cultural facilities ?” Well, we happen to live in one of the oldest regions of our country, which means, as we confirmed in a study commissioned from the RAND Corporation last year, that Philadelphia has a more acute crisis on its hands than most other major metropolitan areas when its comes to the care and maintenance of historic properties. The simple fact is that we have more of them than most of our peer cities. Some, like the recently-completed conversion of Memorial Hall to the new home of The Please Touch Museum, will be put to creative, adaptive re-use at its very best. Others may not be so lucky. But we know that for all cultural organizations with facilities, historic or not in nature, utilities were the fastest-rising cost of the last decade, and we don’t expect that to change anytime soon. There are also a number of capital campaigns in progress for new cultural facilities, or improvements and upgrades to existing ones, and fundraising for that type of development during an economic downturn can be a difficult task. And last but certainly not least, cultural organizations are asking themselves, “What’s happening to my audience?” Here, we have three emerging trends that we’ll all be keeping a close eye on in the next few years. The first is a question about shifts in consumer purchase patterns. Historically, many cultural audiences bought memberships or subscriptions, packages that focused on repeated visits to a single organization. In recent years, sales of single tickets have increased, leading some to wonder if the single ticket buyer is replacing the multi-ticket buyer as the industry standard. We don’t have enough data yet to assess whether or not this is true, but it’s something everyone is interested in knowing, as it has major implications for the basic business model of the field. We’re also paying careful attention to generational differences in cultural audiences, and what this indicates for cultural organizations. You know those questions you hear about how well Boomers and X-ers do (or don’t) work together, and what the influx of Millenials means for the workplace? Well, the cultural community is asking what all of this means for arts audiences, and more importantly, what it means for the design of the cultural experience. Finally, cultural organizations are studying predicted demographic changes over the next few decades right here in our region, and considering what those changes mean for audiences and for the design of the cultural experience, as well. Our region will look very different in 2050 than it does today, and cultural organizations want to creatively adapt to what’s happening and continue serving the region going forward.
  • Those are the implications that cultural organizations are dealing with. So where do we go from here? How do continue our efforts to make the cultural community more vibrant and less vulnerable? First, the Cultural Alliance has produced and will continue to produce a collection of policy and audience research to help build awareness, guide management and increase engagement. But research is only meaningful if it leads to action and if it can support further investment in the sector. So, we encourage you to embrace and use these research findings. Share the key data points from the 2008 Portfolio in your conversations with others, to help them better understand how the cultural community functions, and the value of its contributions to the region. Those of you who serve as board members of cultural organizations who enter data in the Cultural Data Project can also create customized reports about organizational performance, and even run comparative reports with groups of similar organizations to better understand what’s happening. All you need to do is ask a staff member to create a login and password for you, and use them when you visit pacdp.org. We are also using the 2008 Portfolio in our efforts to build a corps of individual advocates. We need people who will go to the mat for arts and culture, or at least go to their computer, log onto the Alliance’s PhilaCulture.org web site, register for our online advocacy action center, and then take action. I hope that what you’ve seen today inspires you to join the movement. We’ll make it really easy for you – just give your business card to any Cultural Alliance staff member before you leave today, and we’ll sign you up. (cont’d next page) Finally, we believe this report will help make the case for arts and culture’s integration into broader civic planning. We cannot think about our field in isolation. Our true value is in the way we make everything and everyone around us better—from education, to economic development, to recreation and innovation. We need to carry that message as far and wide as we can, and you are a big part of our success in that endeavor. What Else Can You Personally Do? Now is a critical time to continue and even deepen your engagement with the cultural institutions that you already support. In addition to your financial support, cultural organizations need your leadership as volunteers and board members. Serve on committees, join efforts to increase awareness, and speak out about the impact that cultural organizations have here in our region. Encourage your friends and neighbors to experience the arts firsthand, tell your stories to everyone who will listen, and be sure that the cultural community is represented at the table in your other civic and business activities. John Conaway is a great example of this here at the Cultural Alliance. When he first joined our board, he expressed some concern that he wouldn’t be able to really help, and feared that he might not make a difference. The reality is that his contributions have been invaluable. Not only has he served as a member of our development committee and helped bring this presentation to many audiences around the region, but when the financial crisis first struck this fall he led a discussion over a brown bag lunch with our staff to talk about how each of us could personally weather the storm. Now, all of you have access to John on a regular basis, so I realize this may not seem like a big deal, but the majority of my staff is under the age of 40, and many have never met with a financial adviser. To have an expert of his level come and offer advice on how to personally survive this economic downturn, a daunting situation that may of them have not experienced before, was a great gift. It may seem silly, but hearing John answer the question, “So, should I actually be keeping my cash under the mattress?” was exactly what people needed to calm their fears and bolster their confidence (not to mention their savings accounts). It’s an example of deepening engagement, and though it may have been a simple gift for John to provide, it had a great impact on our staff. I encourage all of you to reach out to the cultural organizations you know and love, and to think creatively with them about how you can work together in this difficult time.
  • I’ve been honored to work in this field for almost 30 years. And I can’t think of anything I’d rather do than help cultural organizations to thrive and help the public to understand our value. In particular, having been through the social upheaval of the 60’s, the culture wars of the 80’s and, now, the economic volatility of this decade, I know, as you do, that articulating the case for our field can be challenging. How do you put into words the value of something as intrinsic as art? But articulate we must. Because if we fail to make the case, we will miss the opportunity to weave a cultural fabric that can unite our region across geographic, economic and social boundaries. Greater Philadelphia has an opportunity to be not just one of the greatest regions in the country and we need to set our sights that high, and this report will help us get there. As the cultural community, we must not underestimate our essence, our mandate to unite this region. We are being called to serve, and we must answer that call. It’s not about art for arts’ sake. It’s about art for people’s sake. Thanks again for giving me the time today to talk with you. And thanks again to the William Penn Foundation and PNC for supporting this important research, and for everything you do to support the cultural community. Thanks also to all of you, for everything you do to support this region. And now, I would be happy to answer any questions.
  • 2008 Portfolio Presentation

    1. 2. <ul><li>vibrant </li></ul><ul><li>valuable </li></ul><ul><li>vulnerable </li></ul>
    2. 3. vibrant valuable vulnerable consumer price index 1995-2005
    3. 4. vibrant valuable vulnerable cultural growth 1995-2005
    4. 5. <ul><li>suburban cultural growth 1995-2005 </li></ul>vibrant valuable vulnerable
    5. 6. <ul><li>employment 1995-2005 </li></ul><ul><li>full time employment kept pace or exceeded regional averages </li></ul>vibrant valuable vulnerable
    6. 7. <ul><li>employment 1995-2005 </li></ul><ul><li>part-time employment saw the greatest growth </li></ul>+ 9% + 98% vibrant valuable vulnerable
    7. 8. <ul><li>health insurance costs paid by employer </li></ul>vibrant valuable vulnerable
    8. 9. 3 performances an hour 13 tours per day 777 events every week 15 million total visits per year vibrant valuable vulnerable
    9. 10. valuable… 43,000 paid and volunteer positions vibrant valuable vulnerable
    10. 11. 24,000 volunteers vibrant valuable vulnerable
    11. 12. vibrant valuable vulnerable 45% of income is contributed every fundraising $1  $9
    12. 13. 52% income growth vibrant valuable vulnerable
    13. 14. the arts are a bargain vibrant valuable vulnerable
    14. 15. affordable… … and accessible vibrant valuable vulnerable
    15. 16. vulnerable… operating margins remain thin 3% 5% vibrant valuable vulnerable
    16. 17. 40% of cultural organizations operate at a deficit vibrant valuable vulnerable
    17. 18. contributed to earned income vibrant valuable vulnerable
    18. 19. foundation support as percentage of total revenue vibrant valuable vulnerable
    19. 20. investment income as percentage of total revenue vibrant valuable vulnerable
    20. 21. 1995 State & Federal support vibrant valuable vulnerable
    21. 22. 2005 State & Federal support vibrant valuable vulnerable
    22. 23. <ul><li>vibrant </li></ul><ul><li>valuable </li></ul><ul><li>vulnerable </li></ul>
    23. 24. vibrant valuable vulnerable implications <ul><li>Market forces </li></ul><ul><ul><li>Slim margins </li></ul></ul><ul><ul><li>Pressure on all income streams </li></ul></ul><ul><ul><li>Increasing specifications of funders </li></ul></ul><ul><ul><li>“ It’s the economy, …” </li></ul></ul><ul><li>Workforce development </li></ul><ul><ul><li>Rising benefits costs – health insurance for small companies </li></ul></ul><ul><ul><li>“ Move over to Move up” syndrome </li></ul></ul><ul><ul><li>Large part-time workforce </li></ul></ul><ul><ul><li>Difficult to overcome perception of high personnel costs </li></ul></ul>
    24. 25. vibrant valuable vulnerable implications <ul><li>Building maintenance </li></ul><ul><ul><li>Utilities costs </li></ul></ul><ul><ul><li>Large number of historical sites </li></ul></ul><ul><ul><li>Capital campaigns for cultural facilities </li></ul></ul><ul><li>Consumer patterns </li></ul><ul><ul><li>Shifts in ticket purchasing? </li></ul></ul><ul><ul><li>Generational differences </li></ul></ul><ul><ul><li>Demographic changes </li></ul></ul>
    25. 26. vibrant valuable vulnerable action steps <ul><li>Support the Cultural Community </li></ul><ul><ul><li>Use research </li></ul></ul><ul><ul><li>Become an arts advocate </li></ul></ul><ul><ul><li>Integrate culture into other activities </li></ul></ul><ul><ul><li>Deepen your engagement with individual organizations </li></ul></ul>
    26. 27. This publication was made possible by PNC and the William Penn Foundation. Additional support was provided by the Dolfinger-McMahon Foundation.