Non Profits & Buying Locally – Good For The Community vs Bad For Overhead Ratio

Back in September, Non-Profit Quarterly (NPQ) pointed to a new research study which has found overheard ratio is not a valid measure of organizational effectiveness. In fact, it there is a slight negative correlation between overheard ratio and commonly used measures of efficiency.

“…but our work is the first to approach it using efficiency theory—and we were able to demonstrate the problem using real-world data.”

….“In short,” Coupet says, “this demonstrates that not only is the overhead ratio bad at assessing efficiency, but also that using it to assess efficiency may actively mislead donors. We argue that nonprofit scholars, managers, and donors should move away from concepts and measures of efficiency based on financial ratios, and toward ones that embrace maximizing what nonprofits are able to make and do.”

NPQ says according to the study, overhead ratio is a poor measure of effectiveness because it doesn’t reflect what organizations are doing with their resources or what they “are accomplishing with their non-overhead spending.”

In other words, like I have written so often before, the value of what a non-profit does is not reflected by transactional data, economic impact numbers or test scores.

This being said, another part of the article raises the intriguing idea that if a non-profit is supposed to be working for the benefit of their community, shouldn’t they be focusing on buying locally rather at chain stores or wholesale warehouses? If so, the higher cost of buying locally would raise their costs a bit and impact their overhead ratio. But it may be worthwhile to do so.

Should we stop looking for cost savings that benefit our bottom line but lead to purchasing that harms the greater community? In other words, should nonprofits be considering (and be supported to pursue) their own “buy local” policies?

‘Nonprofits should be shouting about how much of their spending happens at locally owned, minority-owned, women-owned, veteran-owned or disabled-owned businesses. There is a multiplier effect in spending locally that shows that for every $100 spent at a locally owned business, $45 of that is re-spent locally, while national chains only spend $14 of that sale locally.’

This is an intriguing idea that has this author (a nonprofit executive who manages purchasing) feeling the financial pinch of a cogent ethical argument: If buying local supports healthy communities, and the mission and values of my organizations are tied to relevant healthy community outcomes, why am I doing my shopping at big box (including online) retailers?

This broadens the scope of what it means to be a non-profit in service to the community. Touting how much is being spent at locally owned business won’t necessarily smother the use of overhead ratio as a standard, but it has the potential to blunt the ratio’s use in an argument of a non-profit’s worthiness.

Play More Poker If You Love The Arts?

Earlier this week I wrote about the negative impact casino construction can have on the viability of performing arts entities in a region. I mentioned the steps a coalition of performing arts organizations took to mitigate those effects in NY State.

Even as I was mentioning this model at the meeting I attended to those discussing the casino related lobbying efforts, I was thinking that a model similar to the one in New York might be attractive to state legislators if they thought they could have gambling revenue replace state funding for arts and culture.

This could be a problem for a number of reasons. For a long time state lotteries have been sold as a way to provide funding for education, but the results have often been mixed with some believing the lottery funding has allowed state governments to shift funding elsewhere leaving education funding generally flat.

According to the Brookings Institute,

“Some scholars have argued that lottery earmarks provide a net positive impact, despite some fungibility. One study, for example, estimated that a dollar of lottery earmark funds for K-12 education increased per pupil spending by 50 to 70 cents, with the rest of the money being diverted for other purposes. Others have argued that lottery earmarks lead state lawmakers to supplant education funding so much that states invest less in education over the long run.

This is because budget decisions are made in context of scarcity, in which allocating resources to one arena of state policy limits the ability to fund other programs. Therefore, when lottery earmark revenue emerges, state lawmakers may use lottery earmark revenue to supplant instead of supplement education funding so that they can free up general fund money for other purposes that matter to their constituents and avoid raising taxes in the process.

What also should be considered is social dissonance in this form of funding as recently suggested by James Doeser in The Art Newspaper, regarding the use of lottery proceeds to fund the Arts Council of England.

Since its introduction in the mid-1990s, the UK National Lottery has made a lot of poor people slightly poorer while equipping Arts Councils to enrich an arts sector that disproportionately serves the better-off. It is not hard to picture an old woman applying coin edge to scratch card, with no more chance of winning the jackpot than of stepping inside the gallery she has helped to build

[…]

Arguing for public funding for the arts would be much easier if our tax regime were more progressive, and those engaging with the arts more reflective of society as whole…. Thanks to an austerity-induced accounting trick, the replacement of tax by lottery funding means that the least well-off increasingly shoulder the cost of rich people’s pursuits. A lot of well-meaning and progressive people continue to benefit from this arrangement, but it is not fair and needs to be questioned.

Which is more preferable when it comes to seeking an increase in public funding, making yet another appeal to supporters to contact their representative about bolstering arts funding or encouraging supporters to play more blackjack?

(Yes, that is a huge false dichotomy)

Talking About Impact of Casinos Now Might Mean You Don’t Have To Lose Even If The House Always Wins

Four years ago I wrote about a coalition of performing arts organizations in upstate NY that was fighting to mitigate the impact of having new casino projects compete with them for performing arts talent.

As I had written, what often happens is that a casino is in a position of offer a lot more money to artists thanks to their revenues from gambling and hospitality. So an artist you could contract for $25,000 for a single performance can now get $40,000 a night for a week at a nearby casino.

Even if the artist might be willing to accept a lower fee at your venue, exclusivity clauses in their contract may prohibit them from performing in a 50-75 miles radius 90 days prior and 60 days after their casino engagement.

When I wrote that post four years ago, a commenter asked that I keep up on the efforts of the performing arts organizations, Coalition for Fair Game and update readers. I have been thinking I needed to circle back to the story and write another post.

The topic got brought to the top of my attention today at a meeting of Georgia performing arts presenters where a group that has been lobbying legislators on this issue gave a report on their efforts.

One of the things I did not realize is that many states are requiring that casinos earn a certain portion of their income from non-gambling sources like entertainment and hospitality. To some degree then, casinos are being forced to move into competition with non-profit performing arts organizations.

The guy reporting on the lobbying efforts said until they started talking with lawmakers about the repercussions of this requirement, it never occurred to the government officials that these requirements would have a negative impact on arts organizations locally and statewide.

So if your state is starting to look to legalize gambling or increase the presence of large casino complexes, it may behoove you to start conversations with lawmakers about the implications of these decisions.

As the discussion of the problem and lobbying efforts was occurring, I did a quick online search to learn more about what might have happened in upstate NY over the last few years. It just so happens, a newspaper wrote a pretty detailed story on the subject last month.

According to the Poughkeepsie Journal, the Coalition for Fair Game has received $500,000/year to help offset the impact of the casinos’ entertainment operations.

“If there wasn’t an agreement and this ongoing, open dialogue, we’d be constantly broadsided,” said Silva, who runs the Bardavon, presents shows at UPAC and Hutton Brickyards in Kingston and is currently president of the theater coalition. “We could be negotiating in good faith for an act and make an offer and get bumped because the casino gave $10,000 more.”

[…]

The money is designed to offset any negative economic impact that the casino’s headlining entertainment could have on the Bardavon and Bethel Woods. Resorts World Catskills allocates the funding to the theater coalition, which emerged in 2013 and includes venues from Albany to Elmira.

Similar deals are in place elsewhere in the state and can be found in Massachusetts.

In addition to the cash, this deal gives the Bardavon and Bethel Woods a say in the size, scope and number of entertainment offerings at Resorts World Catskills. The agreement and the casino licenses last 10 years and the payment from the casinos to the coalition is not affected by any fluctuations in gambling revenue.

Armed with the knowledge that the arrangement in upstate NY was working, I asked the speakers if they were aware of this arrangement and if they contemplated creating a similar situation if legislation went forward to authorize construction of proposed casinos.

They were aware of the arrangement in NY, but said while it was by far the best arrangement of its kind in the country, it is still an imperfect situation and that they would endeavor to carve out a better environment for the state.

Seems like something to continue to keep an eye on.

What Would You Do If A Funder Encouraged You To Push Them To Do Better?

I was skimming some entries on the Americans for the Arts blog when a couple sentences made my eyes visually screech to a halt and shift into reverse because I wasn’t sure if I read what I thought I did.

Lawrence Brad Anderson, Executive Director City of Salina KS Department of Arts & Humanities related a story about a prospective grant applicant in a situation I think we can all empathize with–though with a very atypical ending.

Our new staff member did an excellent job reviewing the grant guidelines and preparing him for the process, but as the meeting was wrapping up, I saw that something was still missing.

“May I share an observation with you before you go?” I asked. “Sure,” the artist quietly replied.

“I sense that you feel you may not be worthy of funding for your expressed need. This couldn’t be further from the truth. You have prepared as a professional in your field, you are active in musical performances, and your passion for what you do is evident. In addition to your own individual expression, I want for you also to consider being a mentor and artistic leader in this community. We need people like you to be a positive voice as an artist and a valuable member of this town. We may not always be able to anticipate your exact needs, but you have my permission to push us, ask questions, and encourage your peers to step up their game and get engaged.”

As I completed my statement he lifted his head and I could see that he was silently weeping. Whether this recognition was the cause, or as a man of color in a largely white community, he was unaccustomed to being affirmed in such a strong way. The experience served as an important reminder of the role and responsibility arts administrators serve in their community.

As I say, I think we can all identify with feeling despondent that our programs or organization is not suited to the particular criteria of a funder.

But it is pretty dang rare for a funder to tell us explicitly that we are well suited for their program, challenge us to expand our leadership role in the community and encourage us to push them as funders.

I think we would all join the artist in silently weeping.

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