photo by Martha Soukup

(I first met John Carnwath when he came to a talk of mine at the University of Chicago Cultural Policy Center last year and asked questions that immediately identified him as a smarty-pants. John is currently finishing up his PhD at Northwestern University, where he has studied the development of municipal arts funding in Germany and teaches courses on cultural economics and organizational structures in the performing arts. He serves as the “Dean” of the Chicago Chapter of The Awesome Foundation and was previously a staff researcher for the Chicago Artists Resource. As I was following the federal tax reform negotiations this winter and thinking about what might happen to the charitable tax deduction, John seemed like an obvious choice to lead the investigation on behalf of Createquity. Enjoy! -IDM)

In his most recent budget proposal, President Obama is seeking to impose a cap on itemized deductions in the personal income tax return – which includes the deduction for charitable contributions. This provision, part of  the administration’s strategy to raise revenue to pay for government spending, has been a part of every White House budget proposal since 2009, and every year arts advocacy organizations join the rest of the nonprofit sector in opposing the changes. So far, the cap has been successfully warded off, but there’s growing concern that if Republicans and Democrats ever agree on sweeping tax reforms, the charitable deduction will be on the chopping block. The fear that limiting the tax deduction will lead to reduced donations to charitable organizations is particularly great this year due to the tax increases that were passed at the end of 2012, prompting the Charitable Giving Coalition to step up its resistance with a new website: protectgiving.org.

While it’s become a popular strategy on Capitol Hill to complain about the lack of progress while refusing to budge from one’s own policy positions, a case can be made that the nonprofit sector’s lobbying on behalf of the charitable deduction has neither improved the financial stability of the sector nor created greater legislative security. At best, it has limited the declines in individual giving in recent years. So rather than simply digging our heels as we head into the next round of budget debates, let’s take a moment to explore a broader range of policy options and see which might make the most sense for the arts.

Before we get to that, though, here’s a refresher on the mechanics of the charitable tax deduction for anyone who needs it.

What is the charitable deduction and how does it work?

The tax deduction for charitable donations was established in 1917, just four years after the federal income tax was introduced. While there have been some changes over the years, in its basic form this provision allows taxpayers to deduct donations to nonprofits and charities from their taxable income. So if a taxpayer earns $50,000 and gives $2,000 to charity, she only has to pay taxes on $48,000. The rationale behind this provision was initially that the taxpayer who gives away $2,000 doesn’t have that money available to spend on herself, so it shouldn’t be counted as part of her income. Nowadays, the deduction is more commonly thought of as an incentive dangled before taxpayers to coax them into donating more money to charity. By allowing taxpayers to deduct charitable donations from their taxable income, the government essentially agrees to pay for a portion of the donation.

Think about it this way: If you earn $1,000 and you’re taxed at a rate of 30%, you have to pay $300 to the IRS and you end up with $700 in your pocket. But if you donate $100 to charity, your taxable income is reduced to $900. Your tax bill then comes to $270 ($900 x 30%). In return for giving $100 dollars to charity the government reduces your taxes by $30, so in the grand scheme of things that  $100 check that you write to your favorite opera company really only sets you back $70.

Who benefits from the charitable deduction?

While this all sounds great in principle, there’s a big catch: not all taxpayers benefit from the charitable deduction. Initially the income tax only applied to a rather small number of wealthy Americans, but during World War II it was expanded to affect roughly 75% of the population. Instead of having all of these tax filers list their deductions individually—$42 for prescription medicine here, a $100 donation to a museum there—the IRS introduced the “standard deduction” in 1944. The standard deduction lets all filers lower their taxable income by a fixed amount. For the 2012 tax year that amount is $5,950 for single taxpayers and $11,900 for couples. That means that you only have to keep track of your deductions and itemize them on your income tax return if they exceed $5,950 (or $11,900 if you’re married). That saves a lot of taxpayers (not to mention the IRS) a huge headache, but it also means that the 70% of filers who take the standard deduction don’t get to write off their charitable donations. (One might argue that the non-itemizers benefit from the charitable deduction in a roundabout way, since a typical deduction for charitable donations was factored in when the standard deduction was calculated back in 1944, but the fact remains that the current deduction for charitable contributions and any changes to it are only relevant to about 1/3 of American tax filers.)

For those who do itemize deductions, the amount of the government’s subsidy towards charitable donations depends on the filer’s marginal income tax rate. If you’re in the 35% bracket and you donate $100 to a good cause, the government gives you $35, but if you’re in the 10% bracket you only get $10 back from Uncle Sam. Economists say that the “price of giving” is lower for the individual in the 35% bracket than for the one in the 10% bracket (e.g. note 1 here). Giving $100 to charity “costs” the former (presumably richer) person $65 and the latter $90. While this seems sort of unfair, it’s the result of having a progressive income tax system in which those who earn a lot pay a larger percentage of their incomes into the public purse.

This means wealthy taxpayers not only have more money in their bank accounts to give away, but when they donate to charity the government covers a larger portion of their donations. It is therefore no surprise that the rich are responsible for a large share of charitable giving. Although only 3% of tax filers have annual incomes over $200,000, those households contribute 36% of the money that individuals give to charity every year—a total of $73 billion in 2008. However, the federal government foots the bill for about a third of those donations through the deduction for charitable contributions (assuming that most of the individuals with incomes over $200,000 are in tax brackets with marginal rates over 30%).

One might say, “well it’s all for a good cause, so it doesn’t really matter if the government is paying for a portion of the donations,” but it turns out that taxpayers with high incomes choose to give their money to different causes than those who are less well-off, and the charitable deduction allows them to divert large amounts of government funds to their favorite organizations. The wealthy support educational institutions and the arts to a much greater extent than poor people, who tend to focus their giving on basic needs and religious organizations. The extent to which the arts depend on donors with high incomes for their contributions is quite striking. In 2005, 94% of the funds that arts organizations received through individual contributions came from households with annual incomes over $200,000.

Of course, the donors are not the only ones who benefit from the tax deduction. All of the people who receive services from nonprofits and charities may be considered indirect beneficiaries of this provision in the tax code. However, to determine whether the charitable deduction is the best way for the government to support the work of nonprofits we must take a closer look at the incentives that are created and how people respond to them.

Do donors respond to tax incentives?

The deduction for charitable contributions affects taxpayers in two different ways. On the one hand, we have the “price effect.” As noted above, higher marginal tax rates reduce the price of giving, creating a bigger incentive to contribute to charities. However, high marginal tax rates also mean that people have less money left in their pockets after paying their taxes. In general, if people’s incomes are reduced, one would expect them to become less generous donors. After paying for rent, food, and utilities, they have less money left over for nonessentials like vacations and charitable donations. This is called the “income effect.” Note that the income and price effects work in opposite directions. Higher marginal tax rates incentivize donations through the price effect, but they simultaneously create a disincentive through the income effect.

Several economists have examined donors’ responsiveness to tax incentives over the past few decades, but the results remain inconclusive. Most studies find that donors respond to tax incentives, but the historical record shows that the level of charitable contributions remains relatively constant over time when measured as a proportion of GDP regardless of the available tax incentives. Some studies suggest that higher-earning taxpayers are more responsive to the incentive than those who are less well-off and that there are differences between types of charities (religious, social, educational, etc.) that receive donations. Many policy analyses (CRS, CBO, TPC) therefore calculate the upper and lower limits of a range into which the effects of proposed policy changes are expected to fall rather than a specific estimate.

Considering policy options: goodbye deduction?

To establish the worst-case scenario as a baseline, one might ask what would happen if the charitable deduction were eliminated completely. Independent Sector, an advocacy organization for nonprofits and charities, recently put out a list of FAQs according to which “with no deduction for charitable gifts, itemized charitable giving would drop by between 25 percent and 36 percent total.” This assertion is rather misleading. The study from which Independent Sector gets these numbers states that a taxpayer in the 30% income tax bracket might reduce his contributions by 25-36% if the deduction were eliminated. Since the incentive to donate depends on the filer’s marginal tax rate and 98% of households face rates under 30%, the reduction in the total amount of individual contributions is likely to be much smaller than Independent Sector suggests.

The truth is, we have no idea what would happen if the tax deduction were eliminated. Not only have studies of the price and income effects been inconclusive, but they are all based on observations of how donors have reacted to incremental changes in tax rates and deductibility in the past. These estimates may be useful in predicting the effect of small changes within the range of what’s been observed in the past, but there’s no reason to be believe that the response would be the same once the government’s incentive approaches zero. In fact, economic theory would predict that it’s not the same.

For example, if the deduction were eliminated completely, one might expect some donors to dig deeper into their pockets to keep their favorite charities afloat. However, some wealthy Republicans might cease all charitable donations to protest the fact that they’re having to pay more taxes, secretly hoping to blame the financial hardships of the charitable sector on the Democrats in the next elections. These types of reactions are difficult to predict. One thing is certain: if the indirect subsidy that the government provides through the charitable deduction were eliminated in order to reduce the deficit, individual donors would have to dig deeper into their pockets to sustain nonprofits at their current level of activity. And if the entire nonprofit sector were in severe financial distress, one can easily imagine that some donors would reallocate their gifts towards hospitals and basic social services, compounding the impact on the arts.

Capping the deduction

The good news is that no one has proposed eliminating the deduction altogether. Obama’s 28% cap on deductions, on the other hand, remains a very real possibility.

Obama suggests that the government could increase its revenue by capping deductions at 28% of the donor’s AGI. As mentioned above, the size of the tax incentive is generally determined by the marginal tax rate that taxpayers incur, but Obama’s proposal sets 28% as the maximum anyone can claim. For the vast majority of households, this would be of no consequence. If you’re in the 10%, 15%, or 28% tax brackets, you still get your deduction as normal. But the 2% of filers who itemize their deductions and face marginal tax rates over 28% would no longer be able to reduce the tax on their donations to zero. People in the 30% bracket, for example, would still have to pay a 2% tax on their charitable gifts. They owe 30% according to their tax bracket and they only get 28% back on the donated amount (due to the cap), so the IRS gets to keep the 2% difference.

How might this cap affect contributions to charitable causes? The short answer is that it will most likely result in a minor, but noticeable reduction in contributions. Here’s what people are saying:

• The Center on Philanthropy at Indiana University estimates that the cap will lead to an $820 million (0.4%) reduction in charitable giving in the first year of implementation, increasing to $1.31 billion (0.7%) in the second year.
• In 2010 the Congressional Research Service put the decline in charitable giving in the 0.16 – 1.28% range.
• In a back-of-an-envelope calculation for the Washington Post, Harvard economist Martin Feldstein estimates that the 28% cap could reduce charitable giving from individuals by $7 billion, which amounts to a 3% decline (relative to the $230 billion in charitable contributions from individuals reported in Giving USA 2009).
• Len Burman of the Tax Policy Center and the Center on Budget and Policy Priorities came up with similar figures in 2009.

Taking all of this together, it seems we’re talking about a 0.5% to 3% decline in gifts from individuals.

The impact on arts nonprofits is likely to be a little bit higher than that, since the cap will primarily affect the wealthy taxpayers who contribute most to the arts. The 2010 study by the Congressional Research Service includes an analysis of how the 28% cap would affect different segments of the nonprofit sector. It estimates the reduction in individual giving to the arts to be around 2.4% (compared to 0.16-1.28% overall).

The figures above were calculated based on the tax rates that applied between 2003 and 2012, but as we know, the tax rate for the highest income bracket was increased from 35% to 39.6% at the beginning of this year. How does that change things? If charitable contributions remain fully deductable, we would expect the higher marginal tax rates to increase donations due to the price effect. However, if Obama’s proposal to cap total deductions goes through, the reverse is to be expected—the higher tax rates actually exacerbate the decline in charitable giving caused by the cap. That’s because the higher tax rates reduce the taxpayers’ disposable income, bringing the income effect into play, while the cap on deductions holds the price of giving constant.

The Congressional Research Service estimates that the combined effect of the 28% cap on deductions and the higher marginal rates that Obama sought to impose on taxpayers earning more than $200,000 would reduce giving by 0.28% to 2.27%. That’s almost double the decline that they estimated for the cap on deductions alone (see above). The Center on Philanthropy arrives at similar figures when including Obama’s proposed tax hikes. Those projections still fall within the 0.5% to 3% range mentioned above. If we take the worst-case scenarios for the 28% cap and the largest estimates for the impact of the of the higher tax rates, we might be looking at a 5 or 6% decline in charitable giving.

So it looks like we don’t need to fear that individual contributions will drop by a quarter if the 28% cap were introduced, with or without increases in the top marginal tax rates. Nonetheless, a 5-6% decline is nothing to take lightly, and for organizations that are already reeling from the recent recession even a modest reduction in individual contributions could be the final straw. Moreover, the estimates apply to total charitable donations nationwide, but individual organizations could be unlucky and find that several of their major benefactors scale back their contributions more drastically than the national average, leaving gaping holes in their budgets.

Other options: expanding to non-itemizers and adding “floors”

Faced with this uncertainty, the response from arts advocacy organizations has been to dig in their heels and demand that the deduction for charitable contributions remain intact. However, as Michael Rushton notes, there’s little reason to believe that there’s anything magical about our current tax code; in fact, the charitable deduction has been criticized in the past for several reasons (notably for being inefficient, regressive, and having an unclear theoretical justification). So instead of clinging to the status quo as our only hope for survival, we might ask: what changes to the current system would lead to the best outcomes for arts organizations? How might we incentivize charitable donations while supporting the government’s goal of reducing the federal deficit?

In 2011 the Congressional Budget Office came up with 11 different policy scenarios and estimated their likely impact on tax revenue and charitable giving. These included:

• allowing all taxpayers to write off charitable gifts on their tax returns, rather than just those who itemize deductions
• creating a minimum donation (either a fixed dollar amount or a percentage of the donor’s AGI) which would have to be exceeded to qualify for the deduction
• converting the deduction into a tax credit (which would give all taxpayers the same 15 or 25% tax break on charitable contributions instead of linking it to the donor’s marginal tax rate)

This study found that by extending the deduction to all filers and simultaneously establishing $500 ($1,000 for couples) as the minimum donation required to qualify for the deduction the government would be able to increase revenues by $2.5 billion annually, while boosting contributions to charitable causes by $800 million. Or even better, by replacing the deduction with a 25% tax credit for all taxpayers, the government would save almost the same amount, while driving up donations by 1.5%.

Since the government’s objective right now is to reduce the deficit, presumably without harming the nonprofit sector unnecessarily, Eugene Steuerle of the Tax Policy Center has advocated for expanding the tax deduction to all filers, with a minimum contribution of 1.7% of the donor’s AGI required to qualify. This would net the government between $10.4 billion and $11 billion per year without reducing charitable donations by a dime. The argument for establishing a minimum contribution to qualify (often referred to as a “floor”) is that people are likely to give a small amount of money to charity regardless of whether they receive a tax break or not. It’s therefore not necessary for the government to forgo any revenue for that portion of their contributions. Further, at a certain point the administrative costs of tracking small donations—acknowledging their receipt, submitting documentation to the IRS, checking for fraud—is not worthwhile. For those who object that a $1,000 donation is a far bigger sacrifice for a couple that only earns $20,000 a year than for a millionaire, a floor that is linked to the taxpayer’s AGI might pose an attractive alternative. With a 2% floor, someone earning $20,000 could claim the deduction by making a $400 donation, while someone earning $500,000 would have to donate $10,000 to qualify.

Beyond the bottom line

Reforming the charitable tax deduction might offer other benefits as well. For example, it could provide an opportunity to change the composition of our donor lists. By giving those in lower income categories greater incentives to support our work and allowing them to leverage some of the indirect subsidy that the government provides through its tax breaks, arts organizations might be able to diversify the ranks of their donors, so as to be less dependent on a small wealthy elite. Based on the CBO’s estimates, by replacing the tax deduction with a 25% credit that is subject to a low floor (say 1% of AGI), it should be possible to maintain charitable donations at their current levels or even increase them slightly while saving the government several billions of dollars annually and allowing donors from lower income categories to acquire a bigger stake in nonprofit arts organizations. A more diverse pool of donors, both in terms of their economic status and their tastes, would reduce the financial risk of artistic experimentation and could allow companies to diversify their programming in ways that their current (predominantly wealthy) donors might not support.

All in all, reforming the deduction on charitable contributions isn’t necessarily a bad thing for the arts. There are ways of changing the tax code that could actually increase revenues and diversify the sources of income for arts organizations, even while helping to reduce the federal deficit. Since any change creates uncertainty and will likely produce losers as well as winners, I can understand arts administrators and advocates who would rather stick with an imperfect status quo than commit their careers and their organizations to an uncertain future. However, I believe that participating in the discussion and shaping the outcomes to fit our sector’s interests will ultimately prove more productive than trying to block change from the start.

After a long lull, we’re starting to see some action on the arts and related topics at the federal level. First, the House and Senate have passed a continuing resolution enshrining the “sequester” cuts in the rest of Fiscal Year 2013, meaning that the National Endowment for the Arts and other federal agencies are sustaining a 5% decline from their originally enacted budgets. For the NEA, this means that the new budget is approximately $139 million instead of $146 million, which puts it at the lowest level since George W. Bush was president. (At the first link above, Americans for the Arts has a short video touting the importance of getting involved in Arts Advocacy Day. It’s nicely put together, but as with other videos of this type I can’t help but feel the message might be more compelling if it were accompanied by some music that the NEA actually funded.)

Second, President Obama has released his FY14 budget request. While this still needs to get through Congress, it’s significant in that it sets a likely upper bound for the budgetary appropriations of various arts-related agencies. The LA Times’s Mike Boehm reports that Obama’s budget is relatively generous to those agencies compared to previous years, providing a 4.5% increase in the aggregate above the pre-sequestration levels. The budget allocates $154.5 million to the NEA, which is right about what Americans for the Arts was pushing for but is still well below peak levels. The Smithsonian and National Gallery of Art do relatively well under the President’s proposal, while the Institute for Museum and Library Services and the Kennedy Center get lower priority. Despite the reasonably good news, Obama’s budget request also brings back a much-derided proposal to cap deductions at 28% of adjusted gross income – including the charitable deduction. (More on the charitable deduction later this week.) Watch AFTA President Bob Lynch discuss the budget proposal on PBS here.

In non-appropriations-related items, the Supreme Court has ruled 6-3 in favor of Supap Kurtsaeng, the Cornell math student who made bank by reselling Wiley textbooks purchased overseas at a cheaper price, thus preserving what’s known as the first-sale doctrine in copyright law (i.e., that you’re free to sell used items without first getting permission from the copyright owner). An ongoing legal battle between network television broadcasters and a startup called Aereo, which uses micro-sized antennas to rebroadcast over-the-air content to tablets and smartphones for a monthly fee, could have implications for internet TV more generally. Amidst all this, Federal Communications Commission Chairman Julius Genachowski has announced his retirement from his influential position affecting issues like low-power radio and net neutrality; Future of Music Coalition issues a statement on his departure, and as a bonus offers a review of Maria Pallante’s appearance before the US House to testify about potential updates to the Copyright Act. Finally, many of the critical measures in the America Invents Act patent reform legislation went into effect earlier this month; Keith Sawyer offers some analysis.

STATE AND LOCAL

This isn’t quite “news” since it’s still highly speculative, but for the first time in several years, there is a serious bid afoot to restore the California Arts Council to its former glory. The CAC had its budget cut by 94% a decade ago in the face of financial pressures on the state budget, and has languished among the worst-funded state arts councils per capita ever since. AB 580, sponsored by lawmaker Adrin Nazarian, is a bid to raise the CAC’s state appropriation from $1 million to an eye-popping $75 million, which would easily take the prize for biggest state arts funding story of the year if successful. California’s budgetary situation is arguably no better than it was when the CAC was cut in the first place, but arts advocates are hoping that Governor Jerry Brown, under whose leadership the Arts Council was brought into being back in 1975, will be the difference between this effort and three previous ones that failed (the most recent in 2009). I enjoyed this excerpt from the article:

At the hearing Tuesday, John Gallogly, executive director of L.A.’s Theatre West and a board member of the statewide advocacy group Californians for the Arts, presented each committee member with a crayon that cost 3 cents — the amount per resident that he said state government now funnels to the Arts Council if the federal and license plate money are excluded.

“We’re trying to say ‘give us a small box of crayons,'” instead of just one, Gallogly said. “You can’t create a rainbow with just one color.”

In other state news, the newly reorganized Connecticut Office of the Arts is receiving some bad press from the Connecticut Mirror. A number of arts organizations are apparently unhappy with the new creative-placemaking-oriented system for awarding grants, which relies on a cumbersome application process and out-of-state panelists who evaluate the proposals asynchronously. And Washington State has hit venues where patrons “are given the opportunity to dance” with thousands of dollars in back taxes on the basis of an obscure law dating from the 1960s that hadn’t been enforced in decades.

With the economy now four years removed from the official end of the Great Recession, we’re starting to see some recovery in local government budgets and with it, some welcome increases in arts funding revenue streams – particularly in the West. In Nevada, Clark County (which contains Las Vegas) voted to create a Percent for Art program for the first time, which will “divert 5 percent of annual room tax collections and 5 percent of the county’s share of property taxes into the Arts Fund, not to exceed $1.25 million.” In Utah’s Salt Lake City, increased tax revenues have boosted city arts funding by 14% over last year. California’s San Bernadino County, part of the fast-growing Inland Empire region, lost its arts council in 2006, but as of this year it’s back, with a budget of almost $300,000. And in Atlanta, mayor Kasim Reed seems to be proposing a 25% increase in the budget for the city’s Office of Cultural Affairs, though no one seems sure exactly what he means by that.

Meanwhile, the LA Unified School District has declared the arts a core subject for its 660,000 students but is finding that the devil is in the details, and things have gotten so bad in the Saint Paul Chamber Orchestra labor dispute that the Mayor’s office has gotten directly involved in the negotiations – though to no avail as yet.

INTERNATIONAL

What a bizarre story from Australia: just 11 days after arts minister Simon Crean unveiled the country’s new cultural policy to great acclaim, he is out of a job following a failed coup attempt aimed at Prime Minister Julia Gillard. Crean’s departure leaves the new plans in significant doubt, despite the fanfare with which they were announced. Ben Eltham has more.

Elsewhere, the news is still mostly bad but at least it’s letting up a bit. Arts Council England is taking it on the chin with yet more cuts, this time of just over 1%. In Spain, where the arts community has been deeply affected by austerity measures, arts groups are coming up with some innovative ways of coping – for example, by handing patrons carrots instead of tickets to protest/get around a punishing 21% sales tax on the latter. And in Romania, a national museum has had to partially shut its doors due to a lack of funds.

• The Los Angeles Times, via music critic Mark Swed, revives the Secretary of Culture talk, this time nominating Peter Sellars and Leon Botstein for the job. It’s an earnest appeal for an idea worthy of consideration, but if it was a political nonstarter four years ago, it’s hard to see how it has more legs now.
• Video game makers are finding themselves in the regulatory crosshairs after the Newtown shooting massacre, despite limited evidence that games played a role in motivating recent shootings. (Certainly a lesser role than…guns.)
• Margy Waller continues the charitable deduction discussion in a guest post over at New Beans.
• The NEA has relaunched the “Your Town” program as the Citizens’ Institute on Rural Design, which invites proposals for community-led workshops to improve quality of life in rural areas with the help of creative placemaking experts.

MUSICAL CHAIRS

• Well, that didn’t take long: Richard Dare, who just left the Brooklyn Philharmonic to take the top job at the New Jersey Symphony Orchestra, abruptly stepped down after a New York Times investigation into his past.
• Clayton Lord is leaving Theatre Bay Area, where he pioneered a number of research initiatives, to take the position of Vice President of Local Arts Advancement at Americans for the Arts. Lord replaces Mitch Menchaca, who left to become COO of Chorus America.

IN THE FIELD

• Joe Patti makes some astute observations about convergences between the arts and religion, including ways in which churches are getting into the placemaking game and the tidbit that newly minted pastors are more interested in starting their own flock than in joining established institutions. Fascinating stuff!

ALL ABOUT THE BENJAMINS

• The Kickstarter juggernaut continues on, raising an astonishing $274 million for projects in 2012. Yancey Strickler’s prediction that the company would outpace the budget of the NEA proved more than prescient. The Economist has more.
• Artspace, the nonprofit artist housing developer, is the recipient of a new $2.7 million grant from the Ford Foundation. Createquity previously reported on a $3 million program-related investment Artspace received from Ford in 2011.
• “Household incomes in Manhattan are about as evenly distributed as they are in Bolivia or Sierra Leone” – the New York Times on what it means to be “middle class” on the country’s most expensive island.
• Rob Dietz and Dan O’Neill wonder why we haven’t yet given up on GDP.
• Need lots of money for a wacky, wildly ambitious and possibly ill-advised art project? Britain’s Artangel might just be your ticket.

BIG IDEAS

• I think Diane Ragsdale has become the arts sector’s “questioner-in-chief.” She’s back after a monthlong hiatus with a doozy of a question.
• Michael Hickey ruminates on scale, efficiency, and what size grants would encourage the most art created per dollar. (But is it about the most, or the best?)
• A year in the life of Collective Impact.
• Phil Buchanan, writing at the Center for Effective Philanthropy blog: “I think this whole aversion to dependency may be yet another example of where analogies to the for-profit world have created confusion in our sector. We’re so enamored with market analogies that we can’t get our heads around the fact that certain work simply requires ongoing philanthropic support. Other than large-scale government support, there is no ‘exit’ event on the horizon for nonprofits, no analog to the IPOs that allow early private sector investors to cash in and get rich.”
• I wholeheartedly endorse this pledge on Andrew Taylor’s part not to discuss “generic topics” in 2013. Taylor identifies three in particular that provoke discussions with “lots of heat, but not much light”: business models, advocacy, and value.

RESEARCH CORNER

• A new research study from Germany appears to show a causal relationship between music training and “verbal memory” (and by extension, speech and language processing). The study seems well-designed although the sample is on the small side.
• The New York Public Library system appears to be more vital and in demand than ever despite budget  cuts over the past decade, according to a new report from the Center for an Urban Future.
• A woman named Amy Webb found her life partner online…data scientist style. She conducted a detailed study of popular women’s behavior on JDate by creating 10 fake male profiles and interacting with 96 women over the course of a month, taking notes all along. It’s all ever so slightly unethical, but it does make for some, ah, engaging reading.
• This is a great example of how a theory of change can illuminate assumptions needing testing. Do more entrepreneurs and more companies = more innovation?

ETC.

• In 2011, Createquity shared the story of Aaron Swartz, who had been indicted by federal authorities for “liberating” some 4.8 million academic journal articles from the online database JSTOR in an act of protest against restrictive copyright policies. In a sad coda, the 26-year-old Swartz, who suffered from depression, committed suicide this month in the face of a potential 35-year prison sentence (although the prosecutor in the case claims that she was only seeking six months). Among the other tributes making their way around the web, it turns out that GiveWell’s Holden Karnofsky (of course) had developed a personal friendship with the kid supergenius.

PUBLIC POLICY AND THE ARTS – FEDERAL

• Teresa Eyring has a rundown of the Congressmen who spoke in support of the National Endowment for the Arts during the floor debate over the Walberg amendment.
• The Nonprofit Law Blog’s Emily Chan takes a look at the progress of the L3C, now three years after it was first adopted by the state of Vermont.
• Charitable deduction defenders: don’t worry, it wasn’t touched in the debt ceiling deal.
• The arts education blogstravaganza continues at Barry’s Blog, getting deep into discussions on federal policy and research. If the avalanche of text is too much for you there, Americans for the Arts’s Narric Rome synthesized his contributions to the forum so far in one post over at ARTSblog, and Bob Lynch did the same. Speaking of Lynch, he can be seen giving a recent lecture to the Chautaqua Institute in this video.
• Rick Perry has entered the race for President, and Alyssa Rosenberg is right on top of his record on the arts. (Shocker: it’s not good.)

PUBLIC POLICY AND THE ARTS – STATE AND LOCAL

• New York Times culture reporter Robin Pogrebin has been busy lately, penning a couple of articles on state arts agencies. The first round-up covered the recent round of big cuts and eliminations, focusing mostly on Kansas; and a follow-up takes a look at how South Carolina saved arts funding in the Palmetto State.
• Amazing! After gutting the Kansas Arts Commission and laying off all its staff in favor of a privatized solution, the Brownback administration has the chutzpah to ask the NEA not to cut the KAC’s matching funds. Umm, news flash Sam – the whole point of the matching funds arrangement is to prevent your administration from doing what it did.
• The Arizona Commission on the Arts has signed up basketball star Grant Hill to help make the case for arts funding.

GIVING AND PHILANTHROPY

• I’m really enjoying these giving stories from GiveWell. This one is from Vipul Naik and is an interesting window into how highly analytical donors think about their contributions.
• Looks like New Jersey is thinking about requiring nonprofits who raise more than $250,000 per year to give donors the opportunity to restrict their donations to particular programs. Nonprofit Finance Fund has a great rundown of why this is a dumb idea.

MUSICAL CHAIRS

• Simon Greer, currently head of Jewish Funds for Justice, has been named the CEO of the Nathan Cummings Foundation.

MERGERS AND CLOSURES

• Alliance for the Arts, an advocacy group based in NYC, is splitting its programming and assets between two organizations: Municipal Art Society, which will continue the Alliance’s research work, and WNET, which gets the group’s web operations. It’s unclear from the article when (or if?) the Alliance will formally close up shop, but clearly this represents a major sea change.

RESEARCH CORNER

• Ann Markusen is out with a new study on “next generation” arts leaders in California, commissioned by the Center for Cultural Innovation with funds from the Irvine and Hewlett Foundations.
• A new study looks at the economic impact of the recent Philadelphia International Festival of the Arts.

IDEAS, TRENDS, AND COMMENTARY

• Lee Streby continues his remarkable series on reimagining orchestras. Trust me, this is worth checking out.
• The much-hyped free music streaming service Spotify is finally available in the United States, but at least one indie classical music label isn’t so excited.
• Diane Ragsdale is getting personalized event recommendations from the director of an upcoming festival, and if you lived in the Netherlands, you could too.
• Michael Kaiser gives small arts organizations the time of day.
• This Week in Urban Revitalization/Gentrification Through the Arts (thanks, Thomas Cott): Bushwick, Brooklyn becomes a hipster paradise; and the young and educated are helping to remake downtown Detroit.

ETC.

• Justin Wolfers reports on what he’s learned about using Twitter so far – it’s a useful list.
• Four Latin jazz musicians are suing the Grammys for eliminating their category (along with 30 others) in a decision announced this April. I wouldn’t be holding my breath if I were them.

A quick note about some upcoming speaking engagements: I’ll be on a panel next month at the annual Emerging Arts Leaders Symposium hosted by American University, speaking on the topic of “What Makes a Good Arts Leader?” I’m looking forward to sharing the stage with the NEA’s dynamic and ubiquitous Director of Public Affairs, Jamie Bennett, and my good friend Stephanie Evans of Americans for the Arts. The symposium takes place on Sunday, April 3 in Washington, DC, and my panel is in the mid-afternoon (3:45-5:00). Secondly, I’ll be co-hosting a discussion as part of Kathy Supové’s Music with a View Festival at the Flea Theater in New York on March 30, talking about some of the themes raised in my article for NewMusicBox, “Composing a Life.” Come say hi if you’re around!

ADVOCACY UPDATE

• So, Congress reconvened and passed a two-week continuing resolution that features $4 billion in cuts – including the elimination of the $40 million arts education program at the Department of Education. Meanwhile, negotiations are taking place now on the longer-term continuing resolution that will fund the federal government for the rest of the year. The version that the House passed a few weeks ago contains a 25% cut to the NEA. Guy Yedwab has an excellent roundup of reasons to support the NEA (although I do advise leaving any return-on-investment arguments to the professionals). Lex Leifheit suggests that we get our parents and grandparents involved in arts advocacy, a la Sarah Silverman’s Great Schlep.
• Some general commentary on the budget fight: Richard Kessler reminds us that this is not just about the arts, but rather a wholesale attempt to roll back the New Deal, and David Brooks suggests that we should be allying ourselves with other interest groups who stand to lose from cuts to discretionary funding, not fighting against them.
• Obama is also trying again to lower the limits on the charitable deduction donors can take on their taxes. This has some in the nonprofit community worried, and it is worth noting that arts organizations are disproportionately supported by high-net-worth donors most likely to be affected by the changes. I don’t know, though – I am skeptical that the tax deduction is as significant a motivator in donor behavior as most people seem to think it is. (Most of the research I’ve seen on this suggests otherwise.) I think the impact to arts organizations would be real, but not as big as feared.
• There are advocacy doings at the state and local levels too. Governor Walker of Wisconsin, already endearing himself so much to lefty-leaning artists through his union-busting ways, is threatening to severely reduce arts funding in that state as well. At least Chicago’s new mayor – and former ballet dancer – Rahm Emanuel has pledged support. And it looks like our friends in Kansas may have enough support in the state legislature to save their arts council. (That article is well worth the read, by the way.)
• Don’t forget that government advocacy is not the only kind that’s important. The Meyer Foundation, which had long been an arts supporter in the DC area, has adopted a new strategic framework that leaves the arts out in the cold. Obviously many fewer people have the ability to influence the decision-making processes of private foundations than do government bodies, but those who do have that influence should not be afraid to use it.

SUPPLY AND DEMAND

• The conversation Rocco started a month ago continues. The most interesting content lately belongs to Scott Walters, who recounted his experience attending a convening of arts leaders at the NEA to discuss the issues at hand; here is more.
• Meanwhile, the NEA released a trio of research reports re-examining aspects of the well-worn Survey of Public Participation in the Arts.  Perhaps the biggest headline comes from the fact that when you expand the definition of arts participation beyond ticket sales at the likes at the symphony, opera, art museum, etc. to include things like engagement with electronic media and personal creation, the proportion of people who engage with the arts rises to nearly 3 in 4. Thomas Cott has a great round-up of the reports themselves (which also examine the roles of arts education, age, and generation in arts attendance) as well as reactions from around the web.

ALL ABOUT ORCHESTRAS

• Man, a lot has been happening in Detroit since we last checked in. The Detroit Symphony Orchestra’s season is now cancelled, but rumors fly that management is considering hiring replacement players. Now the musicians are proposing binding arbitration to resume the season without a contract, under the terms that management last proposed, and are impatient for a response. Yikes!
• Last year, I predicted that composers would use the method employed by Eric Whitacre to create his Virtual Choir to crowdsource performances for their own pieces. It looks like this is now, in fact, happening, as Canadian composer Glen Rhodes is starting up a “virtual orchestra project” to play an original composition of his. (There’s a nice interview of Rhodes by Tara George at the above link.) Meanwhile, the YouTube Symphony, which is a live-action flesh-and-blood orchestra composed of members who auditioned via YouTube, is having another go-round under the baton of Michael Tilson Thomas.

PHILANTHROPY AND GENEROSITY

• Americans for the Arts has joined up with Hyundai for a test of whether slactivism can help the arts: Hyundai’s new ad campaign, “Cure Compact Crampomitosis,” has AFTA as a charitable partner. For each person who joins the Facebook Causes page set up by Hyundai for the purpose, the car company donates 50 cents to AFTA – up to a maximum of $25k. (They are already more than halfway there.) On the one hand, I’m very glad to see a car company choosing an arts organization for support rather than any of the thousands of more traditional charities it could have picked. On the other hand, though, it seems like a pretty damn good deal for Hyundai…only $25k for 50,000 deep impressions? If just a handful of people buy cars as a result of this campaign, Hyundai comes out ahead. (In fairness, Hyundai is also matching donations made through the page, which nearly doubles the commitment as of this writing.) Well, good luck to them.
• Is giving money to the homeless a good way to help after all? Maybe it is, if you just ask them what they want and buy it for them.

THINKING CAPS

• I’m still making my way through Animating Democracy’s excellent Impact Arts site, but I can already tell it’s going to be a tremendous resource for me as well as the field.
• A new cultural policy think tank is in the house, and it wants your input: the Institute for Culture in the Service of Community Sustainability. Headed by Paul Nagle, ICSCS (pronounced “Isis”) is an affiliate of the British think tank DEMOS and takes a radically democratic approach to its work. Nagle has two guest posts on the IT Foundation blog that are well worth reading.
• Is extending copyright to fashion designers a good idea? UCLA economist and sociologist Gabriel Rossman says no.

COMINGS AND GOINGS

• Muhammad Yunus, the grandfather of microfinance, is being forced out as the head of Grameen Bank in Bangladesh in what many see as a politically-motivated vendetta.
• Ex-Senator Chris Dodd is going to lead the Motion Picture Association of America, taking over for the legendary Jack Valenti.
• Former Hewlett Foundation Performing Arts Program Director Moy Eng will be the new head of the Community School of Music and Arts in Mountain View, CA.