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Museums: A Snapshot

Category: Financial Stability
Image of a person's hand holding a Poloroid image of a girl sitting on a bench in a gallery.

This article originally appeared in the January/February 2010 edition of Museum magazine.

A Rundown from 2009 Museum Financial Information

Anyone who studies museums in a serious way will quickly encounter a few hurdles. First, you can’t really define museums; at least, there is no definition that can be used consistently to include or exclude organizations from the ranks. A number of such groups as the International Council of Museums have written definitions that they use to determine membership. Others, such as the federal Institute of Museum and Library Services, use a definition to determine funding eligibility. The definitions agree on a few key points: museums are educational in nature and are open to the public at least part of the year. But consensus quickly breaks down. Most definitions prominently feature preservation and exhibition of collections, but our survey reveals that a fifth of museums report that they do not own, care for or use collections. Most definitions cite museums as being nonprofit entities working in service to the public, although there is a small but growing number of for-profit museums in the U.S. Increasingly, there are museums that exist only in such virtual locations as Second Life. What does it mean for these museums to be “open to the public”?

As biologists would say, there is no “type specimen” exemplifying what a museum looks like. Instead, AAM has always taken a generous approach to defining museums: if you consider yourself a museum, then welcome aboard—but please strive to act in a responsible manner that respects the standards of the field.

Second, you can’t count museums. This is a challenge we share, appropriately enough, with the museums we represent. You have a tea set with 78 pieces. Does that count as one collection element or 78 elements? (Or maybe
85, because you decide to count the lids to the teapot, sugar bowl, etc., separately.) There are museum systems that may have 25 buildings, grouped in five different locations, plus a historic monument in the town square and a piece of conservation land in the next county. Is this one museum, five museums, 25, 27 or something else entirely?

Third, you can’t categorize them as museums—at least not neatly. The categories that we have traditionally applied to museums (art museums, history museums, children’s museums, etc.) set artificial boundaries along what is really a
continuum. To make it possible to bundle the data in groups that other museums will see as more “like them,” we ask museums to pick the one discipline category that fits best. If they think that they represent two or more disciplines more or less equally, they are asked to pick “general.” Museums struggle to comply with this request, which is why so many fall back on the even vaguer category of “specialized museum.” We have museums that classified themselves one way three years ago and a different way in 2008. In the 2009 Museum Financial Information (MFI), for the most part, we respected the shift; in others, we decided to stick with the classification from 2005 for the sake of comparability between the two reports. We have historical societies that identify themselves as museums through their AAM membership, accreditation or participation in this MFI, while they strenuously resist classifying themselves as history museums because they see historical societies as being something else entirely. They are museums, they are about history, but they are not history museums…

Finally, museums do not speak a common statistical language. There is no standardized way of counting attendance or collections, much less of attributing the costs for collections care. Over the years of conducting this survey, it has also become clear that many museums do not speak the same language as their accountants.

So the act of faith or optimism, whichever you want to call it, is to ignore these complexities, plow ahead and have confidence that with enough museums answering the survey, it will all come out in the wash. And the fact is, their responses do cluster in identifiable ways that align with everything else that AAM knows about museums. Most importantly, for the purposes of this report, they cluster in consistent patterns of financial behavior.

There is an old joke that “nonprofit is a tax status, not a business strategy.” Unfortunately, this continues to be funny because so often museums behave as if it is a business strategy. But they can’t do that if they are going to grow, thrive, deliver on their missions and serve their communities. They have to find a way to make money and plow the “profits” back into what they do best-serve the public. It is AAM’s hope that the data presented in the most recent MFI will help in that endeavor.

It is our purpose to present the information so it can be used by:

  • museums, to compare their operations to those of their peers, evaluate their financial strategies and performance and advocate for funding at the state, local and national levels
  • the media, to inform its coverage of museums, particularly financial performance
  • funding agencies, to inform their decisions regarding grant programs and awards
  • elected officials, to inform their public policy decisions
  • researchers who are interested in the place of museums in the cultural, social, educational and economic life of the United States
  • AAM itself, to better understand the financial and operational needs of museums and help us advocate for museums to the public, media, funders, and policy-makers

In Museum Financial Information 2006 I wrote about the inherent vulnerabilities of two classic models of museum income: heavy reliance on endowment and on earned income. In thinly fictionalized cases, I projected how each model could prove unstable in a financial downturn. The generously endowed museum could take a heavy hit from a severe market downturn. This blow might be compounded by the fact that, having been inwardly focused on self-funded, mission-related activities, the museum has fewer ties to the community or to philanthropic foundations. This could make it difficult, I theorized, to build new audiences quickly or build new income streams.

The museum that relies heavily on earned income can be vulnerable in different ways. Because it focuses on revenue-generating activities for which customers pay fair value, the community as a whole and funders, in particular, may be less inclined to direct charitable support in its direction. To which I would add, with three years’ additional perspective, that the local government might begin to wonder why, exactly, the museum that is competing with local business through its restaurant, gift store, large-format theater and space rentals is not paying property taxes. In the wake of the collapse of the world financial markets in 2008, both these scenarios, and numerous other stories of financial disaster, have played out in museums across the country.

In the last edition of this book, I pointed out that a well-diversified income mix, balanced between government and
private support, earned and investment income, is often successful. This is partly because the risk is spread out. “A change in the environment that affects one income stream is unlikely to affect the other three.” Unfortunately, this part of the forecast was untrue.

Percent of museum funding

Many U.S. museums in the past year have seen declines in all areas of income. Local government funding is down as tax revenues tank, particularly in cities with high rates of home foreclosure. Private giving is down as personal charity contracts. Earned income shrinks as people scale back their spending on weddings, corporate parties and other events that fueled space rentals. Investment income, well… When even Yale’s legendary financial acumen can’t rescue the school from a loss of only 25 percent of the value of its endowment, you know things are bad.

So diversity of income does not inoculate a museum against economic crisis. But I hold by the second part of the observation regarding the wisdom of a diverse income mix. By cultivating all four streams, the museum attends to the needs and desires of a broad constituency: public officials, private donors, philanthropic foundations, and consumers. By making the museum matter to a greater number of people, it builds a safety net, ensuring that more people are likely to step forward to catch it should it fall.

This, in fact, has turned out to be true. And it is worth noting the bright spots amidst the pervasive financial gloom that marks 2009. Attendance at many museums is up, in some cases modestly raising admissions revenue. The Giving USA Foundation reports that rates of charitable donations remain strong, though the average size of gifts is down. Building a loyal audience, in other words, has its rewards. Where the museum relies directly on a network of local support, its members and community partners will often step in to help an organization in need. The most severe problems we have seen are museums that rely primarily on a parent organization—a college or university, or state or local government—for their support. Faced with their own fiscal woes, these entities have often decided to close or scale back the museum in order to balance the bigger budget.

If the economy rights itself relatively quickly, as the chairman of the Federal Reserve would have us believe, maybe it
is just a question of hunkering down for a short while: cutting the exhibit schedule, reducing travel expenses, forgoing professional education, paring benefits and, if unavoidable, laying off some staff. Then, when the economy rebounds and the tax rolls are once again filled with happy homeowners, museums can return to the relatively workable imperfection of their former business models. Except for museums relying heavily on their endowments: they get to feel the pain for perhaps another three years while the rolling average works its way through their spending rate.

But can we count on that? In the Center for the Future of Museums forecasting report, “Museums & Society 2034: Trends and Potential Futures,” James Chung and Susie Wilkening of Reach Advisors point out that the Japanese economic downturn of the 1990s, which so far looks eerily like the current American situation, lasted a decade. And even if the economy rebounds, this report points out that we face a future in which profound shifts in demographics,
the economy and cultural norms will require us, like the Red Queen, to run ever faster just to stay in the same place.

Museum Construction Historical Trends

So the bad news is that you not only have to plan how to help your museum survive the current economic downturn, you need to think about h,ow to position your museum for long-term success when the economy rebounds. And that is unlikely to be as simple as going back to business as usual. The pace of change today in so many areas—
economic, ecological. cultural, demographic, technological—is so fast that the traditional long-term plan covering
three to five years may send a museum in a direction that proves to be disastrous 10 years out. The challenge has shifted from assessing your relatively stable museum to tracking and rapidly interpreting trend data to project what your operating environment is likely to be in a few years.

We will continue to collect, interpret and distribute financial trend data from within the museum field. MFI marks the
first time we are able to provide nine-year trend data from a core group of loyal survey respondents. We will recruit your help to make this data even better and more accurate. We will enlist the best and brightest in the museum field to use these trends to forecast the future of museum finances and operations. This will form the basis of a lively discussion with the field on the accuracy of these projections, and on what museums can and should do to respond to these trends.

Finally, we will help the field pioneer new and better ways for U.S. museums to collect and share financial information. We think the field is on the verge of major breakthroughs in this area. We are beginning to work with a broad-based coalition on a method for seamless, continuous, shared data collection.

Now that is a future we can see investing in.

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