The Office–by flickr user Rum Bucolic Ape

Income inequality, slow economic growth and wage stagnation have been hot button issues in recent years. Last month, the Obama administration did something significant about the latter, announcing an updated overtime rule that would make millions more eligible for overtime pay. Effective December 1, 2016, the new rule doubles the salary threshold—from $23,660 to $47,476 per year—under which most salaried workers are guaranteed overtime. The rule is expected to affect some 4.2 million workers, though whether it will benefit these workers (through increased wages) or possibly harm some of them (through lower base salaries and reduced benefits) remains to be seen. The implications for industry, however, are likely to be dramatic no matter what, especially for firms like publishing, fashion, media, consulting and yes, nonprofit arts organizations that have long relied on the willingness of young, ambitious employees to work long hours for little pay in exchange for a shot at the big time down the line. The shift might not be such a bad thing for the arts more generally, however. If nonprofits and businesses have less incentive to overwork low-paid employees, those employees will likely have more time for leisure activities, which could lead to a (further) boom in amateur arts participation and entrepreneurial arts ventures once this rule goes into effect.

Brazil Dumps, Then Reinstates its Cultural Ministry. Brazil has become a familiar character in the twenty-four hour news cycle in recent months, what with the impeachment trial of President Dilma Rousseff and a faltering economy, along with concerns about the zika virus in light of the upcoming Olympics (which is plagued with its own corruption and other scandals). The cultural sector had its fair share of drama this month after interim president Michel Temer, who replaced Rousseff in what many are calling a coup, announced a plan to subsume the Brazilian cultural ministry into the education ministry on May 12 as part of a broader effort to streamline the government. The plan immediately met with fierce opposition from Brazil’s cultural community. Artists staged occupations of government buildings across 11 cities and even music legends Erasmo Carlos and Caetano Veloso lent their support, giving a concert at a Rio de Janeiro protest on May 20. The pressure clearly worked; many credit artists with Temer’s reversal.

LISC Tries a New Model to Fight Gentrification. Adaptive reuse of abandoned spaces has long been a tried-and-true move in creative placemaking playbook, but concern has been growing about the gentrification effects of such policies in an era of increasing income inequality. The Local Initiatives Support Corp., a national nonprofit organization that has been investing in neighborhoods since 1982, has decided to try something different, committing $50 million to help prevent the gentrification many fear will be a byproduct of the redevelopment of Washington, DC’s 11th Street Bridge. The new park development along the Anacostia River–which has been likened to New York City’s High Line–is expected to increase adjacent property values, pricing out poorer residents who have long called the area home. LISC funding will support groups providing affordable housing, early childhood education, medical care, food support, arts education and other services near park site, in an attempt to preemptively ensure that poorer residents are able to remain in their communities. The park is slated to open in mid-2019, but LISC says it is committed to the project and to the price tag no matter the timeline.

Big Shifts in British Public Broadcasting. Last August, we reported on the British Broadcasting Corporation (BBC’s) financial struggles–compounded by a trend towards internet media consumption–and noted that the government had appointed a committee to review the BBC’s Royal Charter. That charter expires at the end of 2017, and all agree the 94-year old company finds itself at a critical juncture. Much has changed in the decade since its charter was last renewed, and the BBC–which receives an outsize £5 billion in licensing fees, commercial and other income–is under close scrutiny. This month, culture secretary John Whittingdal unveiled the government’s plans for the BBC in a white paper. The main takeaways? An emphasis on greater transparency and fiscal responsibility, and a new board with government appointees (which some critics worry compromises the BBC’s journalistic independence from the government). The white paper also notes that it “welcomes the BBC’s commitment to develop and test some form of additional subscription services,” giving the corporation the green light to launch a Netflix-like paid subscription service. The uncertainty facing the BBC comes as the UK’s state-owned, commercially funded broadcaster Channel 4 held off a threat to sell off the government’s stake to the highest bidder, which was called off after outcry from channel representatives and the wider public. In many ways the BBC and Channel 4 will serve as a harbinger of other government-sponsored news organizations’ fates in the digital economy.

Kresge Pairs Health and Art & Culture Programs for Neighborhood Revitalization. Food and culture have always been closely aligned; this month, the Kresge Foundation took that relationship a few daring steps further by pairing up its Arts & Culture and Health Programs to launch Fresh, Local & Equitable: Food as a Creative Platform for Neighborhood Revitalization, or, FreshLo. This unprecedented program, which aims to strengthen economic vitality, cultural expression and health in low-income communities, will distribute nearly $2 million in grant funding in support of neighborhood-scale projects demonstrating creative, cross-sector visions of food-oriented development. The foundation seems to be onto something with the food+art thing: more than 500 organizations applied for FreshLo funding, and Kresge ultimately decided to fund six more grants than initially planned. Though the Kresge Foundation has a long history of tackling food deserts, this is the first time a national funder has intentionally integrated food, art and community to drive neighborhood revitalization at this scale.

MUSICAL CHAIRS / COOL JOBS

• Melanca Clark has been named president and CEO of the Hudson-Webber Foundation.
• Loren Harris has been appointed Vice President of Programs at the Nathan Cummings Foundation.
• Susan Delvalle has been named president and executive director of Creative Capital.
• Shannon Daut is the new Cultural Affairs Manager of the City of Santa Monica Community and Cultural Services Department.
• The Field Foundation of Illinois has appointed former Joyce Foundation culture director Angelique Power its new President.
• After a decade working with the Future of Music Coalition, CEO Casey Rae leaving to become SiriusXM’s director of music licensing.
• After seventeen years with The Association of Independent Music, Alison Denham is taking on a new, global role at Worldwide Independent Network.
• Artstor President James Schulman has joined the Mellon Foundation as a Senior Fellow in Residence at the Mellon Foundation.
• Acclaimed music and culture writer Sasha Frere-Jones has abruptly exited the L.A. Times after less than a year at the paper due to “ethical issues.”
• Local Initiatives Support Corporation seeks a Program Officer. Posted May 6; no closing date.
• Slover Linett Audience Research seeks a Vice President. Posted May 12; no closing date.
• Arts Consulting Group, Inc. seeks an Associate Vice President. Posted May 26; no closing date.
• Nina Simon’s Santa Cruz Museum of Art and History is hiring a Director of Development and Community Relations. No closing date.

NEW RESEARCH OF NOTE

• Out west, a survey commissioned by the Oregon Community Foundation and the Oregon Arts Commission provides a snapshot of the state of arts education in Oregon. In Boston, the Boston Public Schools Arts Expansion released a case study on the successes of its work. And across the pond, a UK study reveals deep concerns about the future of arts education among those in the theater industry.
• A report from Lifetime Arts looks at arts education for the aging in America’s libraries.
• Diversity continues to dominate conversation the field. The Americans for Arts and National Endowment for the Arts (following up on the former’s cultural equity statement) released the results of their 2015 Local Arts Agency Census, revealing that taken a whole, the field could do a much better job of diversifying board and staffs. The website CNTRST calculated the total percentage of ‘whiteness’ in mainstream films, and found that white men take up twice as much space on the silver screen than they do in real life. A study commissioned by the professional association Directors UK shows that women make up just 13.6% of film directors in the UK; a percentage that has barely changed in the past decade. In more encouraging news, a study released by Asian American Performers Action Coalition show gains for minority actors in New York City: in the 2014-15 season, 30% of theater roles in NYC went to black, Latino and Asian-Americans. Related, Richard Florida shared the results of his research on the racial divide within the already-advantaged creative class.
• A new evaluation assesses the successes and impact of the New York Community Trust’s Edward and Sally Van Lier Fellowship over 25 years.
• Two interesting papers from Bridgespan this month. The first finds that funders’ reluctance to fully fund overhead costs prevents many nonprofits from maximizing their impact. The second argues that billion-dollar philanthropic investments in key areas could improve social mobility and revive “the American dream” for low-income families.
• A report on the first three years of the Taking Part survey’s longitudinal study (which has been conducting annual interviews about arts engagement with a group of 4,600 adults in England) reveals statistics on who attends the arts most often and why people stop engaging.
• A study commissioned by Intermedia Arts assesses the demand and availability of arts-based community development training and investigate how the benefits of Intermedia Arts’ Creative Community Leadership Institute could be made accessible for a broader range of communities.
• A report from the February 2016 Salzburg Global Seminar looks the role of the arts in advancing environmental sustainability.
• A study published in the journal Personality and Individual Differences suggests that creative individuals share more personality traits with psychopaths than their less creative peers do.
• A report from the UK calls for stricter rules for primary ticket selling sites, rather than harsher punishments for secondary sites. And it turns out, according to a survey of 18,000 people in 15 countries, that Shakespeare is far more popular in Brazil, India, China, Mexico and Turkey than he is in the UK.

The Thinker at the Detroit Institute of Arts – photo by Quick fix

Each year, Createquity offers a list of the top ten arts policy stories of the past twelve months. You can read the previous editions here: 2012, 2011, 2010, and 2009. The list, like the blog, is focused on the United States, but is not oblivious to news from other parts of the world. I am grateful to Createquity editorial consultant Daniel Reid for contributing the entry on the arts and the GDP.

This year provided us with a mix of hope and stress. While boasting its share of concrete triumphs and failures, such as the launch of several field-building initiatives and the very high-profile flaming out of the venerable New York City Opera, 2013 was most notable for providing us with markers along the path of longer-term trends. With the struggles of the Great Recession largely behind us, arts stakeholders increasingly turned their attention to non-financial matters, planning for the future and seeking to invest wisely. Yet the specter of fear and dysfunction in Washington, DC hung over the arts field to a degree not seen since at least the Bush years, sapping enthusiasm from even the most passionate of government idealists.

10. Changing of the guard at ArtPlace

As noted in last year’s top stories roundup, creative placemaking was cruising for a bruising in 2012. While a number of factors contributed to the backlash against the signature arts policy push of Rocco Landesman’s tenure as NEA Chairman, by many accounts, the brusque style of ArtPlace’s founding director Carol Coletta didn’t help. Under her leadership, ArtPlace – a private-sector collaboration between 13 of the nation’s largest arts funders initiated by Landesman and the Ford Foundation’s Darren Walker – came under fire for failing to disclose its funders’ geographic restrictions, missing opportunities to thoughtfully measure creative placemaking’s impact, being cavalier about gentrification and other social justice considerations, and supporting a project that alienated the people it was trying to help. In the midst of all this, Coletta decamped for a VP position at the Knight Foundation in March. Her eventual replacement announced in December, following an interim stint by former William Penn Foundation president Jeremy Nowak, was the NEA’s Chief of Staff Jamie Bennett, who had ingratiated himself with arts stakeholders across the country in his now-former position and earned widespread admiration in the process. Change is in the air at ArtPlace (the organization is moving with Bennett to New York, for one), and many eyes are watching the fledgling creative placemaking standard-bearer as we head into 2014.

9. City Opera bids farewell

Amidst near-death experiences far and wide, New York City Opera is the biggest and most famous U.S. arts institution yet to actually fail as a result of the Great Recession. The once-mighty company, which had visions of a $60 million annual budget as recently as 2008, had drastically scaled down its ambitions following a disastrous season during which it presented no full productions, lost its (brand new) general director, and managed to draw down or lose the majority of its endowment. By the time George Steel took over in 2009, most of the damage had been done, and City Opera could no longer afford its just-renovated home at Lincoln Center. A last-ditch effort to raise $7 million (including a first-of-its-kind-at-this-scale “save the opera” $1 million Kickstarter campaign) fell short, and the organization announced it was beginning bankruptcy proceedings in October.

8. Arts’ impact on GDP gets counted

Advocates at Americans for the Arts, the NEA, and elsewhere have spent years touting the arts’ economic impact, on the theory that legislators and executives will find this argument singularly compelling and respond by taking their fingers off the “defund” button. This year, their case got official recognition from the Bureau of Economic Analysis (BEA), which calculates GDP. First, in July, the BEA revised its methodology for calculating GDP to include the money businesses spend to develop intellectual property, including artistic work like music and film; this added 3% to our nation’s economy overnight and underlined the economic importance of investment in creative work. Then, in December, the BEA and the NEA jointly released the first-ever official tally of the value the arts add to the U.S. economy, which they will continue to track annually (note that this does not yet take into account the methodological changes announced in July). The total – $500 billion a year, more than the entire tourism sector – impressed some mainstream news outlets and was promptly put through the spin cycle by a few creative-industry advocates, especially in Hollywood. But the bigger surprise was how little excitement the story seemed to generate in arts circles – perhaps because of the report’s bad news about the arts’ post-recession recovery, the fact that commercial fields accounted for the bulk of the value, or the omission of ancillary spending (such as on dinner before the theater) that often figures prominently in more localized economic impact studies.

7. The arts (start to) get serious about diversity

Yeah, yeah, I know. Talk is cheap, and our field has been dithering about multiculturalism, demographic change, and the need to diversify boards, staffs, and audiences for decades. Looking beneath the surface of the blogosphere debates, however, one does get the sense that momentum for action is growing. 2013 was the year of the inaugural SphinxCon, a convening on (racial) diversity in the performing arts spearheaded by a man who was almost the next Chairman of the NEA (more on that below), and the leaders of numerous relevant service organizations showed up to put their views on the record. One of those service organizations, Theatre Communications Group, is now a year into an extensive and very public “diversity and inclusion” initiative and the conversation is bubbling up at other service organizations as well now that financial survival is no longer everyone’s first priority. Meanwhile, Grantmakers in the Arts had its entire board undergo training by the People’s Institute of Survival and Beyond, a leading purveyor of anti-racist thought. These are small steps in the grand scheme of things, and diversity is not the same as justice, but one can’t help but be encouraged watching the organizations charged with leading the field begin to walk and not just talk.

6. The arts research field makes halting progress toward field-building

Last year, I got so frustrated with the state of arts research that I blathered on for more than an hour to the University of Chicago Cultural Policy Center about all of its problems and how to fix them. Fortunately, it turns out that I’m not alone in seeing the need and opportunity for reform of our field’s research infrastructure. The first and easiest step toward a better future was always going to be a way for people working in this area to communicate more effectively with each other, and May’s launch of the Cultural Research Network goes a long way toward checking that box. This was also the year that the arts began to flirt in a big way with Big Data. We saw the launch of two immense arts data aggregation initiatives, Philadelphia’s CultureBlocks (building off of the work of Social Impact of the Arts Project researchers Mark Stern and Susan Seifert) and Southern Methodist University’s National Center for Arts Research (aggregating data from the Cultural Data Project, TRG Arts, and elsewhere). A third project, the Harvard-led Initiative for Sustainable Arts in America, is set to launch in Detroit and the Bay Area in 2014. Meanwhile, the aforementioned Cultural Data Project is taking a look in the mirror with a gigantic, year-long strategic planning process that looks like it will result in major changes for the organization and the field. We’ve got a long, long way to go, but the progress we saw in 2013 toward a smarter, more tech-savvy, and more collaborative knowledge management infrastructure in the arts is highly encouraging.

5. The NEA remains Chairless

When Rocco Landesman left his post as chairman of the National Endowment for the Arts in December 2012, there was no reason to think that the leadership transition would be anything but smooth. Senior deputy Joan Shigekawa, who had long been rumored to be the one running the agency behind the scenes anyway, became the acting head, and a search for a new director began immediately. Yet as the year dragged on, the process became murkier, and at this point no one seems to be sure when the Obama administration (which is in charge of the search) might get around to formally nominating a new leader. Sphinx Organization founder and National Council on the Arts member Aaron Dworkin is the only individual to have publicly confirmed being a candidate for the gig and was widely seen as the frontrunner for the post until he pulled his name from consideration over the summer; he would have been the Endowment’s first black chairman. NEA fans can take heart at least in the fact that they are not alone; the National Endowment for the Humanities has likewise been without an official leader since May.

4. A roller coaster year for the DIA

My goodness, where to begin? The Detroit Institute of Arts has had more ink spilled on it in the last two years, it seems, than Brad Pitt and Angelina Jolie. It was just last August that the DIA was triumphantly celebrating the passage of a millage, or property tax, in three counties providing the institution with ten years of guaranteed operating support, allowing it to build its endowment and place itself on secure footing for the future. But then in July the City of Detroit announced that it was filing for bankruptcy, placing the DIA’s art collection – much of which is owned by the city – in jeopardy. The city’s state-appointed emergency manager, Kevyn Orr, has reportedly asked the DIA to come up with $500 million to help appease creditors and lead Detroit out of the doldrums, which is about how much the auction house Christie’s has assigned to the value of artworks purchased with city funds. The most interesting potential outcome has the city and the DIA entering into a “grand bargain” involving an effort to raise the $500 million from a consortium of local and national funders, including the Kresge and Ford Foundations, and turn the DIA into a private entity, free from city control. Regardless of how this one turns out, it’s an object lesson in the potential pitfalls of direct government involvement in arts institutions.

3. Edward Snowden shows us we’re not as free as we thought

A 30-year-old former government contractor running off with four laptops and goodness knows how many hard drives’ worth of secret intelligence documents made for a compelling news story, but its connection to the arts wasn’t immediately clear. After all, the initial disclosure – that the United States National Security Agency was working with phone companies to collect metadata (information about calls, though not the calls themselves) en masse – seemed like it might be No Big Deal. It’s helpful for our national security apparatus not to have to wait for days to know who’s called whom, they still have to get a warrant to figure out what was actually said, and it’s all cleared by the Congress and our courts. Right? But as more and more revelations from Snowden’s treasure trove have come to light, the creepier this whole thing has gotten, and the more it’s become apparent that virtually nothing we do online is secret from the government. The NSA has intercepted the fiber-optic cables that carry Internet traffic to collect information on activities without the Internet companies even knowing; the agency “repeatedly broke surveillance rules,” and there have already been cases of “willful misconduct” like stalking love interests. Here’s what’s important to keep in mind from an arts perspective: the United States has always prided itself as a country of free expression. One of the most important ways in which that freedom of expression has been possible is that the government has intentionally held back from giving itself the means to control it, letting social norms and the marketplace have influence instead. There may be little reason to think that Uncle Sam would be interested in some random artist’s work today, but imagine a change in administration, another war, and a widespread movement for social change in which artists play a big role, and all of the sudden 2013 might start to look a lot like 1983.

2. Obamacare gets off to a rocky start

For years, advocating for health care reform was a major priority of a number of arts organizations. Once the Patient Protection and Affordable Care Act was passed, several of those organizations (including the one that I work for) took the opportunity to declare victory and go home. Pretty much no one considers Obamacare to be perfect, but the legislation had been widely praised and its rollout highly anticipated in arts circles because of its promise to better serve freelancers, particularly those with modest incomes (due to the subsidy provided). However, when healthcare.gov couldn’t process enrollments to save its life upon its October launch, it all started to look very, very fragile – particularly the already popularity-challenged individual mandate that is, according to economists, the linchpin to the entire system. It looks like the worst fears about Obamacare’s shaky launch have passed, but not before a small business exchange and the employer mandate were delayed for a year and other concessions were made to mollify angry citizens, many of which are arguably bad policy. Make no mistake, the Affordable Care Act is here to stay – but how much it’ll actually end up improving things is perhaps a bit more in question than it seemed a few months ago.

1. Wait, who elected these guys?

When the dust from the 2012 election cleared and Barack Obama was still president, the Senate was still Democratic, and the House was still Republican, we knew we were in for another two years (and most likely four) of divided government. But I don’t think too many people expected it would get this bad. The hyper-partisan environment, political infighting between conservative and establishment Republicans, petty power struggles between branches of government, and the determination to treat even the smallest difference of opinion as a virtual fight to the death all contributed to one of the least productive Congressional years in recorded history and a 16-day government shutdown that earned the ridicule of the world. As much as this sucked for all of us as citizens, it all but put the kibosh on any dreams of transformative arts policy coming from the Obama administration. With so many urgent national priorities getting in line to be ignored or gamed by a Congress that is far more adept at drafting press releases than passing legislation, maintaining the status quo is about the best that arts advocates can hope for in 2014.

Honorable mention:

• Scandal at the IRS
• Darren Walker lands Ford Foundation’s top gig
• The sequester hits federal arts agencies

Happy 2014 to all!

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.

From the Obama-Biden Transition Project via Flickr

In his 2011 State of the Union Address, President Obama spent almost 10 of his 60 minutes discussing why it’s so essential to offer every child a world-class education:

Over the next 10 years, nearly half of all new jobs will require education that goes beyond a high school education. And yet, as many as a quarter of our students aren’t even finishing high school […] To all 50 states, we said, ‘If you show us the most innovative plans to improve teacher quality and student achievement, we’ll show you the money.’

As part of his education agenda, Obama proposes to change the No Child Left Behind Act, formerly known as the Elementary and Secondary Education Act (ESEA). You may have heard of No Child Left Behind: a Bush-administration law that requires schools to heavily test students, and that punishes schools where students do not meet baseline test scores. It hasn’t really worked, but more on this later.

What I wanted to know is what Obama is proposing in his “Blueprint for Reform: the Re-authorization of the Elementary and Secondary Education Act.” And perhaps the juicier question for the arts education field: what does this proposal imply for the future of the arts in schools?

The Elementary and Secondary Education Act: A brief history

In 1965, the U.S poverty rate was at about nineteen percent (higher than the yearly national average, which vacillates between 13%-17%; in 2009, the figure was about 14.3%). To tackle this problem, President Lyndon Johnson created a legislative agenda called the Great Society, an initiative to provide social welfare programs from education to health care, including a program called the War on Poverty. The Elementary and Secondary Education Act (ESEA) was designed as part of the War on Poverty to ensure that every child had equal access to quality education. It was enacted initially through 1970, but Congress has voted for its re-authorization every 5 years since then.

While it has gone through a few revisions since 1965, the most significant changes took place in 2001 under the Bush administration, when the ESEA was re-authorized with a new name and very different set of guidelines, known as the No Child Left Behind Act (NCLB). The main goal of NCLB was for all students to reach national levels of academic achievement each year through rigorous standardized testing.

Why No Child Left Behind failed

Under NCLB, 100% of students are expected to reach government-set “proficiency” by 2014. All 4th-8th grade students are required to improve on test scores each year in reading and math, “something no educational system anywhere on earth has ever accomplished,” Claudia Wallis notes. Evidence now shows that since the law was enacted, schools have failed in meeting the standards set by NCLB. As of March 9, Secretary of Education Arne Duncan is saying that 82% of schools could be labeled as failing federal standards under No Child Left Behind. Check out more articles about the problems with the law here and here.

The rigorous testing has had an impact on the arts, as many teachers have had very little time to focus on integrating other subjects into the curriculum. Douglas Mefford sums it up best: “With the threat of lost funding and even total disbanding of the school at risk if even one specific group of students did not show ‘improvement,’ school systems were forced to redefine and lower their educational standards in order to avoid punishment.”

Obama’s proposal to change NCLB: Blueprint for Re-authorization of ESEA

The Obama administration proposes a different – and equally ambitious – goal to replace that of NCLB: for every student to graduate from high school prepared for college and the work-force.

The biggest shift presented by Obama’s proposal is that instead of giving a little money to everyone and implementing punitive measures for failure to perform, the government offers incentives in the form of grants to people doing the best work. The idea is to leverage current financial resources for dramatic systemic change, and to empower districts, schools, and teachers to make the best decisions about improving their educational environments.

A NY Times article from March 2010 explains more about the Blueprint: “The administration would replace the law’s pass-fail school grading system with one that would measure individual students’ academic growth and judge schools based not on test scores alone but also on indicators like pupil attendance, graduation rates and learning climate.”

A Complete Education

Obama asserts that in order to remain a competitive country economically and otherwise, our students need a complete education, and encourages “a new investment in improving teaching and learning in all content areas – from literacy to science, technology, engineering, and mathematics to history, civics, foreign languages, the arts, financial literacy, environmental education, and other subjects – and in providing accelerated learning opportunities to more students to make post-secondary success more attainable.”

A complete education… sigh. I suddenly had visions of every school around the country starting an orchestra program, an art department, a choir. Children singing in harmony as they became more proficient in history, more creative in science, more savvy in math. OK, maybe not quite. But is a “complete education” as promising as it sounds, particularly for the arts?

At a first glance, it is.

To ensure a well-rounded education, the Blueprint offers competitive grants to states, nonprofits, and districts to strengthen teaching and learning in areas such as the arts (Blueprint, pg. 28). In order to make the case to keep or develop the arts in schools, the federal government first has to recognize the arts as an academic subject, and one sentence in this Blueprint indicates that we’re headed in the right direction: “Competitive grants will be awarded… to programs [that] focus on improving student academic achievement in core academic subjects, ranging from science, to history, [and] the arts.” (Blueprint, pg. 32).

Creating incentives for success, playing to people’s strengths instead of their weaknesses. Sounds great, but how do these grants work?

Richard Kessler (no relation), Executive Director of The Center for Arts Education, was tremendously helpful in providing some guidance for this blog. He broke down the grant process, and why he thinks it may pose challenges to getting education funding, as follows:

Grant process

• Oftentimes, a project is initiated and developed by an arts organization, which needs to partner with a Local Education Agency (LEA) to be eligible for the grant.
• Each LEA and partners apply together in one application for each individual grant.
• One example of an LEA taking the lead is the Rochester School District, which has initiated arts integration projects with cultural organizations. Every project needs to have a set of outcomes in arts learning alongside improvement to test scores in English and math.

Challenges

• Core funding for school districts should be tax-levy based “hard” funding, which is a larger pool of money that lasts longer than grant money (“soft” money), which runs out.
• Grant money might be great for certain research projects that school districts may not pay for, but arts organizations and school districts question the feasibility of building or sustaining programs that rely on the short-term nature of outside funding.

So, the grant process may not be that appealing for long-term arts education support. While grants may not be a major threat to integrating arts into schools, there are three other issues that could be significant potential threats:

The uncertain future of testing: It seems as if Obama’s proposal reorganizes the funding available to the arts and gives schools more flexibility in assessing student achievement. However, we have little proof that the rigorous testing will actually go away. And if the testing doesn’t go away, teachers may continue to put the arts on the curricular back burner to make more time to prepare students for tests in reading and math.

Budget ambiguity: Nothing is explained in the Blueprint about how much of the grant “pie” the arts will get. An issue brief from Americans for the Arts indicates that the arts will be part of a bigger pool of other subjects, but that we don’t know yet how much the arts will get in this pool.

Proposed budget cuts: It appears as if there’s an even bigger threat to the revival of the arts in schools: on March 1, Congress voted to eliminate the Arts Education Program at the federal level as part of a temporary budget measure, which will take away $40 million in current-year funding for arts in schools unless it is reversed.

I like Richard Kessler’s silver lining on his blog Dewey21C: “Maybe it will take these sorts of events to create new possibilities for how the field can work together and with other sectors to advocate for children, education, and the arts.”

Obama’s Blueprint may seem promising for the arts, but we still do not know whether it will shift schools away from rigorous testing to focus on building a complete and robust education for students, with the arts as well as with other subjects. What we can do is work together to make sure that the arts are recognized as an essential part of a well-rounded education for all of our future leaders.

Here’s some more information about supporting the arts in schools if you’re curious:

Time-line for restoring funding to the federal Arts Education Program

The next continuing resolution is between March and September 30. In other words, now.

How to make a difference today

Join arts education advocates by writing to your Congressperson and asking to restore funding to the Arts Education Program. This would reinstate funding that was cut, and would ensure more access to grants for the arts. Take five minutes to fill out an easy online petition here or here.

Image by Flickr user Mordac

(This article originally appeared in 20UNDER40 anthologyⁱ edited by Edward P. Clapp, and has been republished with permission.)

Spurred on by major technological advances, the number of aspiring professional artists in the United States has reached unprecedented levels and will only continue to grow. The arts’ current system of philanthropic support is woefully underequipped to evaluate this explosion of content and nurture its most promising elements—but we believe that the solution to the crisis is sitting right in front of us. Philanthropic institutions, in their efforts to provide stewardship to a thriving arts community, have largely overlooked perhaps the single most valuable resource at their disposal: audience members.

We contend that by harnessing the talents of the arts’ most knowledgeable, committed, and ethical citizens and distributing funds according to the principles of what we have termed guided crowdsourcing, grantmaking institutions can increase public investment in and engagement with the arts, increase the diversity and vibrancy of art accessible to consumers, and ensure a more meritocratic distribution of resources. We envision an online platform by which a foundation may crowdsource philanthropic decisions across a wide-ranging network of aficionados, aspiring critics, artists, and curious minds, bolstering its capacity to give fair consideration to the full range of artistic talent available and ensure that the most promising voices are heard.

* * *

I. Choking on the Fire Hose: The Arts’ Capacity Catastrophe

In 2009, a play I directed off-off-Broadway was one of the best reviewed shows in New York at any level. It got the kind of reception that you’re told means your career will start to take off. The talent pool is so huge and the number of spots for artists so small, though, that even my really well reviewed, lines-around-the-block show doesn’t really help. I got paid $250 for six weeks of work on that show, and I made one connection with [an off-Broadway theatre]. If I am lucky (and that means really lucky, they have a lot of artists who they develop), in 3-5 years they will produce a show of mine. If they do, my pay for whatever mythical show that might be would probably be between three and five thousand dollars, and it would be for a project I had probably been working on and off on for several years. I’m in the process of leaving pursuing professional theatre to only focus on projects I care about because both the financial realities and the lifestyle created by those realities is not one I want to subject myself, my upcoming marriage, or my (a couple years down the road) child to.¹

—Theater Director, age 30

An Embarrassment of Riches

The muse works feverishly in the 21st century. In the United States, more than 2 million working artists identify their primary occupation as an arts job, and another 300,000 or so earn secondary income from the arts.² Yet those numbers only hint at a far bigger phenomenon: the ranks of those who create art, whether or not they earn any money from it, have ballooned to some 20 million adults in 2008.³ Many of those in this latter category fall under the rubric of what Charles Leadbeater and Paul Miller have called “Pro-Ams,” serious amateurs and quasi-professionals who “have a strong sense of vocation; use recognized public standards to assess performance; …[and] produce non-commodity products and services” while “spend[ing] a large share of their disposable income supporting their pastimes.”⁴ Thanks to historically inexpensive production and distribution technology, more artistic products can reach more people more easily than ever before: as of January 2009, for example, users were uploading the equivalent of 86,000 full-length movies to YouTube every week.

The human brain—not to mention the human lifespan—simply cannot accommodate a considered appreciation for so many contenders for its attention. Even if a music lover kept his headphones on for every minute of every day for an entire year, he wouldn’t be able to listen to more than an eighth of the 115,000 albums that were released just in the United States in 2008.⁵ Because we do not possess the capacity to give equal time to every artistic product that might come our way, we must rely on shortcuts. We may look for reviews and ratings of the latest movies before we decide which ones we’d like to see. We often let personal relationships guide our decisions about what art we allow into our lives. And we continually rely on the distribution systems through which we experience art—museums, galleries, radio stations, television networks, record labels, publishing houses, etc.—to narrow the field of possibilities for us so that we don’t have to spend all of our energies searching for the next great thing.

Every time we outsource these curatorial faculties to someone else, we are making a rational and perfectly defensible choice. And yet every time we do so, we contribute to a system in which those who have already cornered the market in the attention economy are the only ones in a position to reap its rewards.

The Arts’ Dirty Secret

We regard the market’s lack of capacity to evaluate all the available art as a systemic and rapidly worsening problem in the arts today. Artists take time to learn their craft and capture attention; while the market may support an “up-and-coming” artist to maturity if she is lucky, making the transition to “up-and-coming” requires nurturing that the market will not provide. Before an artist becomes well known, the “market” she encounters is not the market of consumers but rather the market for access to consumers. This market is controlled by a small number of gatekeepers—e.g., agents, journalists, literary managers, venue owners—who each face the same capacity problems described above. Even the most dedicated and hardworking individuals could not possibly keep up with the sheer volume of material demanding to be evaluated.

This tremendous competition for gatekeepers’ attention frequently forces aspiring artists into a position of having to assume considerable financial risk to have even a shot at being noticed. An increasing number are receiving pre-professional training in their work; degrees awarded in the visual and performing arts jumped an astonishing 51% between 1998 and 2007.⁶ Others are starting their own organizations; the number of registered 501(c)(3) arts and culture nonprofits rose 42% in the past ten years.⁷

Yet all of this increased training and activity comes at a steep price, one all too often borne by the artist herself. Master’s degrees at top institutions can set her back as much as $50,000 per year; internships that could provide key industry connections are frequently unpaid. Artists in the field have been known to incur crippling consumer debt in pursuit of their dreams; the award-winning film documentary Spellbound, for example, was made possible because the co-creators maxed out some 14 credit cards to finance production. Indeed, a daunting investment of direct expense and thousands of hours of time not spent earning a living are virtual requirements to develop the portfolio and reputation necessary to translate ability into success. However one defines artistic talent, it is clear that talent alone is not enough to enable an artist to support herself through her work.

It’s not just those with education debt that have a hard time being a full-time artist, but really anyone without a safety net. I know I can count on one hand the number of composers I know in our age bracket whose parents didn’t pay for their undergraduate education (at least the vast majority of it).⁸

—Composer, age 27

If traditional gatekeepers lack the capacity to identify and provide critical early support to artistic entrepreneurs with little pedigree but plenty of potential, there is a real concern that to compete for serious and ongoing recognition in the arts is an entitlement of the already privileged. For a sector of society that often justifies philanthropic and public subsidy by purporting to celebrate diverse voices and build bridges between people who see the world in very different ways, this is a grave problem.

Portrait of the Artist as a Young Grantee

Grantmaking institutions have a critical role to play in the market for access. Grants represent a very different kind of support from sales of tickets, stories, or sculptures. They may prove crucial for demonstrating proof-of-concept for a new venture—or simply for the development of a style, portfolio, and audience. Most important, they provide a temporary financial cushion that can allow the artist-entrepreneur to manifest her true vision rather than see it continually undermined by scarcity of equipment, materials, staffing, or time. They can make the difference in production values that ensures a serious reception from critical eyes and ears, and allow the artist an opportunity to use time that might otherwise need to be spent earning income to perfect and promote her work. In short, grants are a seemingly ideal vehicle through which to address the fundamental inequities created by the pinched market for access.

Sonically, anything you do is going to be compared to established artists whose studio budget has more zeros on the end of it than yours. And the sonic quality of the recording itself is often the first thing critics (and listeners) hear and respond to.⁹

—Jazz Musician, age 34

Sadly, the lack of evaluative capacity biases the philanthropic market for the arts just as it skews the commercial market. In a perfect world, foundation and agency employees would have the time and money to find grantees by continually seeking out and experiencing art in its natural habitat. In the real world, a notoriously small number of staffers at a given foundation or panel of experts from the community is often hard pressed simply to review all of the art that comes through the door.

Not surprisingly, then, grantmakers take defensive measures to protect against being overwhelmed by an inundation of requests. First, they explicitly narrow their scope through eligibility restrictions. Nearly half of foundations that support the arts refuse to accept unsolicited applications at all, and even those that do frequently consider applications only for particular art forms, geographic regions, types of artist, or types of projects.¹⁰ Until 2009, to cite an especially dramatic example, the Judith Rothschild Foundation in New York only made “grants to present, preserve, or interpret work of the highest aesthetic merit by lesser-known, recently deceased American [visual] artists.” Many grant programs additionally refuse to consider organizations without a minimum performance history or a minimum budget level, and a majority will not award monies directly to individuals, for-profit entities, or unincorporated groups.

Funders also narrow their scope implicitly through their selection process. The selection is usually made by some combination of the institution’s staff, its board of directors, and outside experts called in for the purpose (often in the form of grant panels).  Because so few individuals are involved in the decision-making process, triage strategies are unavoidable. Application reading may be divided up among the panel or staff, with the result that only one person ever reads any given organization’s entire proposal. When work samples are involved, artists’ fates can be altered forever on the basis of a five-minute (or shorter) reception of their work.

These coping mechanisms are perfectly understandable, given the sheer volume of art produced and imagined. But the unfortunate result is that institutional money is distributed with hardly more fairness than commercial money—and this is especially troublesome because of institutional grantmakers’ power beyond their purses as outsourced curators of other funding streams.  After all, for most individual donors and consumers alike, the art that they even have a chance to encounter is likely to be art that has already passed the muster of multiple professional gatekeepers. The capacity problem that hampers grantmakers’ ability to choose the most promising artists in an equitable way thus compounds itself as it reverberates through the rest of the artistic ecosystem.

The shortage of capacity and its consequences on the diversity, liveliness, and brilliance of the arts world are not going away. With the proliferation of digital distribution networks making it easier than ever to put creative work in the public eye, the defensive mechanisms that funders employ to limit intake are only going to become more and more strained. A solution is needed, fast. Fortunately, there is a cheap, practical, and responsible way for institutions to better cope with their lack of evaluative capacity: they can use crowdsourcing to harness the passion and expertise of a broader range of people dedicated to the arts.

* * *

II. Calling for Backup: Crowdsourcing (to) the Rescue

Typically, institutions select the members of their staffs and grant panels on the basis of passion for and experience with the arts, on the theory that these qualities promote discerning judgments about the merit of applicants. But such traits are by no means limited to this narrow group. Tapping the thousands of dedicated and knowledgeable devotees of specific art forms who engage in robust discussion of the arts every day would allow foundations and agencies to go a long way towards addressing their own capacity problems—and towards opening the distribution of arts philanthropy to a broader range of deserving artists.

Our proposal draws inspiration from the phenomenon of crowdsourcing, which is the practice of outsourcing some function to the public or a significant part of it. Crowdsourcing has its roots in the open-source software movement, which designed and built complex software through the collaboration of anyone with the time, interest, and ability to contribute to a project. The best known example of this practice may be Wikipedia, which draws on the knowledge and editorial acumen of a huge pool of often anonymous volunteers to create a crowdsourced encyclopedia. Rather than relying on a handful of experts, crowdsourcing enlists dozens, hundreds, or thousands of people to do the work—and, in its purest form, to ensure the quality of the end result. The following pages explore some of the ways the commercial and philanthropic sectors have deployed crowdsourcing to direct money to worthy causes, to harness dispersed talent, and to build community.

Directing Donations

Online philanthropy markets that allow individual donors to contribute to charitable causes and micro-entrepreneurs around the world—websites like Kiva, DonorsChoose, Modest Needs, and GlobalGiving—illustrate the practice of crowdsourcing funding decisions across a large number of donors acting independently. Some of these websites aggregate small donations to fund larger projects using a mechanism for voting with dollars. For example, at Modest Needs, donors purchase points that can be allocated to specific, prequalified projects described on the site (such as the cost of a replacement water heater for a single mother). When a project has received enough donor points, the amount requested is sent to the applicant.

Similar online giving models have been employed at a smaller scale in the arts. For example, ArtistShare allows “fans to show appreciation for their favorite [musical] artist by funding their recording projects in exchange for access to the creative process, limited edition recordings, VIP access to recording sessions, and even credit listing on the CD.” Kickstarter allows individual donors to make pledges to creative projects—in the arts, journalism, design, and technology—with defined funding targets and timing. If enough pledges are received by the deadline, the project is funded; otherwise, the funds are returned to the donor.

These online mini-markets facilitate individual support for artists by providing donors more direct access to the artistic process and environment. In cases where the projects funded can be appreciated online, supporting them is not so different from buying a ticket. An alternative model of crowdsourced philanthropy that has gained more recent prominence allows individuals to exert influence on how other people’s philanthropic contributions are spent. Two recent major initiatives by corporate foundations employ this “voting without dollars” concept. JP Morgan Chase’s Chase Community Giving program gave away $5 million in early 2010 to nonprofit organizations based primarily on the votes of Facebook users. Similarly, PepsiCo diverted the $20 million it might have spent on ads during the 2010 Super Bowl to the Pepsi Refresh Project, a new monthly initiative that invites “ideas that will have a positive impact” to compete for grants ranging from $5,000 to $250,000. Visitors to the site vote to determine the grant winners.

Aggregating Ability

In the examples above, the “crowd” need have no particular expertise to participate fully. (Indeed, one frequent criticism of these models is that a “one person, one vote” or social-network-based approach to philanthropy can all too easily degenerate into a popularity contest with little connection to the merit of the potential recipients.) But crowdsourcing has also proved very effective at harnessing dispersed talent. In the for-profit design world, Threadless, an online T-shirt company, produces designs created and voted on by users of the website. The winning designers receive cash prizes, and the shirts nearly always sell out, generating $17 million in revenue for Threadless in 2006.¹¹

Philanthropic foundations, too, have begun to take advantage of the expertise of passionate people from across the country and the world. Philoptima allows would-be donors to offer “design prizes” to anyone who proposes an innovative solution to a problem chosen by the donor, and “implementation prizes” to any non-profit that submits a promising plan to carry out the solution in its community. (The first design prize on this young site was offered by a new grantmaker seeking to create “a discipline-wide typology of the environmental sector.”) Since 2006, InnoCentive has partnered with the Rockefeller Foundation to give global development organizations access to high-quality R&D resources; Rockefeller selects the nonprofits and contributes award money to a network of scientists to solve a specific “challenge” posed by the nonprofit.

Building Community

By engaging and connecting a broad cross-section of individuals, crowdsourcing also has the potential to create a robust community and locus for lively discussion. The Yelp Elite Squad, chosen by Yelp employees from among the popular local search site’s most active contributors, benefit from invitations to exclusive offline events in addition to greater exposure for their reviews. In the nonprofit sector, several websites that make grants emphasize the creation of a forum for the discussion of social issues. Ashoka’s Changemakers initiative is a “community of action” that collaborates on solutions through discussion forums, issue groups, and competitions that reward innovative problem solving. Another site, Netsquared, connects nonprofits, grant-makers, and individual social entrepreneurs both on- and offline to foster social change. The organization sponsors in-person meetings for social innovators and engages its community in a grants program for social action projects. The finalists of its grant-making challenges are shaped by these discussions and chosen by community vote.

Putting it All Together: Guided Crowdsourcing

The very best examples of crowdsourced community—the models that illustrate the potential of the concept at its fullest—augment the tools of crowdsourcing with just enough top-down hierarchy to promote an environment of shared opportunity and responsibility. We call this model guided crowdsourcing. So far, this technique has not been explored in depth by foundations, arts-focused or otherwise, but it has been developed robustly elsewhere.

As mentioned above, Wikipedia is perhaps the oldest and most famous large-scale example of crowdsourcing on the web. While the site is most often identified with the crowdsourced labor used to generate its principal product, some 14 million encyclopedia entries in 272 languages, Wikipedia is also home to a fiercely dedicated user community that has self-organized into a meritocracy. Though the site is open to editing and revision by anyone, a small army of experienced volunteer “administrators” boast additional powers, such as the ability to make edits about living people. These users are chosen by “bureaucrats,” who themselves are selected by community consensus, and disputes among editors are resolved by a volunteer-run Arbitration Committee. These responsibilities not only keep the community’s most passionate members fully engaged; it also puts them to work to improve the community and its project.

Barack Obama’s 2008 election campaign used guided crowdsourcing to establish a seamless continuum between motivated volunteers and professional staff. As part of routine campaign operations, professional field organizers would assign new volunteers, who had been recruited online, progressively more difficult tasks to test their fitness for roles carrying greater responsibility. As the campaign progressed, many early volunteers rose to full-time staff positions, providing a clear path of upward mobility for the most dedicated and effective community members. This fusing of top-down leadership with grassroots openness enabled the campaign to achieve its own capacity breakthrough by establishing a viable presence in districts, towns, and whole states that had been considered off-limits by previous Democratic contenders for executive office.

Taking its cue from these successful efforts to shape a broad-based grassroots effort with gentle guidance from the top, a foundation could invent an entirely new model of arts philanthropy—one that matches the explosion of artistic content with an explosion of critical acumen to evaluate it.

* * *

III. Philanthropy’s Finest: The Pro-Am Program Officer Paradigm

We propose that a grantmaking institution supplement its work with guided crowdsourcing by creating an online grants management platform that will also serve as a social network, multimedia showcase, and marketplace for individual donors. By redirecting some portion of its grantmaking budget through this website, the foundation or agency can leverage the critical faculties of passionate and thoughtful arts lovers to address its capacity problem. A sophisticated set of algorithms will empower the website’s community to identify the most qualified and dedicated voices among its own ranks and elevate them to increased levels of influence on a continually renewing basis. In this way, those whose artistic judgments carry the most weight will have earned that status from their peers and colleagues.

How It Works

The process begins when an artist or artist-driven organization (nonprofit or otherwise) applies for a general operating support grant from the sponsoring foundation’s arts program—all forms of art are welcome. Rather than being sent to a program officer for review, the applicant’s materials—proposal narrative, samples of the artist’s work, a list of upcoming events or classes open to the public—will be posted online. This information will be incorporated into each applicant’s public profile on the site.

Members of the public will also be invited to create and maintain profiles. Once registered, they can view materials submitted by grant contenders and share reactions ranging from one-line comments to in-depth critiques. In order to jumpstart the conversation, ensure an initial critical mass of reviewers, and strike a constructive and intelligent tone, the foundation should reach out in advance to knowledgeable arts citizens (perhaps including some of the very gatekeepers mentioned above who might otherwise serve on grant panels) to encourage their participation on the site. The goal is to engage a broad range of art lovers in a robust conversation about the proposals under review—and about the arts more generally—thereby ensuring a better-considered distribution of grant money.

Of course, not all commentators will make equally valuable contributions to the discussion. Just like art, providing critical analysis and consistently thoughtful, informed, and credible feedback requires considerable skill and practice. In short, we want to be able to open up the process to anyone without having to open it to everyone. What qualities would we desire in those who influence resource allocation decisions in the arts? Certainly we would ask that our critics be knowledgeable in the field they review. We would also want them to be fair—not holding ideological grudges against artists or letting personal vendettas influence their judgment. We’d want them to be open-minded, not afraid to dive into unfamiliar or challenging territory when the time comes. And finally, we’d want them to be thoughtful: able and willing to appreciate nuance, and mindful of how what they are experiencing fits into a larger whole.

Technology now allows us to systematically identify and reward these qualities in a reviewer. On the website, a reviewer increases her “reputation score” by winning the respect of the community. Each user can rate individual comments and reviews based on the qualities outlined above; higher ratings increase a reviewer’s standing. To keep the conversation current and make room for new voices, the ratings of older reviews and comments will count for less over time. The reputation algorithm can also reward seeking out unreviewed proposals and commenting on a breadth of submissions. A strict honor code will require users to disclose any personal or professional connections to a project they review, with expulsion the penalty for violators. Reviews suspected of being at odds with this policy can be flagged for investigation by any site user, and the site’s administrators will take action where deemed appropriate.

Every quarter, the professional staff of the foundation will review the reputation scores of community members and choose a crop of users to elevate to Curator status. Selection will be based primarily on peer reviews, but the staff will have final say and responsibility over who is given this privilege. A clear set of guiding principles will be developed and shared to ensure that the choice is as fair and transparent as possible. Curators receive an allowance of “points” to distribute to various projects on the site, usually limited to the discipline or area of the Curator’s expertise. Curators are identified by (real) name to other users so as to foster a sense of accountability, and their profiles show how they have chosen to distribute their points. So long as a Curator maintains a minimum reputation score by contributing new high-quality reviews, he will continue to receive new points each quarter.

As a project accumulates points from Curators, it receives more prominent attention on the site. It might show up earlier in search results, appear in lists of recommendations presented to users who have written reviews of similar projects, or be highlighted on the home page. But since Curators maintain their reputation (and aspiring Curators gain their reputation) in part by reviewing proposals that have failed to attract comments from others, the attention never becomes too concentrated on a lucky few.

When it comes time to award the grants each quarter, the collective judgment of the Curators is used as the groundwork for the decision-making process. This approach ensures that organizations cannot win awards simply by bombarding their mailing lists with requests for votes, because the crowd exerts its influence indirectly through Curators selected on the basis of sustained, high-quality contributions. While it is still ultimately the responsibility of the foundation’s board of directors to choose recipients, we anticipate that adjustments will be made only in exceptional cases—that, essentially, the heavy lifting will have been done by the crowd.

Meanwhile, the very best contributors—the stars of the site—may be engaged by the foundation as paid Editors. Editors are part-time, contract employees who are sent out on assignment to see and review specific public events in their area associated with proposals on the site. Their reviews are highlighted prominently to give their expert work maximum exposure. This system allows the foundation to send trusted reviewers to distant events without having to pay exorbitant travel costs; meanwhile, the writer receives a financial incentive for exceptional ongoing service to the site and the arts community.

Of course, artists, administrators, and contributors won’t be the site’s only audience. Since work samples will represent an important part of many applications, the platform will also be a convenient way for the public to discover new artists and ensembles, guided by the judgments of a myriad of devotees. Each proposal uploaded will give passersby the opportunity to contribute their own money in addition to any comments they may have. As such, the site has the potential to become the first effective online donor marketplace for the arts. The sponsoring foundation could even give donors the option of tacking on a small “tip” to each donation to help defray the site’s (minimal) operating costs.

It is worth emphasizing that, despite the many roles website users will play in the grant process, they will not replace the foundation staff. One or more program officers will need to be in charge of the website and accountable to the board of directors for its successful operation. They will oversee the website to ensure that the ongoing discussion remains frank, thoughtful, and passionate—but not vicious or counterproductive. Such a desirable culture will not develop automatically; fostering it will mean setting and continually revising rules and procedures, reminding users of the funding priorities established by the foundation and engaging in dialogue about those priorities when appropriate, selecting Curators wisely on the basis of peer reviews, expelling users who violate the standards of the community, and developing a method to evaluate and report on the grants made through the site, both to the board and back to the users. Furthermore, we do not anticipate that this model would or should supplant a foundation’s or the field’s traditional grantmaking entirely. “Leadership”-level awards to major service organizations or institutions with a national profile do not face the same kinds of capacity challenges as grants to smaller producing and presenting entities or individual artists, and may require a greater level of expertise in evaluating factors such as financial health and long-term sustainability than a nonprofessional program officer may be able to provide. Thus, we see this approach as one element in a broader portfolio of strategies to optimally support the arts.

Few good ideas come to fruition without resources, and this one is no exception. The platform should be sponsored by a major foundation or institution with a substantial initial investment (we suggest at least $1 million) to signal seriousness of purpose and ensure a meaningful level of support to the artists and organizations involved. Although it would be possible to pilot the system in a limited geographical area or with only certain disciplines at first, the concept can only reach its true potential if a certain critical mass is achieved—enough to make it worth artists’ while to ensure representation on the site and worth reviewers’ while to contribute their time and curiosity to making it thrive.

We anticipate that this system will be highly sustainable. Once the infrastructure is in place, the website will be inexpensive to maintain, and may well prove cheaper than more traditional methods of distributing funds. The powerful incentives provided to both artists (access to a source of funding coupled with real-time feedback on their proposals) and reviewers (the opportunity to gain notoriety, influence, and even material compensation for doing something they love) should be sufficient to maintain interest on all sides.

Finally, the greatest beauty of the site is that there is ample opportunity to experiment with various approaches until just the right formula is found. If the original algorithm for calculating reputation scores turns out to be ineffective, it can be changed. If the rules against reviewing the work of friends turn out to be too draconian, they can be adjusted. If the foundation decides it wants to give Curators actual dollars to distribute instead of abstract points, that is an easy fix. Meanwhile, if the system proves successful, the sponsoring foundation could invite other funders to contribute their resources to the pool, making even deeper impact possible.

Figure I: Program theory for a guided crowdsourcing platform for the arts.

* * *

Summing Up

Our guided crowdsourcing model is designed to integrate many virtues of existing crowdsourcing concepts: giving small-scale projects access to new pools of capital; aggregating the expertise and labor of users; and creating a social space for strangers who share a common interest. When combined and applied to the arts, this triple crowdsourcing carries several special advantages:

• First, it addresses the lack of evaluative capacity in the philanthropic market, enabling a more meritocratic distribution of grants and thus a more vibrant and socioeconomically diverse artistic community.
• Second, because of the structural role of grantmaking institutions, the website indirectly addresses the lack of capacity in the commercial market: the path to commercial success will be made a little less arbitrary through the work of our volunteer curators.
• Third, the robust community we hope to facilitate will double as a feedback mechanism for artists and artist-driven organizations, enhancing the production of art even before grants are awarded.
• Fourth, the site will serve as an incubator for critical talent, identifying and empowering new commentators who can establish a reputation as informed adjudicators, while providing a new outlet for more experienced voices at a time when the job market for critics is rapidly shrinking.
• Fifth, by rewarding contributions that can serve as examples of critical analysis at its best, the site will encourage a more thoughtful and articulate public conversation about the arts. In so doing, it facilitates the establishment of a new breed of Pro-Am curators to match the convergence of amateur and professional in artistic creation and performance.

We expect that, if successful, this model will result in a more equitable distribution of philanthropic funds that always takes into account the actual work product rather than reputation alone; be based on the opinions of acknowledged leaders in the community who continually earn their standing among their peers; and fairly consider the efforts of far more artists and artist-driven organizations than would ever be possible otherwise. If really successful, the model could actually increase the size of the philanthropic market by providing what amounts to the first functioning donor marketplace for artists and arts organizations.

While guided crowdsourcing cannot guarantee all aspiring artists a living, by empowering a new and unprecedentedly large group of thoughtful consumers of the arts to help decide whose dreams deserve to be transformed into reality, it can provide more equality of opportunity than could ever be possible under the current status quo—and guarantee the rest of us richer artistic offerings than ever before.

It’s time to appoint the next generation of arts program officers: us.

* * *

NOTES:

i. Clapp, E. P., ed. 20UNDER40: Re-Inventing the Arts and Arts Education for the 21st Century. Bloomington, IN: AuthorHouse, 2010: 81-97.

1. Anonymous. Personal communication. February 21, 2010. All of the individuals whose views appear in this article are critically acclaimed emerging artists under 40 years of age, and are quoted with permission.

2. Gaquin, D. Artists in the Workforce: 1990-2005. Washington, DC: National Endowment for the Arts, 2008: 1; See also National Endowment for the Arts. Artists in a Year of Recession. Washington, DC: National Endowment for the Arts, 2009, and; Davis, J. A. & Smith, T. W. General Social Surveys: 1972-2008. Chicago: National Opinion Research Center, 2009.

3. Williams, K. & Keen, D. 2008 Survey of Public Participation in the Arts. Washington, DC: National Endowment for the Arts, 2009: 43.

4. Leadbeater, C. & Miller, P. The Pro-Am Revolution. London: DEMOS, 2004: 21-22.

5. This calculation is based on a conservative estimate of 40 minutes in length per album.

6. Kusher, R. J. & Cohen, R. National Arts Index 2009. Washington, DC: Americans for the Arts, 2009: 62.

7. Ibid: 49.

8. Anonymous. Personal communication. February 20, 2010.

9. Anonymous. Personal communication. February 22, 2010.

10. Foundation Center. “Foundation Directory Online” (n.d.). As of April 2010, only 1.3% of arts funders in the database accept applications with no geographic restrictions.

11. Howe, J. “Join the Crowd.” The Independent (London), (September 2, 2008): 2.