The case for a national endowment

back to the contents page

Many cultural groups cannot shake off small revenue deficits. Cara MacMahon proposes a radical plan to liberate them

Make sure you receive your fair share of lottery cash - take out a no-obligation trial subscription today.

The National Lottery has given limited support to endowment funds mainly as a way of providing precious small-scale funds at a very local level. But an endowment could also be an excellent way of addressing a range of revenue problems that bedevil the cultural sector. The potential for a National Endowment Fund for cultural organisations has been discussed since the early days of lottery funding. With the lottery white paper inviting a further round of consultation and ideas for reform, the time is right to consider such a fund in earnest. This proposal comes from my experience of managing and advising cultural organisations over the past 15 years. My experience has been that while many organisations are outwardly successful, they suffer from a small mismatch between what they achieve and how much income they earn to support that achievement. These organisations square the circle by running up small deficits each

year and then tend to rely on local authorities to bail them out when the deficit reaches crisis point. 

Revenue concerns
The main revenue issues, which are common to cultural organisations throughout the UK, are:

• historical deficit: where current finances break even but there remains a significant deficit figure or debt to a local authority etc that cannot be repaid
• attendance deficit: mismatch between original projected visitor numbers and actual income generated from paying visitors
• marketing deficit: where there is an inadequate marketing budget for the organisation l trading deficit: where the trading company (catering, shop etc) does not produce enough income to support charitable activities
• investment in people deficit: where the organisation cannot afford to offer adequate salary and training to its staff and board
• free access: a non-charge policy for entrance/events.

There have never been any lottery schemes aimed at solving these sorts of problems. Granted, some of the issues may in part be the result of poor management (either past or present). The current arts stabilisation schemes (see pp9-10) aim to identify management issues and to support development of new ways of thinking for organisations. But they do not set out to provide lump sums to cover historical revenue problems. 

Capital concerns
Cultural organisations also have a range of capital funding needs, such as upgrading of buildings, major maintenance or re-equipment for new areas such as IT, crèche provision, trading facilities or exhibition space improvements. Unlike with revenue deficits, the lottery can already help here. Many of these problems could in theory be funded through the arts councils, the Heritage Lottery Fund or other schemes. I suggest that a new fund is therefore only used for revenue, not capital, support.

The Lottery Endowment Fund Scheme
At current interest rates an endowment of £1m will release approx £35,000-£40,000 a year. I suggest that DCMS set up the Lottery Endowment Fund Scheme, starting with a pot of £50m. Organisations could be invited to apply for up to £1m.

Once the endowment capital sum has been awarded, the organisation itself will own and manage the endowment. Part of the application will be a proposal as to how the endowment will be managed. Each organisation will also be encouraged to use its lottery capital as a lever for additional funds for its endowment pot. The original lottery capital allocation is given as a grant rather than a loan and becomes the property of the organisation. I have considered the option that the capital sum is provided as a loan, but, any obligation to pay back the funding could entail the organisations reverting to its original revenue deficit position.

Such a scheme could operate in many different ways. I suggest there would need to be programmes of work given priority on an annual or perhaps a three-year basis. Examples of possible priority themes might include:

• large national or regionally significant organisations
• smaller cultural organisations of local significance
• training for staff and board members marketing investment.

Applicants would need to submit a business plan that convincingly argued the case for the funding. In addition the applicant could be required to develop a plan for increasing the endowment fund over a ten-year period, thus ensuring that the original lottery grant becomes the engine that supports fundraising from other sources.

In summary, this simple concept has the potential to provide genuine support to organisations without the concern that it will waste lottery monies. It would offer an additional income stream to organisa-tions that will support sustainability and it could encourage private sector funders to invest into the endowment funds managed by the organisations.

Cara MacMahon is a cultural consultant. Email: cara.macmahon@tiscali.co.uk

Case examples

Case A
An established regionally funded organisation is accruing approx £30k deficit a year and needs another core funder to cover this. The organisation cannot decrease spending and cannot increase income without adversely affecting the programme. It is stuck in a ‘funding gap groove’. Yet another £30-£50k a year will support the artistic programme, help with marketing and close the annual deficit. An endowment award of £1m would allow the organisation to balance its books and concentrate on programme development.

Case B
An organisation wishes to establish a training programme for all staff and board members. This will change and develop as the years progress. High on the agenda is training in equal opportunities and disability equality. An endowment grant of £500K provides an annual training budget of approx £20K, which effectively ring-fences and secures funding for a key area of work.