Dept. of Good News: Unrestricted Donations Are Rising in the Arts Space. But Why?

Ah, September. The leaves turn brown. There's a slight chill in the air. And the Cleveland Browns kick off another season of futility.

September also means the publication of Southern Methodist University's National Center for Arts Research (NCAR) report on fundraising trends in the arts. Unlike, say, back-to-school shopping, it's something we at IP actually look forward to.

But before we dive into the findings—spoiler alert: they're rather encouraging!—let's first hit on the study's methodology. As we noted when we looked at last year's report, the NCAR data-crunchers examine fundraising by sector, organization size, and geographic location. It is based on 2014 data provided by over 4,200 organizations across 11 arts disciplines, with trends for a subset of over 2,700 organizations over the four-year period 2011-2014.

As for the good news? According to the report:

Growth in unrestricted contributed revenue—meaning contributions that are provided without any restrictions on how the funds are to be spent—slightly outpaced growth in expenses, suggesting that over time, arts organizations have built deep, committed relationships with their supporters.

Indeed, this is a topic we've been talking about for close to two years now. Donors traditionally like control. It's their money and if they want to allocate it toward building a new wing, it's their constitutional right, gosh darn it. What's more, unrestricted grants can serve noble purposes like stabilizing a program that, while not wildly popular with the general public, honors donor intent. These are the fruits of strong relationships with supporters.

But we'd also argue that while deeper, more committed relationships certainly help, other factors also contribute to this trend toward growth in unrestricted revenue.

After all, a great relationship is a good thing, but it's not particularly valuable if a donor thinks their no-strings-attached gift will go down a figurative sinkhole. As paternalistic as it may sound, organizations need to show they can be trusted with the rare gift of an unrestricted donation.

And while each case is different, it isn't a stretch to claim that organizations' success in the performance management space plays a role in setting donors' minds at ease. If groups can effectively show—quantifiably or quantitatively—that their unrestricted gift will deliver a relative return on investment, donors will likely be more inclined to take the plunge.

NCAR's finding also neatly lines up with our analysis from a post back in March, titled Seeing the Light: Another Arts Foundation Embraces General Operation Support. After yet another grantmaker—in this case, Chicago-based Reva and David Logan Foundation—awarded general operating support, we said, "We admit that three examples of foundations embracing general operating support doesn't constitute a particularly compelling trend."

But now we'd like to revise that statement. Thanks to the NCAR's findings, it's officially a trend.

I encourage you to read the whole report here. But in the meantime, here are some additional takeaways:

The average organization across the country relies on unrestricted donations to support 57 percentof its annual expenses.
Overall, fundraisers are becoming increasingly efficient and effective: Organizations are spending more on fundraising, including personnel compensation; but as a result, they are attracting higher returns for the additional investment.
In markets with more state and federal grants and dollars overall, unrestricted donations also tend to be higher for each individual organization, with a higher level of support from foundations, trustees and other individuals. In these markets, organizations tend to spend less on fundraising.
For the average organization across the country, individuals (non-trustees) provide the most funding to the arts on an annual basis while corporations provide the least.
Combined, the donations from two sources – trustees and individuals – grew 8.8 percent from 2011 to 2014.
In relation to expenses, each of the five major sources of funds varied less than one percentage point annually and over time, signaling reliability of relationships and consistent commitment.

And in similar news, check out our take on an initiative that may have single-handedly skewed the NCAR's data set: Bloomberg Philanthropies' Arts Innovation and Management program, which provides $30 million (!) in unrestricted general operating support.