One of the most important benefits to arts organizations who established endowments with the Ontario Arts Foundation under the Arts Endowment Fund program (AEF) (and new organizations continue to) is the fact that endowment distributions are unrestricted. Unlike most grant funding, which is directed towards particular programs, AEF income can be used by an organization where they choose. This allows arts managers and their boards to decide each year if the income will be applied to core operating costs (rent, salaries, overhead), or a particular production, outreach initiative, or an investment in something new.
Operating Expenses
The Chronicle for Philanthropy recently published an article highlighting how five of the US’ wealthiest foundations have decided to focus efforts on grant makers to join them in offering funding that can be directed to operating expenses. In doing so, they hope to set an example to encourage other funders to ‘stigmatize’ in the eyes of donors and granters operating costs and help funders understand supporting an organization in this way helps them thrive and grow and make wise operating decisions. The article identified six ways, a funder can consider supporting operating costs of a not-for-profit:
- Flexible enterprise support – overhead, allowing arts managers to decide how funding is to be used
- Targeted growth support – directed at salaries, or building a new facility/physical need or invest in developing a new program
- Outcomes funding – improving a mission ( arts ) in a specific way. The applicant for funding agrees to success/outcome measures and how much funding is needed to attain that goal
- All in one project pricing – funding for anything project specific related – the distinction is that the grant recipient doesn’t have to specify if the money is used specifically for the project itself or overhead
- Indirect cost rate-based project funding – funding to cover a initiative, plus a %age of project expenses such as overhead
- Flexible program support – e.g. rent and other costs that go beyond a projects projected budget
All the approaches are intended to give an organization much needed flexibility to carry out their mission, potentially on a multi-year basis. This approach, which we endorse can be a valuable tool in the range of financial support options pursued by arts organizations, allowing to produce, explore and create.