GIA’s National Capitalization Project

A Progress Assessment

Published in: GIA Reader, Vol 25, No 3 (Fall 2014), 2014 Conference Proceedings

Alexis Frasz and Holly Sidford
The full version of this report is available here

Introduction

Capitalization is the accumulation and application of resources in support of the achievement of an organization’s mission and goals over time. A well-capitalized organization has the ability to access the cash necessary to cover its short- and long-term obligations, to weather downturns in the external operating environment, and to take advantage of opportunities to innovate.1
Or, more simply, capitalization is “having the cash to execute strategy.2

The weak capital structures of cultural organizations have been a problem for more than four decades and have persisted despite numerous reports on the consequences of inadequate financing and periodic large-scale philanthropic attempts to address the problem. Recent Nonprofit Finance Fund (NFF) and TDC research suggests that as many as 70 percent of cultural organizations may be inadequately capitalized.3 NFF’s 2014 national “State of the Nonprofit Sector Survey” reported that 30 percent of arts organizations ended FY2013 with a deficit, and close to 60 percent have less than three months of cash on hand. Poor capitalization leads to “tight daily operations, sizeable liabilities, little to no reserves, inability to innovate or shift business models, aging or overbuilt facilities, and inappropriate or inadequate endowments.”4 This fragile financial situation compromises the artistic health and imaginative capability of cultural organizations and erodes their long-term vitality.

Context of This Report

In 2008, the Great Recession threatened the viability of thousands of cultural groups and reminded us that the roots of cultural organizations’ financial problems are structural and sometimes aggravated by foundation behavior. Responding to these conditions, in 2010 Grantmakers in the Arts initiated the National Capitalization Project (NCP), a multipronged effort to expand funders’ knowledge about capitalization principles and encourage funding practices that promote financial sustainability in cultural organizations of all kinds.

The National Capitalization Project 2010 Summary by TDC summarized GIA’s early work in this area and made it clear that funders’ self-reflection and commitment to change must precede (or at least accompany) expectations that cultural organizations alter their practices.5 GIA committed itself long-term to helping funders make this shift by making capitalization a prominent topic at its annual conferences, publishing frequent articles about capitalization in the GIA Reader, and conducting online webinars. From 2012 to 2014, with support from the Kresge Foundation, the Paul G. Allen Family Foundation, and 28 local funders, GIA hosted in-depth capitalization workshops involving 265 diverse funders in fourteen cities across the country. Experts from the NFF and TDC led the workshops.

GIA commissioned Helicon Collaborative in early 2014 to help it better understand the value of its workshops and other capitalization efforts, and to survey the ways that funders are using capitalization principles in their work now. Helicon interviewed workshop participants, conducted an electronic survey of GIA members and workshop attendees, talked with GIA staff, and reviewed capitalization research. This report summarizes our findings and provides examples of forward-looking practices that may help other funders who wish to strengthen cultural organizations’ financial health.

Impacts of the Workshops

GIA’s work on capitalization over the past four years has had a meaningful impact on funders’ thinking and behavior. As one funder said, “Capitalization has infiltrated the thinking of funders and organizations, in large part because of GIA. This is a big win.” Another funder summarized the key elements of GIA’s capitalization work: “The research set the context for talking about capitalization, the conferences elevated the conversation to a higher level, and the workshops were a way to localize it.”

One of the most important functions of the GIA workshops was to provide an opportunity for arts grantmakers in a city or region to come together and discuss the financial health of their local nonprofit ecosystem. The workshops and related materials gave funders a common language to discuss capitalization and understand their role in it. In some locations funders were already engaged in conversations about capitalization; in other places, this was the first time local funders discussed this topic together. Local alignment among funders is particularly important in addressing capitalization because, as many funders told us, capitalization is fundamentally a local issue. One person noted, “Capitalization work needs to happen at a local level. Local funders are committed to their community for the long-term and best understand the role of local organizations within it. They also have a greater capacity to build the kinds of close, supportive, and transparent relationships with grantees that are critical to effective capitalization.”

The impact of the workshops on funder knowledge and behavior correlated with funders’ previous level of knowledge and readiness for change. For some grantmakers, it was a revelation. One funder said of the workshop, “My eyes were opened. I became accountable because of this one conversation. Now I have language and context to understand the continuing challenges that existed in the nonprofit field, and I have a community to discuss these issues with. I also had an ‘aha moment’ about the damage I may have done in the past by not thinking in a holistic and long-term way about the financial needs of my grantees.” Other funders were more advanced in their thinking about capitalization before attending the workshops. For one funder who already provided general operating support, capitalization planning grants, and risk capital, the workshop “didn’t change our thinking as much as confirm it.” Another funder described the workshop as a useful “tune up,” even though she knew the basics and had been practicing them for years.

The workshops were helpful in boosting participants’ understanding of several key elements of capitalization for nonprofit cultural organizations:

  • the different types of capital required by organizations based on their circumstances,
  • the difference between regular revenue (money for current operations and programs) and capital (funds that support an organization’s liquidity, adaptability, and/or durability),
  • the importance of building liquidity for all organizations and of building it through savings,
  • how funder behavior can negatively impact organization’s finances and stability,
  • the importance of funding general operating costs — separate from or in addition to support for programs — and
  • how to determine liquid net assets from a balance sheet.

Categories of Funder Practices

Funders are supporting better capitalization in nonprofit cultural organizations in four ways:

  1. conducting conversations with grantees, other funders, and their own boards,
  2. providing general operating support and encouraging surpluses,
  3. expanding their capitalization toolbox and being intentional about providing the types of capital that grantees most need, and/or
  4. engaging in multifunder partnerships and collaborations.

These categories are not mutually exclusive, although they range in intensity. Each funder has different interests and constraints that influence its ability to engage with the issue of nonprofit capitalization, but we heard repeatedly that “there are paths toward capitalization for every funder.”

1. Conversations

Many funders that we spoke with recognize that simply starting a conversation with an organization about its overall financial strategy can be an intervention in itself, prompting them to begin thinking more holistically and strategically about the resources they need to do their work well over time. One grantmaker noted, “Nonprofits are responsive to the messaging they’ve gotten from their funders. When groups come to me to sell their next big program, which is in response to what funders have encouraged for years, I have to bring the conversation back to overall financial health. I ask them, ‘What would it take for you to control your own destiny?’” While not responsible for providing all the funds an organization needs to become financially healthy, funders can play a key role in shifting organizations’ mind-sets — from a project orientation and expectation of continuous growth to rightsizing for long-term health and sustainability. A large majority (82 percent) of survey respondents are encouraging grantees to get assistance with financial planning and business model development.

Interviewees stressed the importance of creating a new dynamic where organizations don’t feel they will be penalized by funders for being honest about their financial realities or missteps, but can view funders as partners in their effort to achieve a more sustainable business model. This type of grantee-funder relationship requires more candor and more time to build trust. Nearly two-thirds of the survey respondents (68 percent) reported that they had been having in-depth conversations with grantees about overall financial strategy before attending the GIA workshop, and an additional 17 percent reported that they plan to do so as a result of the workshop. From the point of view of nonprofit cultural organizations, however, there is still a way to go on improving this dynamic. NFF’s 2014 “State of the Nonprofit Sector Survey” reported that nearly 50 percent of arts respondents consider achieving long-term financial stability their biggest challenge, but very few feel they can have an open dialogue with funders about this. Only 12 percent feel comfortable talking with funders about developing reserves, for example. Only 11 percent feel they can discuss working capital, only 9 percent feel they can discuss flexible capital for change or growth, and almost none (2 percent) say they can discuss paying off loans.6

The workshops also facilitated new kinds of conversations between foundation staff and their own boards. Foundation boards are the ultimate decision makers around funding policies and in many cases have a poor understanding of what is needed for cultural organizations to achieve fiscal health. Long-standing funder practices that can have negative impacts on organizations — such as not funding organizations with surpluses or not supporting cash reserves — need to be reexamined in order to improve capitalization, and foundation boards must understand this. Half of our survey respondents indicated that they had had conversations with their boards about policies and practices that support good capitalization, and 23 percent said they plan to do this in the future. Many indicated that GIA materials have been useful in aiding these exchanges.

An equally important conversation is the one that funders in a given community are having with each other. If some funders, whether individuals or institutions, act in ways that undermine strong capitalization or reward poor financial practices, it can jeopardize the efforts of other funders and send mixed messages to the cultural sector overall. As a follow-up to the GIA workshops, more funders are talking regularly with their local colleagues about capitalization issues, and many are working together to continue their education in this area.

Some funders noted that one element is still missing from most capitalization conversations and needs attention: the relationship between capitalization and equity. The effects of historical funding patterns that have privileged some types of organizations and communities over others are still visible today in the capitalization patterns seen in the field. One funder told us, “There is a marked difference in financial stability among large and small organizations and organizations that serve primarily people of color. We need to look not only at capitalization, but also at racial inequities and how to address this within the overall capitalization work.”

2. General Operating Support and Surpluses

Flexible funding is critical to helping organizations make needed investments in overhead, risk management, and innovation. Our interviewees described providing operating support as the “entry level” shift in funder practice that could make the biggest difference in nonprofit financial health, even if no additional money is available. In general, the percentage of arts funding dedicated to operating support rose from 19 percent in 1991 to 32 percent in 2011, which suggests this message is starting to get through.7 Respondents to our survey were much more likely than the general population of arts funders to provide general operating support, with 70 percent saying they do this.

While project support is still the most common form of arts funding (87 percent of survey respondents fund this way), many survey respondents are complementing project grants with support for salaries or overhead (81 percent), or loosening restrictions on how organizations may use project funding (65 percent). A number of funders we interviewed also mentioned the value of multiyear grant commitments, which allow organizations to better plan and manage their finances.

The National Capitalization Project 2010 Summary stated, “Good capitalization hinges on the generation of surpluses which can be used to create the various capital funds that an organization may need for successful mission achievement.”8 For a long time, surpluses were seen as an indication that an organization was less in need of funding than its peers who were operating on the financial brink. This funder practice actually discouraged saving and implicitly encouraged grantees to operate in survival mode. Many funders we spoke with now understand the value of surpluses and are challenging the long-standing bias against them within the philanthropic field. Increasingly, funders are recognizing that surpluses and cash reserves are a critical part of good, sustainable business practice for nonprofits. Actively encouraging grantees to build surpluses (76 percent of survey respondents do this), or at least refraining from penalizing them, is a critical part of improving the financial health of the field.

3. Expanding the Capitalization Toolbox

Some funders we interviewed initially moved toward capitalization principles by providing general operating support and encouraging surpluses but are now supporting the financial health of their grantees in more targeted and sophisticated ways. A number of funders are supporting grantees to do capitalization planning and business model realignment. A smaller number of funders are going further, offering organizations more flexible options such as risk, change, and working capital.

Many funders are working with grantees to help them assess and understand their business model and financial health. This includes putting more questions about these aspects of organizations’ work on grant applications (74 percent of survey respondents). Others find Cultural Data Project (CDP) data very valuable in assessing the financial health of organizations and tracking it over time. The Hewlett Foundation, for example, has identified seven indicators of financial health that it monitors, and has developed a dashboard that allows it to look at trends over time for individual organizations and its grantee pool as a whole. Hewlett is using this information as a basis for conversations with individual grantees as well as workshops for groups of organizations around common issues. A number of funders mentioned that NFF’s financial health assessments help them understand organizations’ financial status, and some funders are providing grants to support financial planning (55 percent of survey respondents) and business model shifts. It is critical that these capitalization plans are based on a robust market analysis of what funders and audiences are realistically willing to support. One funder said, “I’d like to be able to start funding organizations in a major way to think through the process of what full capitalization would look like for them and develop strategies to get there.”

Other funders are going beyond supporting capitalization planning to actually create new capitalization programs or significantly modify their existing programs to align with organizations’ complex financing needs. These funders are using a broader range of tools to support financial health and are getting creative about the funding mechanisms that they employ. For example, the Heinz Endowments bought the accumulated debt of one of its grantees in exchange for becoming a mortgage holder on the organization’s building and a stipulation that it not take on new debt for five years. Actions like this require a long view and mutual trust, but they can make a significant difference in an organization’s ability to sustain itself through challenging times or periods of change.

At present, relatively few arts grantmakers are providing more than project, planning, or operating support. Only one-third of survey respondents indicated they are providing change capital (35 percent) or working capital (33 percent). An even smaller group is providing loans (22 percent), and still fewer are providing debt reduction or recovery capital (18 percent). However, 21 percent of the survey respondents indicated that they intend to start providing change capital and/or working capital in the future, suggesting that there is a growing recognition of the importance of these types of funds. Many interviewees expressed the desire to do more of this kind of funding but acknowledged that changing the mind-set and policies of their funding institution will take time: “You don’t just completely change the way you fund after attending one workshop,” said one person. “This is a whole organization shift that requires buy-in of our board as well as program officers.” Those who are providing this kind of capital acknowledged that there are challenges to doing so. It can take many years of sustained investment to get results, and things do not always work out as planned. Funders doing this type of funding emphasized the need to commit to organizations over a long period of time as a partner who is disciplined and focused on long-term change but prepared to weather ups and downs.

4. Multifunder Partnerships

TDC’s National Capitalization Project 2010 Summary recognized the power of joint funder action in shifting the nonprofit arts field toward a state of greater financial health: “In order to impact the sector, it will not be enough for individual arts funders alone to promote these principles. Rather, success will only be achieved by a group of funders coming together to understand and promote a common set of principles and behaviors in their grantmaking and by agreeing to have a different conversation with grantees.”9 Getting a cohort of local funders to agree to and promote a common set of principles and behaviors is a challenging task, but important if sustained progress is to be made in the regional ecology. Multifunder partnerships are another option, more complicated than unilateral action, but holding great potential for system-wide change in organizations’ practice. Many interviewees noted that GIA’s NCP workshops were important in setting the stage for future funder collaborations, especially in places where funders had not previously felt common cause.

Joint funding ventures for capitalization encompass rigorous financial analysis for participating groups, planning grants, multiyear change capital grants, and technical assistance and assessment efforts. The joint ventures are relatively rare (22 percent of survey respondents indicated that are doing this). However, more than two-thirds of survey respondents (68 percent) reported that they meet regularly with other funders to discuss capitalization or do advanced study in this area, and in some communities — Minneapolis, for example — arts funders are hosting conversations about capitalization with funders in other sectors. Approximately half of survey respondents (54 percent) are jointly funding technical assistance workshops on capitalization for cultural organizations, and 45 percent reported that they are jointly funding research about capitalization in their area. Grantmakers in places where funders have not historically worked together and have varying degrees of experience with capitalization expressed a desire for further support and guidance — a curriculum of sorts — to support continuing the conversation in their community.

Barriers to Change

We heard about challenges in a number of areas.

Foundation Boards

Board philosophy guides a foundation’s grantmaking, and support at the board level is important for any significant changes in practice. More than 50 percent of our survey respondents indicated that they have engaged their boards in discussion about capitalization, and half of those indicated that GIA materials and resources spurred these discussions and have been instrumental in facilitating them. However, lack of board support remains the most significant barrier to change. Two-thirds of respondents (67 percent) who reported that they are experiencing challenges implementing capitalization said this is an issue for them.

From our interviews we learned that many boards are still reluctant to provide operating support, change capital, or other “unrestricted” funding, fearing that they will not be able to control or measure the impacts of such investments. In addition, many boards hesitate to fund reserves for some organizations when others are struggling to stay alive. Many boards hold implicit or explicit beliefs about how nonprofit finances are “supposed to work,” including operating with extremely low overhead and running regular deficits, even though these are considered bad practices in the businesses where many board members work. One program officer said, “We might know that this is the right way to fund, but our boards don’t. They can run a successful business, but they have different principles for nonprofits.” And as one interviewee noted, a real — if banal — barrier to board support for capitalization is that it seems “dry and unsexy,” especially in comparison to project or program funding.

Funding Institution Staff

Many private and public funding entities have a misconception that “doing capitalization” requires fully meeting grantees’ capitalization needs. Because their funding resources are insufficient to this task, they believe they cannot tackle the issue. As one interviewee said, “What would it take to fully capitalize arts organizations in a given community? That is too scary a conversation.”

The message that all funders, regardless of their focus or budget size, can contribute to furthering good capitalization practices has not fully penetrated the field. The misconception that “capitalization is not for us” seems particularly strong among public funders and funding intermediaries. One public funder responded that implementing capitalization principles into their grantmaking is “not possible in municipal funding” because “we can only fund public-benefit activities.” Intermediaries and public funders often feel that their grants are too small to make a difference. Yet these entities often have closer relationships with grantees and tend to work with younger, smaller, and more culturally diverse organizations than many private foundations. This puts them in an important role relative to educating nonprofit leaders about good capitalization practices. Concepts such as providing flexible support and not penalizing surpluses can be adopted by both public agencies and regranting programs.

Many program officers lack the financial expertise needed to adequately evaluate cultural organizations’ finances and determine the appropriate ways to intervene when necessary. One interviewee noted: “I haven’t had the formal training to understand detailed balance sheets and to read in between the lines. I need to get up to speed before I can share this learning with grantees.” Fully understanding an organization’s financial picture and working with them on improving it takes time and is a more intensive relationship than many funders are used to having with organizations. Program officers who are already stretched to their capacity are finding it hard to take on this additional work, despite recognizing its value. One said, “Writing the check, that’s the easy part. The hard part is finding the time to deepen our relationships with our grantees in the way that is necessary to further this work.” In addition, not all funders understand that every grant they make influences the organization’s financial health. Some view capitalization as something outside their interest or purview. One funder put it bluntly, “Our mission is project-focused and that is unlikely to change soon.”

Cultural Organizations

Funders interviewed for this study generally feel that while most arts organizations appreciate flexible funding and understand the value of cash reserves, the majority have not yet internalized capitalization principles beyond that.10 There are significant exceptions in every locality, however, and over half of survey respondents (56 percent) feel that interest in capitalization is growing among nonprofit organizations in their community. The shift to good capitalization practice involves all dimensions of a cultural organization and requires reeducation of board members as well as artistic and management staff. One funder reported that she now requires grantees to bring artistic and management staff as well as board leadership to conversations about financial health, after watching organizations’ carefully built surpluses repeatedly viewed as “extra” money and spent without plans for replacement. Another funder commented that board members “wouldn’t run their own businesses like they run the nonprofit organizations they sit on the boards of.” Funders can encourage cultural organization leaders to have conversations about good capitalization practice with their boards.

What Will Continue to Propel Change

Good Data and Information

The NFF’s diagnostic tools and capitalization reports,11 GIA Reader articles, the GIA workshop PowerPoint, articles by Clara Miller, and TDC’s 2010 capitalization summary report have helped funders understand capitalization themselves and communicate about it to others. A number of funders referred to these as “active documents,” meaning that they have practical value for them on a daily basis. Funders in areas where CDP data are available noted that these are becoming a useful tool. Both interviewees and survey respondents reported that they would like more information about successful capitalization strategies used by grant-makers and organizations.

Workshops and Training for Funders

Funders acknowledge that they need additional help with reading financial statements, analyzing business plans, and understanding the nuances of different kinds of capital and sustainable business models. Continuing conversations among funders, particularly funders working in the same locale, is essential, and funders expressed a desire for guidelines and materials to help foster this work. Funders want assistance in how to talk with applicants and grantees about long-term financial planning rather than specific projects. Funders also requested training specifically designed to meet the needs of foundation boards, who must be educated about good capitalization principles in order to support changes in policy and practice but are unlikely to attend a lengthy workshop. There is an opportunity for GIA and local funders’ affinity groups to create interfunder mentoring — linking funders who have figured out how to talk about capitalization with cultural groups and their own boards to others who want to do this but need guidance about how to proceed successfully.

Educating Others in the Nonprofits Arts Field

Improving the capitalization of nonprofit arts organizations requires action by organizations in all parts of the arts sector. Numerous funders said that the next step in this work is to bring more nonprofit organizations into the conversation, including artistic and management staff as well as board members, consultants, and others who work with cultural groups. Service organizations, intermediaries, and consultants have an important role to play in shifting the way that organizations think about their finances. Service organizations, in particular, are key partners in spreading good practice nationally. They can raise awareness about capitalization principles through their publications, workshops, conferences, and other resources. Theatre Communications Group and Dance/USA have initiated such efforts, but many intermediaries seem unsure about their role in capitalization. Educating these groups about the critical role they can play in this equation is a necessary step. Ensuring that arts consultants are knowledgeable about capitalization fundamentals would reinforce funders’ work in this realm. Accountants and auditors also need to be educated about good capitalization strategies — such as separating revenue from capital — and how to reflect this in budgets and reports.

Better Terminology

Many funders and cultural groups find the current language of capitalization — terms like “capitalization,” “change capital,” and “risk reserves” — to be a barrier to understanding and therefore to change. We heard from several interviewees that they prefer phrases such as “long-term financial health,” “business model development,” “controlling your own destiny,” and “resources needed to achieve your mission over time.” Using clearer, jargon-free language can help cultural organizations see how embracing good capitalization is in their own best interest and reduce the fear that this is just another funder-generated mandate.

Consideration of Equity

It is critical that funders’ investments in capitalization do not exacerbate the historical inequities in resource distribution in the nonprofit arts field. The capitalization conversation — nationally and locally — is an opportunity to reevaluate the financing of individual organizations as well as entire areas of the sector, such as community-based or culturally specific arts organizations. Additional effort needs to be made to link the discussions of arts organizations’ financial health with the conversations around cultural equity and the increasing diversity in aesthetic and institutional forms.

Profiles

Boston

The Barr Foundation and Klarman Family Foundation are collaborating on the five-year Barr-Klarman Arts Capacity Building Initiative to nurture healthier organizations that can take artistic and organizational risks. Thirty-one cultural organizations receive technical assistance and multiyear operating support, ranging from $50,000 to $250,000 annually. The foundations are partnering with TDC to provide responsive technical assistance and training. As part of the initiative, TDC has provided in-depth financial analysis for participating organizations, including discussions of capitalization principles with board members, as well as workshops and support to strengthen their operations and balance sheets. The initiative also focuses on audience diversification and cultural competency to enable organizations to reach and remain relevant to Boston’s increasingly diverse communities and audiences. The initiative is comprised of two cohorts — organizations with midsized budgets and those with a focus on youth arts mastery — including the American Repertory Theater, the Institute of Contemporary Art, the Museum of African American History, Boston Children’s Chorus, The Theater Offensive, and Hyde Square Task Force. Says Laura Sherman of the Klarman Family Foundation, “We’re seeing some organizations change their approach to budgets — thinking about organizational health, not just programs. As a result of this program, others are not taking on building projects that might harm them financially. Most are building finance skills on their boards, among other changes. It’s very gratifying.”

Portland

A consortium of funders in Portland, Oregon, is working together to stabilize the city’s five largest cultural institutions. Martha Richards, executive director of the James F. and Marion L. Miller Foundation, says, “We were concerned about the persistent deficits and the episodic crises. We told the groups, ‘If you want more money from us, you have to — at a minimum — balance your operating budget and reduce the debts that are restricting your artistic and financial flexibility.’” Part of the goal of the initiative is to provide funders with the same information and enable them to coordinate their interactions with the arts groups. In 2009, the consortium hired a consultant to generate a detailed analysis of each organization’s financial situation. Groups then prepared business plans describing how they would achieve surplus budgets and build working capital. Funding is tailored to the specific organization’s needs and size. The program has required changes in behaviors for both the funders and the organizations. Five years in, all the groups have balanced or surplus operational budgets and are making progress toward retiring debt. “The groups continue to face occasional setbacks, and there’s much more to do,” says Richards. “Adequate capitalization is still a ways off, but now we can discuss financial strategy not just bank balances, and this is a very significant shift.”

Twin Cities

The GIA workshop in November 2012 piqued the interest of arts grantmakers in the Twin Cities for learning more, and the Minnesota Council on Foundations decided to host a follow-up workshop with fifty-five funders and arts organizations. This workshop was facilitated by Nonprofits Assistance Fund (NAF), a regional service organization with deep expertise in nonprofit finances. The workshop participants were coached through hands-on analyses of sample arts organizations’ budgets and balance sheets. Subsequently, several funders have asked NAF to provide additional training for their staff members. These sessions provide deeper skill building on financial analysis and review approaches to talking with colleagues and board members about the benefits of financial health and capitalization. Funders in other fields are also attending these workshops, so arts funders can exchange ideas with colleagues in other sectors. “The capitalization principles apply across the nonprofit sector,” says Kate Barr of NAF. “And change in funder policy and practice will come faster if program officers in multiple fields are advocating for it.”

Facilities Support

Facilities can be a particularly challenging element of nonprofit capitalization. Clara Miller, NFF’s previous CEO and capitalization maven, calls real estate “one of the four horsemen of the nonprofit financial apocalypse.”12 Several arts funders are employing creative strategies to help cultural organizations gain control over their real estate destiny:

  • Several years ago, a midsized organization in Pittsburgh was suffering under almost $1 million of accumulated, building-related debt. The Heinz Endowments purchased the bulk of the debt and became a mortgage holder on its building. In exchange, the organization agreed not to assume any new debt for five years, which forced the group to change its way of thinking and operating.
  • A dance group in Houston wanted to move into a new facility but was unable to aggregate a sufficient cash reserve for this purpose despite having solid cash flow. The Houston Endowment put them in touch with the Local Initiatives Support Corporation (LISC), a community development finance organization. LISC helped the company put its financial package together in a way that a lender could understand, which enabled it to get a loan and move into a new facility.
  • San Francisco is one of the most expensive real estate markets in the country, and the most recent boom has left many nonprofit cultural organizations struggling to stay in the city as rents increase alarmingly. The Kenneth Rainin Foundation has partnered with the Northern California Community Loan Fund to launch the Community Arts Stabilization Trust (CAST). CAST brings public and private sector leaders together to purchase facilities and stabilize rents for nonprofit arts organizations in a volatile real estate environment. Key to this effort is working with nonprofit cultural organizations to build their financial skills and capacity so they can manage facilities, once the leases and facilities are transferred to them.


Notes

  1. Elizabeth Cabral Curtis, National Capitalization Project 2010 Summary, TDC, September 2010, http://www.giarts.org/sites/default/files/capitalization-project_2010-summary.pdf.
  2. “Capitalization and Community: A Dialogue with the Los Angeles Funding Community,” PowerPoint presentation, Nonprofit Finance Fund and TDC, February 7, 2013.
  3. Ibid.
  4. Nonprofit Finance Fund, “State of the Nonprofit Sector Survey: Arts and Culture,” http://nonprofitfinancefund.org/files/docs/2014/2014_arts_survey_results_summary.pdf.
  5. Curtis, National Capitalization Project 2010 Summary.
  6. Nonprofit Finance Fund, 2014 State of the Nonprofit Sector Survey Arts & Culture, 18, 23, http://nonprofitfinancefund.org/files/docs/2014/2014_arts_survey_results_summary.pdf.
  7. “Arts Funding Snapshot: GIA’s Annual Research on Support for Arts and Culture,” GIA Reader 24, no. 3 (fall 2013): 5, http://www.giarts.org/sites/default/files/24-3_Vital-Signs.pdf.
  8. Curtis, National Capitalization Project 2010 Summary, 5.
  9. Ibid., 4.
  10. Basic capitalization principles include the following: having the cash to execute strategy over a sustained period of time; understanding the difference between revenue and capital; understanding how investments in change differ from regular business costs; and having liquidity, adaptability, and durability of finances. See Nonprofit Finance Fund, Critical Steps toward Capital Health in the Cultural Sector, http://nonprofitfinancefund.org/files/captips_052114.pdf.
  11. NFF’s diagnostic tools and capitalization reports including The Case for Change Capital in the Arts, http://nonprofitfinancefund.org/files/docs/caseforcapitalfinal_050611_spread.pdf; Change Capital in Action: Lessons for Leading Arts Organizations, http://nonprofitfinancefund.org/files/ccinaction_final.pdf; and Critical Steps toward Capital Health in the Cultural Sector, http://nonprofitfinancefund.org/files/captips_052114.pdf.
  12. Clara Miller, “The Four Horsemen of the Nonprofit Financial Apocalypse,” The Nonprofit Quarterly, spring 2010, http://nonprofitfinancefund.org/files/4_horsemen.pdf.

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