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Full text of "How the United States funds the arts"



National Endowment for the Arts 




How the United States 
Funds the Arts 



■ 



National Endowment for the Arts 



How the United States 
Funds the Arts 



Second Edition 



«* 





Published by 

National Endowment for the Arts 
Office of Research & Analysis 
Sunil Iyengar, Director 

January 2007 

Revised by the staff of the National Endowment for 
the Arts. First edition prepared by Tyler Cowen, 
Department of Economics, George Mason University. 

Designed by Fletcher Design Inc., Washington, DC 

Cover: Mark Morris Dance Company's production of V. 

Photo by Robbie Jack 



Voice/TTY: 

(202) 682-5496 

For individuals who are deaf or hard-of-hearing. 

Individuals who do not use conventional print may 
contact the Arts Endowment's Office for AccessAbility 
to obtain this publication in an alternate format. 
Telephone: (202) 682-5532 



This publication is available online at www.arts.gov, 
the Web site of the National Endowment for the Arts. 



^•^ National Endowment for the Arts 
^^ 1100 Pennsylvania Avenue, NW 

Washington, DC 20506-0001 

(202) 682-5400 



CONTENTS 

Preface by Dana Gioia v 

I. Overview 1 

II. Direct Public Support for the Arts 3 

III. Other Public Support for the Arts and Culture 10 

IV. Private Giving and Tax Incentives 18 

References 24 



NATIONAL ENDOWMENT FOR THE ARTS III 



PREFACE 

The Role of a Federal Arts Agency 







Dana Gioia, Chairman 
National Endowment for 
the Arts 



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The role of a federal agency in funding 
the arts is often misunderstood — and 
for very good reasons. The American 
system of arts philanthropy is 
complex and ever changing. As Chairman of the 
National Endowment for the Arts, I have 
constantly been impressed by the ingenious 
diversity and endless creativity of ways in which 
the arts are funded in the United States. I 
thought it might be useful to provide — for both 
Americans and an international audience — a 
concise overview of how Americas unique 
system of arts philanthropy works. 

In order to understand how the National 
Endowment for the Arts — and arts funding in the 
United States — operate, it is helpful to have 
some basis for comparison. By looking abroad, 
we can see how other nations manage similar 
cultural institutions. In countries like France, 
Germany, Mexico, or China, most arts funding 
comes from the government — either at a federal 
or local level. For the most part, these systems 
tend to be centralized, often located in a large 
ministry of culture. These organizations are also 
typically political, as arts personnel are usually 
either members of civil service or political 
appointees from the ruling party. These systems 
provide smooth and stable planning for arts 
organizations, but they run the risk of dividing 
the cultural world into insiders and outsiders. 
The insider institutions tend to be well 
subsidized with large annual grants while the 



outsiders survive on the margins of the culture, 
if they survive at all. 

The subsidies awarded by ministries of 
culture are enormous by American standards. 
For example, the government subvention for 
Italy's major opera houses is nearly ten times 
larger than the annual Arts Endowment working 
budget. This support allows major Italian 
companies to present opera at the highest 
artistic standards. And yet, some of these 
lavishly supported houses do not stage a single 
production in some years because of 
organizational problems, labor issues, or 
reconstruction. Government support, therefore, 
does not solve all artistic and organizational 
problems, or guarantee that an institution serves 
its local community. 

In contrast to the European models, the U.S. 
system of arts support is complex, 
decentralized, diverse, and dynamic. It combines 
federal, state, and local government support 
with private subvention from individuals, 
corporations, and foundations, as well as box 
office receipts. The financial statistics differ by 
art form and change from year to year, but in 
2004 about 44 percent of the income generated 
by American arts organizations came from sales 
or the box office. The rest was donated — 
overwhelmingly from the private sector. 

Only about 13 percent of arts support in the 
U.S. came from the government, and only about 
9 percent from the federal government, of which 



NATIONAL ENDOWMENT FOR THE ARTS V 



less than 1 percent came from the National 
Endowment for the Arts. (The figures on 
government support exclude the enormous 
indirect subsidy the federal government 
provides by making cultural contributions tax- 
deductible.) The amount of federal government 
support is miniscule by European standards, 
and yet the American system works. How can 
this be? 

Decentralization and Diversity 

Like most free market or mixed market systems, 
American arts philanthropy is complex precisely 
because it is decentralized and dynamic. Similar 
institutions often have wildly differing results 
because of their locations, artistic talent, cultural 
philosophies, and management. Likewise, the 
dynamic nature of the system means that one 
decades high-flying leader can suffer huge 
reversals in the next — just as in corporate 
America. While no one relishes the ups and 
downs of the cultural economy, it does have the 
healthy effect of keeping artists and institutions 
realistically focused on their goals and 



Jazz at Lincoln Center, featuring the Lincoln Center 
Jazz Orchestra (pictured), the world's largest nonprofit 
jazz organization. 

Photo by Keith Major 




communities. The best institutions make 
themselves irreplaceable in their chosen fields. 

This cultural dynamism also provides new 
groups the chance to grow. Chicago's 
Steppenwolf Theater did not exist 35 years ago. 
Now it is one of the nation's leading theater 
companies. Jazz at Lincoln Center is even more 
recent. Just 20 years old, it has become the 
world's largest nonprofit jazz organization. 
It is worth noting that the NEA played an 
important role in fostering the growth of both 
organizations. 

Some of these new institutions are quite 
amazing. Rimrock Opera of Billings, Montana, 
for example, is the only opera company on the 
750-mile route between Bozeman, Montana, 
and Fargo, North Dakota. Only eight years old, 
Rimrock now not only brings opera to its own 
community but also tours rural Montana and 
Wyoming from Glendive and Miles City to Cody 
and Casper, the sparsely populated high plains 
and mountain territories where the deer and the 
buffalo still roam. These are places where Verdi, 
Puccini, and Donizetti have never before been 
performed. As my Italian grandfather used to say 
in astonishment, "Only in America!" 

If the American arts system is remarkably 
complex, decentralized, and dynamic, it is also 
uniquely effective — producing a cultural 
landscape of enormous size and unmatched 
diversity. No one — not even the NEA — has exact 
statistics on American cultural institutions 
because they change so rapidly, but an expert 
estimate of different fields leads us to some 
astonishing numbers. 

There are now more than 1,500 professional 
theaters, large and small, operating in the 
U.S. There are also more than 1,200 symphony 
orchestras, plus another 600 youth orchestras, 
as well as roughly 120 opera companies. 
Meanwhile, there are approximately 500 writers' 
conferences now offered around the nation. 



Nonprofit organizations such as the Poetry 
Society of America in New York or the Writers 
Place in Kansas City present public readings of 
authors on a regular basis. 

These groups display enormous variety. 
Among the 1,200 symphony orchestras, some 
are huge professional organizations like the 
Boston Symphony that offer year-round concerts 
and international tours. Others are small 
amateur groups like the Cotati Philharmonic (in 
my home county of Sonoma, California) that 
gather to produce a few local performances each 
year. Some orchestras focus exclusively on 
modern and contemporary music. Others cover 
the entire symphonic repertory. Smaller groups 
specialize in Baroque and Renaissance music. 

That diversity, size, and scope is confusing 
to anyone trying to summarize the field, but they 
reflect the vitality of American classical music. 

In such a rich and dynamic artistic culture, 
what meaningful role can the National 
Endowment for the Arts play? The NEAs 2006 
appropriated budget, excluding private 
donations and federal partnerships, was only 
$124 million — of which slightly more than $100 
million was distributed after agency overhead 
was taken into account. In other words, what 
role can be played by an institution that 
provides less than 1 percent of total arts 
funding? This situation is further complicated by 
the NEAs public mandate to support all of the 
arts, as well as arts education, in all 50 states 
and the six U.S. territories. 

Multiplying Effects 

From a European perspective, the NEA would 
seem doomed to perpetual marginality. The 
institution is surely too small and too stretched 
to make a difference. As reasonable as that 
verdict sounds, I would maintain that this 
defeatist perspective is wrong. It 




Chen Shi-Zheng's complete 18-hour production 
of The Peony Pavilion, a 55-scene Kunju opera, 
at the 2004 Spoleto Festival USA. 

Photo by William Struhs 



misunderstands both the nature of the U.S. arts 
world and the Arts Endowment. It also ignores 
the remarkably productive history of the NEA 
and its well-documented, if not equally well- 
known, record of transforming American culture. 
Finally, this perspective reckons NEA 
effectiveness purely in terms of dollars without 
any recognition of how that money is spent. 

The National Endowment for the Arts has a 
proven ability to initiate and sustain powei ml 
trends. During the 1970s and 1980s, under the 
leadership of Nancy Hanks, Livingston Biddle, 
and Frank Hodsoll, the NEA slowly transformed 
American cultural life. It consciously created the 
vast system of regional theaters, opera and 
dance companies, and orchestras that America 
now enjoys. 

During this time, certain laws of what we 
might call American cultural microeconomics 
emerged. In case after case, the NEA learned that 
its grants had a powerful multiplying effect. 
Every dollar that the NEA gave in grants 
typically generated seven to eight times more 
money in terms of matching grants, further 
donations, and earned revenue. A $100,000 
grant, therefore, delivered $800,000 in eventual 
funds to an organization. The reason for this 
multiplying effect is obvious: NEA funding has 
the power to legitimize a new organization 



NATIONAL ENDOWMENT FOR THE ARTS VII 



and further validate an existing one. Such 
endorsements attract further support. As the old 
saying goes, "Nothing succeeds like success." In 
this way, early NEA support helped create major 
ongoing arts organizations as diverse as the 
American Film Institute, the Spoleto Festival 
USA, and the PBS series Great Performances. 

Although the Arts Endowment represents 
less than 1 percent of total arts philanthropy in 
the U.S., it nonetheless remains the largest 
annual funder of the arts nationwide. This fact 
demonstrates the radical decentralization — and 
therefore diversity — of the American system. 
Just because a system is decentralized, however, 
does not mean that it lacks leadership, trends, or 
direction. Consider the stock market, where a 
single company's earning results can trigger a 
rise or fall in overall market results. 

An astonishing amount of the media 
discussion of the NEA overlooks an obvious fact 
about its past, current, and presumably future 
situations — namely that the Arts Endowment 
cannot and has never operated like a centralized 
ministry of culture. It has never possessed the 
resources to impose its will on the American 
arts world. It cannot command or control the 
policies of individual institutions. 

Leadership through Collaboration 

Rather than being disappointed about the lack 
of central control, I consider this realization of 
our limits in purely neutral terms. Objective 
self-assessment is the proper and inevitable 
basis on which any truthful vision of the NEA's 
future must be built. I feel, therefore, absolutely 
no disappointment in the fact that the Arts 
Endowment cannot dictate the terms of 
American culture. That putative weakness is 
actually one of the agency's basic strengths. 
To build on the implied metaphor of 



"dictate," let me offer a more democratic verbal 
formulation of the Arts Endowment's role in 
American culture. The NEA does not dictate arts 
policy to the United States; instead, it enters into 
an ongoing series of conversations about our 
culture, out of which emerge thousands of 
collaborations, large and small, national, 
regional, and local. NEA leadership cannot work 
by centralized fiat. It operates effectively only 
by fostering and sustaining partnership. A 
decentralized and constantly evolving system of 
private and public support for the arts is more 
than just a political practice. It goes to the heart 
of artistic freedom, experimentation, and 
diversity. With resources and funding spread 
across a variety of agencies, foundations, and 
other institutions with different values and goals, 
no single power sets the cultural agenda and no 
single creed or outlook dominates. The result is 
an energetic mix of traditional and experimental 
approaches, Western and non-Western 
inspirations, populist and elitist perspectives, 
folk and fine arts. 

The following report provides a brief but 
comprehensive overview of how the arts are 
funded in the United States. It also addresses the 
role of the National Endowment for the Arts and 
other public agencies in this decentralized and 
protean process. American arts funding is 
complex, with many direct and indirect sources, 
both private and public, playing a part. This 
report attempts to clarify some of those 
relationships. Although the American model may 
be difficult to understand, the extraordinary 
vitality of our artistic culture demonstrates 
that it works remarkably well. 

Dana Gioia 
Chairman 



VIII HOW THE UNITED STATES FUNDS THE ARTS 



I 



OVERVIEW 



The world of arts and culture in the 
United States is extraordinarily 
complex and fertile. Citizens who 
enjoy the arts can choose from a 
wide array of drama, visual art, dance, music, 
and literature available in local theaters, 
museums, libraries, universities, performance 
halls, and nightclubs, as well as on radio and 
television. In the last 20 years, the arts and 
culture sector has boomed as the number of 
performing arts groups and the revenues from 
sales and attendance have risen to all-time high 
levels. 



Three 

Broad 

Categories 

Of U.S. 

Arts 

Funding 




Direct 

appropriations (NEA; state 

or regional or local arts 

agencies) 

2. Other public subsidies for 
arts and culture (direct or 
indirect support by various 
federal agencies; legislation, 
including earmarks) 

3. Private donations 
(individuals; firms; 
foundations) 



Private 

43% 



Contributed Income 

56% 



Public 

13% 



Foundations: 9% 
Corporations: 3% 




Federal: 9% 

Local: 3% 
State: 1 



Individuals: 31% 




Financing 
Nonprofit Arts 
Organizations in 
the U.S. 

Estimates are based on an analysis 
of 2004 data, stemming from 
various sources, including: The 
Urban Institute's National Center 
for Charitable Statistics, The 
Conference Board, The Foundation 
Center, National Assembly of State 
Arts Agencies, and Americans for 
the Arts. 



Earned Income 

44% 



NATIONAL ENDOWMENT FOR THE ARTS 1 




Alaska's Perseverance Theatre's production of 
Macbeth, part of the NEA's Shakespeare in 
American Communities initiative, featured an all- 
Native Alaskan cast and set the play in the 
context of the indigenous Tlingit culture. 

Photo by Eric Torgerson 



To achieve and sustain such prosperity, U.S. 
artists and arts institutions must rely on a 
network of allied but independent funding 
sources. In the following chapters, this 
monograph identifies three basic types of 
financial support for the arts: 1) direct public 
grants awarded by the National Endowment for 
the Arts and by state and local arts agencies; 2) 
arts and culture subsidies from federal agencies 
other than the NEA; and 3) private donations, 



which make up the lion's share of contributed 
income for arts organizations. This third revenue 
stream flows from individual and corporate 
donors and from charity foundations, and it 
flows more smoothly because of incentives in 
the U.S. tax system.* 

Together, these public and private sources 
account for roughly 56 percent of total funding 
of U.S. nonprofit arts organizations. In aggregate, 
nonprofit arts groups realize the other 44 
percent of their revenue through earned income 
(ticket sales, subscriptions, etc.). Earned or 
contributed, both means of income are 
unpredictable. Consequently, arts directors face 
a two-sided challenge. On the one hand, they 
must cope with rising expenditures for artists, 
artworks, productions, and educational projects. 
On the other, they must forecast the revenue 
needed to support their program goals. 

Given this dual responsibility, it is easy to 
understand how, for people outside the 
American art world, the nation's funding system 
might appear labyrinthine in scope. After all, the 
U.S. system is comprised of public and private 
entities, tax policies, legislative allocations, 
donated bequests, restricted endowments, 
education mandates, and social agendas. The 
hierarchy of government agencies, composed of 
city, county, state, regional, and federal strata, is 
itself a dizzying scheme, especially to people 
whose own nations have highly centralized, 
state-directed systems. Small wonder, then, that 
the financial mechanisms of American arts 
policy and practice are poorly understood. 



* The amount of revenue foregone by the U.S. Treasury, as 
a function of tax benefits, constitutes a separate type of arts 
subsidy — this one indirect — from the federal government. 
See Chapter IV. 



2 HOW THE UNITED STATES FUNDS THE ARTS 



II 



DIRECT PUBLIC SUPPORT FOR THE ARTS 



The United States arts system has no 
single benefactor, no overarching 
arbiter or agency, no Ministry of 
Culture. Instead, a variety of public 
subsidies compose roughly 13% of the nation's 
total investment in nonprofit arts groups. The 
National Endowment for the Arts (NEA) is the 
largest single funder of the arts across America, 
but the majority of direct public funding still 
flows from a combination of other federal, state, 
regional and local agencies. 

Direct public support is not used to impose 
arts policy. Instead, government decisions on 
arts funding tend to be driven by experts within 
a given field or discipline. Candidates for those 
funds are almost always subject to rigorous peer 
review, which ensures that the award is based 
on merit, and not on a policy aim or on political 
favoritism. In any case, direct grants never 
finance the bulk of artistic activity in the U.S.; 
they fill gaps, enhance arts education, spread 
new creations, and enable preservation. Direct 
grants thus complement, and do not replace, 
other means of arts funding. Most of the NEA's 
grants, for example, require the recipient 
organization to couple the award funds with 
other, non-federal donations, as will be seen 
from a brief examination of the Arts Endowment. 

A. National Endowment for the Arts 

Established by Congress in 1965 as an 
independent federal agency, the National 
Endowment for the Arts is the designated arts 



organization of the United States government. 
The Arts Endowment is dedicated to supporting 
excellence in the arts — both new and 
established — bringing the arts to all Americans, 
and providing leadership in arts education. It 
awards more than $100 million annually — 
investing in every state and jurisdiction — which 
in turn is estimated to generate more than $700 
million in additional support. The Arts 
Endowment has played a substantial role in the 
development and preservation of folk arts, 
dance, theater, literature, opera, and other arts 
that Americans now enjoy. 

A Peer Review System 

Grant applications submitted to the Arts 
Endowment generally receive three independent 
levels of review. First, the proposals are vetted 
by panels of nationally recognized artists and 
arts experts. Each panel is organized around a 
specific discipline (e.g., Literature, 
Museums/Visual Arts, Dance, Musical Theater, 
Arts Education), and panel members are chosen 
to reflect diversity with respect to artistic 
expression, ethnicity, geography and gender. 

In conducting their reviews of grant 
applications, NEA panelists are bound by 
considerations of the proposal's quality, its 
potential impact, and the ability of the applicant 
to execute the project. Panel members read an 
applicant's proposal well in advance of any 
scheduled meeting; they also review artistic 
work samples such as slides, videos, or CDs. 

The panels rate each project on a scale of 1 



NATIONAL ENDOWMENT FOR THE ARTS 3 



V 



2006 NEA National Heritage Fellows: Treme 
Brass Band from New Orleans, Louisiana. 

Photo by Tom Pich 



NEA NATIONAL HERITAGE 
FELLOWSHIPS 



The Arts Endowment recognizes the 
contributions of outstanding practitioners of 
traditional art forms in the United States 
with NEA National Heritage Fellowships. 
More than 325 exemplary folk and 
traditional artists have been selected for the 
U.S. government's highest cultural honor, 
accompanied by an award of $20,000. The 
NEA National Heritage Fellows represent 
the best achievements of diverse artistic 
traditions across the nation. A partial list of 
award-winners reveals the breadth of the 
program: Native American basket weavers, 
potters and storytellers; African American 
blues, Cajun, Hmong, Sephardic and 
Mariachi musicians; Basque cowboy poets; 
Swedish, Irish, and Appalachian fiddlers; a 
Guamian blacksmith; an Eskimo mask 
maker; a German American Bobbin 
lacemaker; an Arab American oud player; a 
Tibetan sand mandala painter; a Bonsai 
sculptor; African American and Appalachian 
quilters; Lebanese and Puerto Rican musical 
instrument makers; Cambodian traditional 
dancers; Appalachian songwriters; and 
Orthodox Byzantine icon and Santos 
woodcarvers. 



to 10. A computer generates a ranked list of 
grant applicants, which prompts further 
discussion from the panels. Only then do the 
panels recommend applicants deemed worthy 
of NEA support. 

Next, the panel recommendations are 
forwarded to the National Council on the Arts, 
the NEA's advisory body comprised of 14 
renowned artists, distinguished scholars, and 
arts patrons appointed by the President and 
confirmed by the U. S. Senate. Six members of 
Congress serve as ex officio members of the 
National Council on the Arts. The Council 
convenes three times a year to review individual 
panel findings and vote on which proposals 
should be recommended for funding. The 
Council's recommendations are sent to the NEA 
Chairman, who reviews them and makes the 
final decision on all grant awards. In Fiscal Year 
(FY) 2006, the agency awarded 2,292 grants, 
ranging from $5,000 to $1.39 million per grant; 
the most commonly awarded amount was 
$10,000. 



APPLICANT 



PANEL 

REVIEW 

(by discipline) 



NATIONAL 

COUNCIL ON 

THE ARTS 



J 




NEA 
CHAIRMAN 



NEA Grant Review Process 



4 HOW THE UNITED STATES FUNDS THE ARTS 



Types of NEA Funding 

The Chairman of the Arts Endowment, 
appointed by the President with the advice and 
consent of the Senate, serves a four-year term. 
Congressional consideration of the agency's 
annual funding begins each spring when the 
House and Senate Appropriations Committees 
initiate hearings at the subcommittee level — 
specifically, in the two subcommittees 
overseeing the U.S. Department of the Interior 
and "related agencies." In FY 2006, the final 
appropriation for the NEA was $124.4 million, 
of which 81 percent went toward direct grants, 
cooperative agreements, and interagency 
agreements. 

As its primary function, the Arts Endowment 
awards partial funding of projects undertaken by 
nonprofit organizations. The applicant must 
demonstrate that the project's remaining costs 
will be covered by other, non-federal sources. 
(Applicants may request NEA funds to support 
up to half of a project's cost.) The role of 
nonprofits in U.S. arts funding will be discussed 
later in this monograph; in general, support is 
provided to projects that nurture creativity and 
promote accessibility to the arts. For instance, 
the Arts Endowment awards matching grants to 
small presses to help literary works reach 
American readers. Part of the NEA's mission, 
after all, is to ensure availability of the arts 
outside the major cities and to help preserve 
indigenous and regional cultures. 

To advance that aim, the Arts Endowment 
has increasingly teamed with a variety of 
stakeholders to help fund so-called National 
Initiatives, which stimulate community 
investments in programs such as nationwide 
poetry recitation contests, touring Shakespeare 
productions in small and midsized towns, opera 
on military bases, and regional choices of great 
American novels to be read, discussed, and 
celebrated. 




mre Fellowships 
^Literature r 




NEA LITERATURE 

>S AND GRANTS 



The National Endowment for the Arts 
nurtures a multiplicity of literary traditions 
through fellowships to emerging writers and 
incentive grants to nonprofit literary 
magazines and independent and university 
presses to publish, distribute, and promote 
poetry, fiction, translation, and creative 
nonaction by contemporary writers. 

Through the Translation Fellowship program, 
established in 1981, the U.S. government has 
helped support the translation of 246 literary 
works into English, providing access to 
foreign literature not generally available to 
American readers. In Fiscal Years 2005 and 
2006, the NEA program supported the 
translation of writers from Argentina, Chile, 
Cuba, Egypt, France, Germany, Greece, 
Holland, Hungary Iceland, Indonesia, Israel, 
Italy, Libya, Mexico, Peru, Poland, Romania, 
Russia, Spain, and Turkey 



NATIONAL ENDOWMENT FOR THE ARTS 5 



In addition to funding National Initiatives and 
awarding grants to nonprofit arts organizations, 
the NEA bestows non-matching individual 
fellowships in literature and lifetime 
achievement awards in jazz and folk and 
traditional arts. Since 1996, literature fellowships 
and the lifetime achievement awards have 
represented the Endowment's sole means 
of recognizing individual artists through 
financial gifts. 

As a further sign that the Arts Endowment's 
grants portfolio is diversified, it is important to 
note that 40 percent of the agency's funds are 
required by law to go the 50 state arts agencies 
and the six jurisdictions and territories, 
providing indirect support of arts projects in 
thousands of communities nationwide. 




The Texas Commission on the Arts supports projects 
such the Encinal Community Quilts program, 
developed by nonprofit organization Hecho En 
Encinal, an arts education program that uses the 
design of quilts to instill in children an appreciation for 
the heritage and cultural background of South Texas. 
Photo courtesy of Hecho en Encinal 



B. State/Regional Arts Agencies 

The Arts Endowment and the state and regional 
agencies are partners in funding the arts. When 
the Arts Endowment was established in 1965, 
five states had official arts agencies or councils. 
But from the beginning, the Arts Endowment 
supported the development of state arts 
agencies and, by the mid-1970s, gave at least 20 
percent of its program funds to state arts 
agencies and regional arts organizations. The 
potential for grants induced states to set up arts 
programs and councils; it is no coincidence that 
most state arts agencies were founded shortly 
after 1965. 

The New York State Council on the Arts 
(NYSCA) is the largest state agency; its FY 2006 
budget was $45.3 million. New York State had 
arts relief programs during the Great Depression, 
starting as early as 1932. NYSCA was founded in 
1960 and provided an early model for the Arts 
Endowment in terms of its funding patterns and 
system of peer review. 

Those practices, in turn, have influenced 
other state art agencies. For example, all state 
arts agencies convene expert panels to review 
grant proposals and to make recommendations 
to a council, similar to the Arts Endowment's 
system. This council or commission, with 
approximately 15 members, sets funding policy 
for the state. Governors appoint council 
members in a staggered fashion. 

Although most state arts agencies came into 
being in the late 1960s and early 1970s, much of 
their financial growth occurred in the 1980s. In 
1979, the Arts Endowment funds allotted to state 
arts agencies were 80 percent greater than state 
legislative appropriations to those agencies; by 
1989. the reverse was nearly true: state 
appropriations exceeded the Arts Endowment 
funds by 60 percent. 

State arts appropriations are dependent 



6 HOW THE UNITED STATES FUNDS THE ARTS 




Image by SpotCo, courtesy of TCG 



AMERICAN THEATER 



Today, more than 1,500 professional theaters 
across the 50 states offer live performances, 
education and professional training. In 2005, 
American theater gave 70,000 professional 
artists the opportunity to share their creative 
work with more than 32 million audience 
members nationwide. The activities of 
regional and local institutions show that 
development of new theatrical productions 
does not take place only within large 
established theaters in major cities. New 
works are supported through initiatives such 
as the National Endowment for the 
Arts/Theatre Communications Group 
Theater Residency Program for Playwrights, 
which helps playwrights produce new plays 
in small and mid-sized venues. For example, 
playwright Nilo Cruz crafted a new play, 
Anna in the Tropics, at New Theatre in Coral 
Gables, Florida. His play about cigar makers 
in 1929 Tampa whose lives were transformed 
by literature was recognized with a 2003 
Pulitzer Prize for Drama. Anna in the Tropics 
has been presented on Broadway and at 
numerous professional regional theaters 
across the country. 



upon state tax revenues, which are tied to 
the general economic conditions in the state. 
In aggregate, state arts agencies received 
$327.5 million from FY 2006 state legislative 
appropriations. The amount represented more 
than 90 percent of the agencies' total annual 
funding. For the same time period, the Arts 
Endowment's contribution to the agencies was 
$32.9 million, which accounts for the remaining 
10 percent. 

NEA support for state arts agencies is 
allocated through a combination of competitive 
awards and funding that is distributed equally 
to each state and on a per-capita basis. In 
FY 2006, approximately 91 percent of the Arts 
Endowment's contribution to the states was 
driven by a formula — whether funding the states 
in equal proportions, or based on state 
population — and the remaining 9 percent was 
awarded competitively. 

To ensure appropriate use of the state 
agency grants, the Arts Endowment collects an 
18-page narrative from each state arts agency 
every three years. The document addresses 
such topics as planning, evaluation, arts 
education strategies, communications, and 
accessibility. Prior to sending the document to 
the NEA, the state agency is required to hold 
public hearings to elicit arts needs from 
constituents and to allow underserved 
communities to voice their views. 

In contrast to the Arts Endowment's 
spending patterns, state arts agencies tend to 
support smaller and more local organizations, 
and younger, less established artists. State 
agencies support community groups, whereas 
the Arts Endowment typically does not. State 
programs are also more likely to support arts 
applications in the fields of health, penology, 
and gerontology. 

To better leverage their appropriations 
and Arts Endowment grants, several states 



NATIONAL ENDOWMENT FOR THE ARTS 7 



collaborate via six regional arts organizations: 
Arts Midwest, Mid-America Arts Alliance, 
Mid Atlantic Arts Foundation, New England 
Foundation for the Arts, Southern Arts 
Federation, and Western States Arts Federation. 
In 2006, the total budget of these groups was 
$21 million. 

C. Local Arts Agencies 

Individual artists, projects and foundations are 
not the only recipients of state arts agency 
grants. 

Quite often, a state arts agency will award 
funds to local arts agencies for sub-granting to 
other entities. For that matter, sometimes a local 
arts agency is the state's official grantsmaking 
body. Most local arts agencies are privately 
funded; approximately 35 percent are public. 

Perhaps nowhere is the decentralization of 
the U.S. arts funding system better reflected than 
in the range and influence of local arts agencies. 
Currently, there exist about 4,000 local arts 
agencies, either at the city or county level. They 
function as councils or commissions, as centers 
or city departments, and are funded by various 
sources: the National Endowment for the Arts, 
state arts agencies, private donations, or 
municipal budgets. The NEA typically receives 
200 grant applications from local arts agencies 
per year, and in FY 2006 awarded slightly more 
than $1 million to such entities. 

As with state-level grants, local and city-level 
grants have a scattered history. After the 
success of the Chicago World's Fair in 1893, 
many American cities set up art commissions as 
part of their urban planning policies. Often their 
budgets were no more than a few thousand 
dollars, but they had authority to commission 
public improvements and artworks. In some 
cases, these institutions provided independent 
support for the arts, rather than just 



commissioning works for public buildings 
and spaces. 

The first American city to support an art 
collection (later discontinued) was Chicago in 
1914. The following year, Baltimore became the 
first American city to have a municipally 
supported orchestra. The Detroit Museum of Art 
was turned over to the city in 1919, in return for 
a new building. Philadelphia made the first 
American municipal opera grant in 1923. 
Between 1870 and 1910, local and state 
governments accounted for 40 percent of the 
funds available for museum building. By 1930, 
municipalities were spending $2.5 million a year 
on art museums. 

New York City support for the arts dates 
from nineteenth-century commissions of public 
sculptures. In the 1890s, the New York Art 
Commission was founded; its mission was to 
oversee the attractiveness of public buildings 
and parks. The city already had played active 
roles in the Metropolitan Museum of Art, the 
New York Public Library, and the Brooklyn 



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Project Row Houses in Houston, Texas, began with 
seed money from the NEA, attracting local public 
support and private support, including funds from a 
local arts agency: the Cultural Arts Council of Houston. 

Photo courtesy of Project Row Houses 



8 HOW THE UNITED STATES FUNDS THE ARTS 



Museum of Art. These discretionary 
interventions date as far back as the 1860s. 

Urban involvement in the arts grew steadily 
after the Second World War. In the late 1940s, 
three private groups became recognized as the 
nation's first local arts agencies: Colorado's 
Canon City Arts Council, Illinois' Quincy Society 
of Fine Arts, and North Carolina's Winston Salem 
Arts Council. 

Then, in the latter part of the twentieth 
century, many American cities decided to 
expand their presence as regional arts centers 
and magnets for tourists. This tendency gained 
momentum when, in 1974, the NEA invited 
"governmental units, including cities, counties 
and villages" to apply for a grant to participate 
in an American Bicentennial initiative called 
"City Spirit." Gradually, city governments moved 
towards subsidizing a wide variety of artistic 
institutions including museums, art spaces, 
historic buildings and neighborhoods, and 
symphony orchestras. 

The importance of local arts agencies lies 
especially in their ability to provide advocacy 
and support services that artists and 
organizations cannot obtain elsewhere. Thus, 
local arts agencies might host professional 
development workshops for artists, or publish 
Internet- or print-based media announcing arts 
events and opportunities. Alternatively, such 
agencies may coordinate fund drives or box 
office functions. 

A national group representing local arts 
agencies, Americans for the Arts, estimates total 
arts expenditures at the local government level 
at $778 million in 2006. The U.S. Urban Arts 
Federation, which includes only the 50 largest 
local arts agencies, forecasted 2006 expenditures 
of $350 million by its members. The single 
largest urban funder is the New York City 
Department of Cultural Affairs; in 2005 this 
agency funded local arts at a level of $123.3 



million. By contrast, the second largest urban 
funder in 2005 was the San Francisco Arts 
Commission and the city's Grants for the Arts 
program, with combined expenditures of $20.4 
million. 

Overall, the distribution of direct grants by 
numerous public sources — whether by the NEA 
or by state or regional or local arts agencies — 
ensures no single institution is responsible for 
the well-being of a particular art form. Even if 
one program or agency makes bad decisions, its 
impact is limited in size and scope. At the same 
time, the large number of independent programs 
allows for experimentation and learning. Over 
time, the best ideas and practices can spread to 
many different institutions, both private and 
public. 

To be sure, levels of accountability are 
present. Arts programs and agencies are 
accountable for the grants they make. But no 
one holds the Arts Endowment responsible if 
American dance is not very good in a particular 
year. Its mission is to improve our cultural life 
and heritage, not to take responsibility for 
America's entire creative output. 



NATIONAL ENDOWMENT FOR THE ARTS 9 



Ill 



OTHER PUBLIC SUPPORT FOR THE ARTS AND CULTURE 



Independent of the Arts Endowment and its 
state and regional partners, other public 
agencies also support arts and culture. 
Some have the ability to offer direct 
funding to artists and arts-related or cultural 
organizations, but many others specialize in 
producing, archiving, or exhibiting artworks or 
performances for the public's benefit. Because of 
federal sponsorship, those exhibits and 
performances often appear in an array of public 
spaces, including national forests, military bases, 
and government office buildings. 

As if the sources of public arts support were 
not varied enough, there is one more to be 
considered. Here the benefactor is not a 
government agency, but a legislator. The 
method, to be discussed later in this chapter, is 
the time-honored practice of "earmarking" — the 
designation of government funds by a legislator 
for specific arts institutions or projects. 

A. Direct Funding Sources 

Apart from the NEA, there are a few other 
federal agencies and programs whose primary 
mission is to fund nonprofit groups conducting 
artistic or cultural activities. An example is the 
Arts Endowment's sister agency, the National 
Endowment for the Humanities (NEH), which 
promotes and provides funding for scholarly 
research and public programs in history, 
philosophy, literature, religion, ethics, and 
jurisprudence. 

Together with the Library of Congress, the 



2006 Budgets for Selected U.S. Federal 
and Quasi-Governmental Organizations or 
Programs Funding Arts and Culture 
(dollar amounts in milfons) 



Smithsonian Institution* 



$517 



Corporation for Public Broadcasting 



$460 



Institute of Museum and Library Services $247 



National Endowment for the Humanities 



$142 



National Endowment for the Arts 



$124 



National Gallery of Art 



$95 



Department of Interior 
(Save America's Treasures) 



$28 



Kennedy Center for the Performing Arts 



$18 



Department of Education $13 

(Arts in Education Model Development Program) 



National Capital Planning Commission 



$8 



General Services Administration 
(Art-in-Architecture Program) 



$7 



Advisory Council on Historic Preservation 



$5 



Department of State $5 

(Bureau of Education and Cultural Affairs' cultural 
exchanges, presentations, and diplomacy) 

Commission of Fine Arts $2 

* Exclusive of buildings and facilities capital 

NEH funds a National Digital Newspaper 
Program, as well as efforts to preserve old books 
by protecting the paper from deterioration. It 
also funds literary programs for public 
television, makes grants to museums for 
exhibits, supports scholarly seminars for 
teachers, and subsidizes low-price editions of 
American literary classics. Most NEH programs 



10 HOW THE UNITED STATES FUNDS THE ARTS 




The National Gallery of Art is supported by the federal government, but its world-famous collection has 
come from private donations. 

Photo courtesy of the National Gallery of Art 



concern "the humanities" rather than "the arts," 
but the two concepts overlap in literature and 
museum support. 

Indeed, text preservation and museum 
support coincide with the role of another 
agency, the Institute of Museum and Library 
Services (IMLS). Created in 1976 as the Institute 
of Museum Services, IMLS funds institutions as 
varied as museums, zoos, botanical gardens, and 
libraries, and in FY 2006 it operated with a $247 
million budget. Of this total, $36.5 million was 
allocated to museums; most of the remainder 
went to libraries. 

Cultural programming, meanwhile, is made 
available to the American people on public 
television and public radio. The Corporation for 
Public Broadcasting (CPB) supports 
noncommercial radio and television programs. 
The CPB, founded in 1967, is a private nonprofit 
corporation whose board members are chosen 
by Presidential appointment. By law, the 



governing board of 10 may not contain more 
than six members from any single political party. 

CPB provides funds to local public television 
and radio stations as well as to content 
producers and distributors, such as the Public 
Broadcasting Service (PBS), National Public 
Radio (NPR), and Public Radio International 
(PRI). Almost three-quarters of CPB funds are 
given directly to individual local television and 
radio stations, as required by law. More than 
330 local stations carry National Public Radio 
programs on both popular and high culture. 
Each station is locally owned and operated, 
and each makes its own decisions about 
programming. 

As for PBS, an estimated 28 percent of the 
programs deal with culture. The programming 
comes from many different sources, including 
from other countries such as Great Britain. 
Sesame Street, produced by the Sesame 
Workshop (formerly known as the Children's 



NATIONAL ENDOWMENT FOR THE ARTS 11 



Television Workshop), is the best-known 
children's show to have appeared on public 
television. Three large PBS stations — Boston, 
New York, and Washington — produce slightly 
more than half of the programs broadcast 
nationwide, with the remainder being either a 
local product or one imported from abroad. 

The CPB appropriation for FY 2006 was $396 
million. (In addition, CPB received $30 million to 
enable local stations to transition to digital 
broadcasting, and $35 million to pay for a public 
television satellite interconnection system.) Yet 
public broadcasting draws the majority of its 
funding from non-federal sources. In a typical 
year, the federal government supplies only 
approximately 15 percent of the overall funding 
for public broadcasting. State and local 
governments, combined with public universities, 
provide 30 percent or so. The remainder comes 
from viewer memberships and subscriptions, 
and from private corporate and foundation 
support. 

In addition to awarding direct grants and 
contracts, some federal programs offer 
resources or services to arts organizations. For 
example, the Federal Council on the Arts and the 
Humanities — administered by the National 
Endowment for the Arts — oversees the Arts and 
Artifacts Indemnity Program insuring foreign 
objects exhibited in American museums. 

The Indemnity Program was created by 
Congress in 1975 for the purpose of minimizing 
the cost of insuring international exhibitions. 
Since its inception, the program has indemnified 
more than 800 exhibitions, saving U.S. museums 
more than $185 million in insurance premiums. 
The Arts and Artifacts Indemnity Program was 
substantially increased in recent years to 
provide up to $10 billion in total coverage. Risk 
management for this program has been so 
successful that it has never created any costs for 
U.S. taxpayers. 



B. Federal Museums and Theaters 

Still other agencies and programs operate their 
own public libraries, museums, or performing 
arts venues. Some of the more prominent ones 
are listed in this section. 

The Library of Congress and its American 
Folklife Center are active in gathering the 
records of diverse cultures and, through 
technology, providing public access to a growing 
archive of 3 million items ranging from 
photographs and manuscripts to audio 
recordings and moving images. As the country's 
largest archive of ethnographic field recordings, 
it preserves materials from around the world 
that date from the very first sound recordings of 
1880 to the present. The Center is developing an 
ethnographic thesaurus of cultural archives and 
collections worldwide that can eventually link 
and be interrelated via database technology, 
enabling scholars — and the public — access 
throughout the world. 

The Smithsonian Institution runs 15 
museums, maintains research centers, and 
manages the National Zoo. Affiliated with the 
National Gallery of Art, the Smithsonian is an 
independent institution within the federal 
government. A Board of Regents, with members 
drawn from the United States government and 
the citizenry at large, governs the institution. 
Regular appropriations come from Congress, 
and in FY 2006 the Smithsonian's net budget 
authority (excluding capital for buildings and 
facilities) was approximately $517 million. 
Its private endowment, while it fluctuates in 
value, has stood as high as $779 million. 

The Smithsonian includes the Hirshhorn 
Museum (sculpture and modern art), the 
National Portrait Gallery, the National Museum 
of American Art, the Renwick Gallery, and the 
Cooper-Hewitt Museum of Decorative Arts and 
Design. The newest addition to the Smithsonian 



12 HOW THE UNITED STATES FUNDS THE ARTS 



museums is the National Museum of the 
American Indian, which opened in September 
2004. A National Museum of African American 
History and Culture is in development. 

The National Gallery of Art, one of the 
world's premiere art museums, received an 
appropriation of $97 million in 2006 from the U.S. 
Congress. The history of the Gallery exemplifies 
the private/public partnerships that are the 
hallmark of American arts institutions. The 
museum was initially conceived in the 1920s 
when Secretary of the Treasury Andrew Mellon 
envisioned a national art museum in the nation's 
capital. In 1936, Mellon offered to donate his art 
collection to the nation and to personally 
finance the construction of a museum to house 
the collection on public land. 

Shortly afterward, Congress passed 
legislation to establish the National Gallery of 
Art as an independent bureau within the 
Smithsonian Institution. With construction well 
under way in 1939, Samuel Kress added almost 
400 art works to the project, and after the 
National Gallery opened on the National Mall in 
1941, further private giving arrived with the 
Widener, Dale, Rosenwald, and O'Keefe 
donations. 

The Art-in-Architecture program is 
administered by the General Services 
Administration (GSA). This program, originally 
modeled after the New Deal's Treasury 
Department Section of Painting and Sculpture, 
commissions and funds art for public buildings. 
In 2006, the program had 85 projects in progress 
with a collective budget of $7 million. The 
program has completed 313 commissions since 
its inception in the early 1970s. Since 1979, 
GSA has spent one-half of one percent of 
construction costs for federal buildings on 
artwork, which then becomes property of the 
federal government. 

The John F. Kennedy Center for the 



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STIVAL 



For the past 40 years on the National Mall, the 
Smithsonian Institution has celebrated the 
world's cultural traditions with a public arts 
festival. An estimated one million people 
attend each year. More than 18,000 musicians, 
performers, artists, craftspeople, and 
storytellers have participated. In 2006, Alberta 
became the first Canadian province to be 
showcased at the Smithsonian Folklife Festival. 
Topics and presentations ranged from cold- 
weather adaptation and mountain culture to 
the Royal Canadian Mounted Police; oral 
histories, acoustic roots music, and Canadian 
cuisine also were in abundance. Another theme 
of the 2006 festival was "Carriers of Culture," 
exhibits and activities related to the Native 
basket tradition of North America and Hawaii. 
Meanwhile, concert performances highlighted 
Latin-American musical traditions and the jazz 
and blues rhythms of New Orleans. 
The annual two-week festival receives public, 
foundation, and corporate support. The 
Smithsonian event is one of hundreds of 
heritage events and festivals— such as mariachi 
festivals, exhibits of Native American art, 
African dance and music performances, and 
Chinese instrument youth orchestras— that take 
place every year and are made possible with 
federal and state government grants. 



1990 NEA National Heritage Fellow Nati Cano 
and his band Mariachi Los Camperos performing at 
the 2004 Smithsonian Folklife Festival. 

Photo by Jim Saah 





OWMENT FOR 
THE HUMANITIES 



Toward the end of 2006, NEH Chairman Bruce 
Cole announced a new category of grants that 
will offer up to $1 million for the implementation 
of major traveling exhibits in the humanities. 
The initiative would support "compelling 
presentations of significant topics in history, art 
history, archaeology," and other disciplines to 
"reach the largest possible audiences," 
Chairman Cole explained. 

NEH funds additional outreach measures 
through We the People, which President 
George W. Bush launched on Constitution Day 
2002. Under this initiative, the NEH awards 
grants to state humanities councils in support 
of a range of public programming activities, 
including teacher seminars and institutes, 
lectures, student essay contests, reading and 
discussion groups, and radio or television 
broadcasts. As suggested by the initiative's 
title— taken from the opening words of the U.S. 
Constitution— We the People grants are 
devoted to engaging the American public on 
significant events and themes from the nation's 
history, 

State humanities councils have used NEH 
awards to promote dialogues on a diversity of 
cultural and civic topics. In 2006, for example, 
Louisiana's council invited the state's residents 
to consider their experiences with Hurricane 
Katrina through a series of readings, locally 
published articles, and scholarly discussions. 
Texas' humanities council convened teachers in 
the state to examine the role of the U.S. -Mexico 
border in American history. Councils for Idaho 
and Alaska used their awards to explore, 
respectively, the presidency of Abraham Lincoln 
and the transition to U.S. statehood. 



Performing Arts receives a direct appropriation 
from Congress, currently about $18 million, as 
do a few small programs that support the arts in 
the District of Columbia. 

Many national parks house collections of 
artwork and support residency programs for 
artists, under the aegis of the Department of the 
Interior. Approximately 115 million objects, 
including artworks and artifacts, reside in park 
museum collections. In addition, the National 
Park Service collaborates with the Arts 
Endowment, NEH, and IMLS in funding a major 
preservation program, "Save America's 
Treasures," which conserves historic structures 
and collections. For that matter, many large- 
scale "earthworks" sculptures, such as those of 
Christo or Robert Smithson, have been created 
or placed on public lands. The U.S. Department 
of Agriculture's Forest Service also funds 
demonstrations of folk arts and crafts, or 
performing arts activities in many national 
forests. 

Some of the largest government arts 
programs are offered by the military. The budget 
for the military bands alone exceeds $100 million 
dollars annually. The United States Armed 
Services, under the "morale, welfare, and 
recreation" programs, presents regular cultural 
programs for military personnel and their 
families. Libraries and movie showings are 
common. Through community theaters, the U.S. 
Army is responsible for more than 200 
productions annually, and for more than 1,700 
performances of plays and musicals worldwide. 
Such programs have a significant influence on 
the cultural lives of the 1.4 million Americans 
who serve in the military, and on the lives of 
their families. 

The Army Art Collection, an extensive 
(10,000-plus) holding of paintings, drawings, 
sketches, and watercolors, records the history of 
America at war. The military art held by the 



14 HOW THE UNITED STATES FUNDS THE ARTS 



government includes such notable artists as 
Jacob Lawrence, Reginald Marsh, Horace Pippin, 
and Thomas Hart Benton. 

Working with the Armed Services, the United 
Service Organizations, Inc. (USO) entertains 
soldiers by bringing in movie stars, musicians, 
and other celebrities, especially during wartime. 
For performances, USO relies on volunteer labor 
or pays its performers at reduced rates. During 
World War II, the USO employed 5,424 salaried 
entertainers and had total show attendance of 
172 million. The USO is not part of the federal 
government, but it does receive its charter from 
Congress and relies on the U.S. military and 
private donations for its support. The President 
is typically the Honorary Chairman of the USO 
and formally endorses the agency. The USO 
today has 132 centers around the world that are 
visited by service members and their families 
more than 5.6 million times a year. 

C. International 

The arts also receive support from the U.S. 
foreign affairs agencies, with diplomacy 
programs sponsoring the presentation of 
American arts abroad. 

During the Cold War, politicians supported 
the performance of American artists abroad as a 
counter to Soviet communism. The Smith-Mundt 
Act of 1948 called for the spread of information 
abroad about American culture and government. 
The Office of International Information and 
Educational Exchange (OIE) and the United 
States Information Service (USIS) were both 
created at this time. The Voice of America (VOA) 
transmitted radio programs, often of a cultural 
nature, as did Radio Free Europe and Radio 
Liberty. 

In 1953, the United States Information 
Agency (USIA) was created to spread a favorable 
American image around the world. USIA 




Mayor Joseph Riley with participating Mississippi 
mayors at a November 14, 2005, press conference 
for a special Mayor's Institute on City Design 
meeting to discuss damage caused by Hurricane 
Katrina. 

Photo by Aaron Koch 



AYORS' INSTITUTE ON 
ITY DESIGN 



The National Endowment for the Arts, in 
partnership with the American Architectural 
Foundation and the U.S. Conference of 
Mayors, conducts regular workshops for 
mayors to collaborate with design 
professionals on solutions to the design and 
environmental challenges of America's 
cities. Participation is limited to 20 persons, 
half mayors and half designers. At the 
meetings, mayors present their specific 
design issues, such as waterfront 
redevelopment and downtown 
revitalization, and designers help them draft 
solutions. Over the last 20 years, more than 
700 mayors and 450 design professionals 
have participated in the Institute, which has 
been honored with the Presidential Award 
for Design Excellence, the Progressive 
Architecture Award from Architecture 
Magazine, and an Institute Honor Award 
from the American Institute of Architects. 



NATIONAL ENDOWMENT FOR THE ARTS 15 



ULTURAL INITIATIVE 



The NEA is working with the U.S. Department 
of State on two projects that bring high-quality 
art from other countries to the United States 
public. A partnership with the nonprofit 
organization American Film Institute— including 
the National Endowment for the Humanities, 
the Institute of Museum and Library Services, 
and the President's Committee on the Arts and 
the Humanities— has created an international 
filmmaker and film exchange called AFI Project: 
20/20. This project brings together American 
and foreign filmmakers to share their films, 
fostering cross-cultural understanding and 
respect while nurturing filmmaking excellence. 
The first program took place in November 
2006 at the AFI FEST in Los Angeles, 
California, featuring films from Canada, China, 
Egypt, India, Iran, Israel, Japan, Nigeria, 
Pakistan, Rwanda, South Africa, the United 
Kingdom, the United States, and Venezuela. 

The NEA is also involved in an International 
Literary Exchanges project with the State 
Department. Building on the Arts Endowment's 
successful poetry anthology project with 
Mexico, International Literary Exchanges are 
designed to initiate literary translation projects 
between the United States and other countries, 
providing American readers access to literary 
works by contemporary foreign writers. At the 
same time, International Literary Exchanges 
provide foreign readers access to works by 
acclaimed American writers. The projects will 
be either publication of dual anthologies or 
specific translation projects. The NEA will work 
with literary and governmental organizations to 
complete the projects, currently in 
development with Pakistan, Russia, Mexico, 
Greece, and Spain. All literary exchange 
projects will focus on works by living writers. 




NEA Jazz Master Dave Brubeck 

participated in U.S. State 

Department tours to the Soviet 

Union, Poland, the Middle East, 

and South Asia in the 1950s and 

1960s. 

Photo by Tom Pich 



programs sent leading American orchestras, 
singers, jazz and folk musicians, musical shows, 
and instrumentalists on tours of the world. Jazz, 
modern dance, and avant-garde theater 
benefited in particular from federal patronage. 
The performers received financial support and a 
new air of legitimacy, and gained popularity with 
new audiences worldwide. Following the 
conclusion of the Cold War, USIA closed and 
some of its programs became the responsibility 
of the State Department. 

The State Department administers several 
cultural exchanges, cultural presentations, and 
diplomacy initiatives that include performances 
by U.S. artists abroad. In FY 2006, the 
Department spent $5.15 million on such 
programs. Cultural broadcasts continue through 
the Voice of America, Radio and Television 
Marti (aimed at Cuba), and World Net. Cultural 
diplomacy is now increasingly conducted in 
the Middle East. 

For many years, the National Endowment for 
the Arts has supported international exchanges 



16 HOW THE UNITED STATES FUNDS THE ARTS 



through such programs as the U.S./Japan 
Creative Artists' Program and ArtsLink, an 
exchange program with Central and Eastern 
Europe, Russia, and the Baltics. The NEA has 
also initiated cultural exchange programs that 
support American artists performing in 
European festivals and has expanded the Open 
World program that brings Russian artists, arts 
journalists, and arts administrators to the 
United States. 

Federal funding for cultural exchange 
programs has more than tripled since 2001. In 
September 2006, First Lady Laura Bush 
announced the "Global Cultural Initiative," 
coordinated by the State Department with the 
NEA and other entities, to "emphasize the 
importance of the arts as a platform for 
international engagement and dialogue." 

D. Legislative Earmarks 

All of the agencies in this chapter, and some 
of the programs, receive their appropriations 
directly from Congress. Those funding decisions 
are based on requests put forward by the 
executive branch of the U.S. federal government. 
In certain cases, however, a legislator may 
choose a different process. 

Strictly speaking, an "earmark" refers to any 
amount or percentage designated by federal or 
state appropriations. More often, the term 
indicates a special financial provision that a 
lawmaker has had written into a government 
spending bill, with the intent of supporting a 
particular project or institution. This strategy 
allows lawmakers — who reside in the legislative 
branch of the government — to guarantee direct 
funding to an entity. This funding is designated 
as a "line item" of the appropriations bill, and, 
therefore, is not subject to agency review within 
the executive branch. 

In FY 2006, 128 line items appeared in 



legislative appropriations to state arts agencies. 
Those set-asides totaled $37 million, according 
to the National Assembly of State Arts Agencies 
(NASAA), and ranged from $500 to $4.9 million. 
(The median line item was $67,500.) NASAA 
says the line items "represented about 1 1 
percent of aggregate appropriations" to all 
state arts agencies, "but nearly 18 percent of 
appropriations for the 18 agencies that received 
them." 

NASAA further estimates that more than 
half of all state arts agency dollars earmarked in 
FY 2006 appropriations went to entities in 
Illinois, New Jersey and Puerto Rico. In 
Virginia — to take one example — the Art Museum 
of Western Virginia, the Sandler Center for the 
Performing Arts, and the Wolf Trap Foundation 
for the Performing Arts received earmarks of 
$1.75 million, $1.46 million, and $1.25 million, 
respectively. Museums are not the only 
beneficiaries of arts-related earmarks; so are 
theaters, concert halls, symphonies, and opera 
houses. 

In contrast to state earmarking strategies, 
the federal process has proved more difficult 
to track. There is no complete or even 
comprehensive accounting of total federal 
earmarks. Still, reviewing legislative 
appropriations for FY 2005, the association 
Americans for the Arts identified more than 
$180 million in earmarks devoted to cultural 
organizations. Historically, budgets for 
government bodies such as the Department of 
Education, the Institute of Museum and Library 
Services, the Department of Housing and Urban 
Development, and the Department of the Interior 
have provided lawmakers with vehicles for 
awarding funds to constituent arts and culture 
organizations. Of late, however, the use of 
earmarks has been questioned as a budgetary 
tool, and is receiving greater scrutiny. 



NATIONAL ENDOWMENT FOR THE ARTS 17 



IV. 



PRIVATE GIVING AND TAX INCENTIVES 



When an individual or 
corporation donates to the 
arts, there are often two 
distinct acts of charity 
involved. First there is the donor's financial gift. 
If the recipient is a tax-exempt nonprofit group, 
however, one should consider — as a separate 
gift — the amount of additional revenue foregone 
by the U.S. government. This secondary benefit 
is realized as a tax deduction for the donor, and, 
along with the yearly tax payments waived for 
the nonprofits themselves, it represents the 
most significant form of arts support in the 
United States. As a term, "tax incentive" is 
singularly appropriate; for every dollar the U.S. 
Treasury foregoes per tax deduction, donors are 
motivated to give private nonprofits an 
additional donation in the range of 90 cents to 
$1.40, according to recent estimates. 

A. Individual and Foundation Giving 

Americans donated approximately $13.5 billion 
to the category "Arts, Culture, and the 
Humanities" in 2005, the most recent year for 
which such data are available. In per capita 
terms, the total amounts to about $45 for each 
individual in the United States. Individual donors 
account for about three-quarters of the total, 
with foundations and corporations providing 
the balance. 

Since 1917, any donation to a tax-exempt 
nonprofit organization has qualified as a potential 
deduction for the tax-paying donor. It is required 



only that the taxpayer itemize his or her 
deductions, rather than take the standard 
deduction allowed by law. Today about 60 
percent of American taxpayers — most of all 
homeowners and the wealthy — itemize their tax 
deductions. For these individuals, the donation of 
a dollar to a nonprofit institution reduces taxes 
between 28 and 40 cents per dollar, depending on 
the individual's tax position. The tax incentive 
therefore applies to most giving to the arts. The 
estate tax provides further incentive to donate 
wealth rather than pass it along to heirs. 

Donations to other tax-exempt, nonprofit 
institutions — such as charities and churches — 
are also deductible. The U.S. tax system thus 
favors decentralization of nonprofit activities, 
rather than any particular conception of art, or 
even any particular conception of what a 
nonprofit should do. Nonprofits with artistic 
programs may serve as talent spotters, direct 
producers of creative outputs, donors, 
marketers, educators, event organizers, or 
preservers of the past. Many nonprofits are 
small and informal, such as volunteer 
community groups. 

More than 1.7 million nonprofit groups are 
registered with the U.S. Internal Revenue 
Service. They are the engines of philanthropy, 
both as donors and recipients. To claim tax- 
exempt status under the U.S. tax code, 
nonprofits must fit one of the following 
descriptions: "charitable, religious, educational, 
scientific, literary, testing for public safety, 
fostering national or international amateur 



18 HOW THE UNITED STATES FUNDS THE ARTS 




Symphony orchestras, such as the Seattle Symphony conducted by Gerard Schwarz (pictured), 
combine public support with private donations and earned income to cover the costs of producing 
a season of music. 

Photo courtesy of HD Video/KCTS Television/Seattle 



sports competition, and the prevention of 
cruelty to children or animals." They cannot 
serve private interests, and are restricted in 
their amount of political lobbying. Because by 
definition they cannot operate for profit, such 
groups often devote considerable time and 
resources to fundraising. 

Indeed, donations of volunteer time — equal 
in scope to 390,000 full-time volunteers — are a 
large part of philanthropy in the United States. 
As of the early 1990s, the average time donor 
had an income of more than $56,000. The 
implicit dollar value of these time donations 
thus stands above $20 billion, with some 
estimates going as high as $25 billion. 

Otherwise, cash donations fund American 
nonprofits to a considerable degree. Museums, 
symphony orchestras, opera companies, and 
other cultural organizations reap only part of 
their overall revenues from ticket or entrance 
fees. Many of America's leading institutions 
would not exist if private citizens had not 
bequeathed their holdings and invested their 
resources. 



Consider some broad estimates for American 
symphony orchestras. According to one set of 
figures, 39 percent of their income comes from 
private donations and 12 percent from 
endowments and related sources. Concert 
income generates 36 percent of revenue and 
other earned income provides 9 percent. Direct 
government support represents only 4 percent 
of revenue. 

For purposes of contrast, a theater or 
orchestra in Germany will likely receive 80 
percent or more of its budget from direct 
governmental support. In France and Italy, 
government support at various levels accounts 
for almost all of the funding for a typical 
museum. Even the Louvre, which was asked to 
find private funding as of 1993, raises less than 
half of its operating budget. 

In the United States, however, direct 
government support accounts, on average, for 
13 percent of the total budget of nonprofit arts 
organizations. 

Individual private philanthropy to the arts is 
rare in most European nations. If we look at 



NATIONAL ENDOWMENT FOR THE ARTS 19 



individual donors, Americans give almost 10 
times more to nonprofits on a per capita basis 
than do their French counterparts. This dramatic 
difference reflects distinctly American social and 
cultural traditions, which have become 
institutionalized in public tax codes. Historically, 
European governments have not offered 
comparable tax benefits to their arts, although 
the trend is toward offering more benefits. 

Some European countries, such as France 
and Italy, have a few private foundations, but 
legal restrictions and unfavorable tax treatment 
tend to make these organizational forms very 
costly. Often it is Americans who serve as the 
leading donors to some European arts 
institutions. In the mid-1980s, J. Paul Getty 
donated $62.5 million to the National Gallery in 
London, the largest donation the institution has 
received. The Tate has raised significant 
American funds as well. To capture such 
donations, many British nonprofits now have 
American affiliates with tax-exempt status in 
the U.S. 

In the United States, American foundations 
are significant in their size and scope. Recent 
estimates put foundation assets at around $400 
billion. Furthermore, the flow of new money into 
foundations is ongoing. From 1981 to 1999, 84.5 
percent of the increase in foundation assets 
(which rose almost threefold over that period) 
came from new donations and the creation of 
new foundations, rather than from returns on 
existing foundation assets. 

The foundation sector consists of more than 
just a few major institutions. A 2004 estimate has 
the top 25 institutions accounting for roughly 40 
percent of foundation arts funding; the rest 
comes from widely scattered sources. The Ford 
Foundation is the largest in terms of assets; in 
2004, its $10.7 billion endowment generated 
more than $52.7 million for the arts, culture, and 
the humanities. Ranked by amount donated, 



however, the American Art Foundation, Inc., in 
New York was the top arts foundation of 2004, 
giving $193 million to this category. 

The Ford, Carnegie, and Mellon Foundations, 
among many others, have supported a wide 
variety of high culture enterprises, most of all 
museums, orchestras, and libraries. The Ford 
and Rockefeller Foundations have also 
recognized less mainstream art forms, such as 
modern dance, Beat poetry, and Latino music. 

In addition to these larger entities, small 
private or family foundations also give 
significant amounts to the arts. The legal and 
institutional environment of the United States 
supports the number and diversity of these 
foundations. Some institutions, such as the 
Bradley Foundation, foster traditionalist 
projects; others such as the Dia Art Foundation 
specialize in supporting the avant-garde. It can 
be worthwhile to start a foundation for sums 
smaller than a million dollars. 

Particular kinds of foundations offer specific 
or targeted advantages. Legacy foundations allow 
an individual to make a gift during his or her 
lifetime and receive a tax deduction in the 
current year. The gift is not passed along until the 
individual dies; in the meantime the individual 
can receive income from the gift assets. Family 
foundations allow the board of directors to be 
comprised of family members only. 

B. Corporate Giving 

Corporate giving also is more decentralized than 
is commonly believed. Three-quarters of arts 
spending comes from smaller companies with 
revenues of less than $50 million. Ninety percent 
of that money goes to local arts organizations. 
Data from 2003 show that 36 percent of all 
businesses surveyed gave money to the arts, and 
that businesses devoted an average of 19 percent 
of their philanthropic budgets to the arts. 



20 HOW THE UNITED STATES FUNDS THE ARTS 



Corporate giving, like private and foundation 
giving, has been influenced by public policy 
decisions. Corporations have received tax 
breaks for supporting the arts since 1936. As 
with individuals, corporations give more to the 
arts when they receive tax benefits for doing so. 
Many of the tax benefits for the arts are 
piecemeal in nature; they are not easily 
measured in the aggregate. For instance, artistic 
institutions benefit from local tax breaks and 
legal provisions, often under the guise of urban 
renewal. Skillful artistic entrepreneurs can put 
together packages of direct and indirect 
subsidies, drawing on a wide variety of sources. 

Consider one example. The Minneapolis 
Artspace organization wanted to renovate a 
decrepit warehouse and turn it into artists' 
apartments and studios. The organization 



started by going to the State Housing Finance 
Agency and applying for Low Income Tax Credits 
available for renovation projects. These credits 
are paid for by the federal government but 
allocated through state governments. 

The project had an estimated value of $20 
million, which meant that the available tax credit 
was about $900,000 per year. This sum is paid 
out yearly for 10 years, or $9 million in total. The 
Artspace used these tax credits to get a bank 
loan of $7 million, and then set up a corporate 
partnership, in essence "selling" the tax credits 
to the corporate partner for cash. 

Artspace also financed 20 percent of the $20 
million cost from the Historic Tax Credits 
available through the Department of the Interior, 
again "selling" these tax credits for 93 cents on 
the dollar. Of the $20 million total, $11 million 



Potter Brad Henry is a resident of St. Paul, Minnesota's Northern Warehouse Artists' Cooperative, 
a former warehouse turned into artists' studios by Minneapolis's Artspace. 

Photo by Jeffrey Hanson 



«! 




was now in hand, and construction could begin. 
County and state tax programs served to 
complete financing, and the remainder was 
raised from private foundations, again with an 
implicit tax break for the donations. Other 
inventive designs for supporting the arts will 
surely follow in the coming years. 

A particularly novel approach is that of 
the Arts Council Silicon Valley. The Council 
recognizes that organizations must work 
within an environment that provides financial 
incentives for businesses to donate to the arts. 
So, it has devised inventive programs for 
employers and corporations to create efficient 
donation strategies beneficial to their portfolios. 

C. Universities 

As in many other nations, universities are 
significant conduits for government support of 
the arts. By subsidizing universities, federal and 
state governments provide employment for 
painters, writers, musicians, and other creative 
artists. 

In the world of classical music, almost every 
composer serves as a "guest composer" at a 
university for some period of time. Many 
composers teach as full-time faculty and 
collaborate with campus-based musicians to 
premiere new music. Professional performing 
groups, such as the Cypress String Quartet at 
San Jose State University in California, use 
academic residencies as a base for regional and 
national touring. 

Many universities periodically commission 
new artworks. Creative writing programs, often 
at state or state-subsidized universities, train 
American writers and help them connect with 
publishing houses. Hollywood relies on film 
schools, including the film school at UCLA — a 
state university — to educate and recruit future 
directors. Much of the American avant-garde 



theater is based in drama workshops at colleges 
and universities. Architects look to universities 
for their basic training, as do many individuals in 
music technology and production. Universities 
also subsidize literary magazines. 

University presses publish many works, 
including fiction, which commercial houses 
reject. Some of these books have won significant 
honors. John Kennedy Toole's A Confederacy 
of Dunces was picked up by Louisiana State 
University Press after being rejected by 
numerous commercial publishers. The book 
won a Pulitzer Prize and is now considered a 
classic. American colleges and universities 
operate more than 700 art museums. College 
radio stations and the college tour circuit are 
critical to the success of independent rock 
bands and do much to foster musical diversity. 

D. How Nonprofit and For-Profit 
Sectors Interact 

Although America started from an 
underdeveloped cultural base in the eighteenth 
century, it has become an acknowledged leader 
in abstract art, contemporary classical 
composition, modernist fiction and poetry, 
theater, jazz, and modern dance, to name just a 
few fields. Artistic nonprofits and the American 
tax system have supported each of these 
endeavors. 

That being said, subsidies to artistic 
nonprofits benefit for-profit enterprises as well. 
Too frequently, commentators paint a picture of 
one subsidized cultural sector and another 
entrepreneurial cultural sector. In reality, popular 
culture often draws upon nonprofit culture for its 
"research and development" efforts (and, to some 
extent, vice versa). Indirect subsidies to the arts 
have made American popular culture much 
stronger. Hollywood, for instance, draws on 
stories and ideas produced by the nonprofit 



22 HOW THE UNITED STATES FUNDS THE ARTS 




The Repertory Theatre of St. Louis' 1991 production of 
Alfred Uhry's Driving Miss Daisy, starring Darrie 
Lawrence and William Hall, Jr. 

Photo by Judy Andrews, courtesy of Repertory Theatre of St. Louis 



sector. Driving Miss Daisy, The Gin Game, On 
Golden Pond, Children of a Lesser God, Glengarry 
Glen Ross, and Prelude to a Kiss all started as 
nonprofit theater. Over a recent 20-year period, 
44 percent of the new plays produced on for- 
profit Broadway originated in the nonprofit sector. 

The literary world blurs the nonprofit and 
for-profit sectors as well. Public libraries and 
university libraries put books in the hands of 
readers and boost the reputations of commercial 
authors. Libraries also provide a steady demand 
for low-selling works. This makes it easier for 
authors to market their ideas to publishers, 
provides modest royalty support, and gives 
authors a chance to find a larger reading 
audience. 

Conclusion 

American arts funding is a complex and 
evolving system of entrepreneurial initiatives, 
philanthropic foundations, and government 
agencies. The public and private aspects of 



support are ever in flux, and the mechanisms 
of delivery mingle the best of charitable giving 
with entrepreneurial ingenuity. Funding goes to 
artists, museums, theaters, orchestras, schools, 
presses, community centers, cities, and states, 
and the purpose of funding ranges from the 
creation of new art to the preservation of the 
old, from teaching children basic skills to 
providing master artists with needed resources. 

The funding network is diverse and 
perplexing, to be sure, and sometimes arts 
organizations do not survive the vicissitudes 
of the economy But, simultaneously, the 
flexibility of the American system may rightly 
be credited with fostering the substantial rise 
in art making and arts participation that we 
have seen in the last 40 years. New arts 
organizations are constantly emerging — 
bringing new styles and perspectives to 
cultural life. No single agency or individual 
can set an artistic agenda for the nation; the 
contrasting values and tastes of different 
funders ensure a rich diversity of art works, 
tax incentives promote innovative methods of 
private support; and decentralization helps 
regional heritages and local communities 
retain their integrity 

What we see today is the spirit of American 
enterprise — in the past so successfully applied 
to commerce, technology, and politics — 
increasingly applied to the art world. In its 
comparatively short existence in the life of 
civilizations, the United States has produced a 
grand legacy of lasting cultural achievements, 
and leaders are fast recognizing the centrality 
of artistic expression to a healthy society. "A 
great nation deserves great art" is the motto of 
the National Endowment for the Arts. The 
American system of free enterprise, coupled 
with public support, is a proven means of 
fulfilling it. 



NATIONAL ENDOWMENT FOR THE ARTS 23 



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24 HOW THE UNITED STATES FUNDS THE ARTS 



A Great Nation Deserves Great Art. 



NATIONAL 
ENDOWMENT 
FOR THE ARTS 



1100 Pennsylvania Avenue, N.W. 

Washington, D.C. 20506-0001 

202-682-5400