Understanding the Arts and Culture Program’s
Facility Investments and Building Reserves
Grant Opportunity
October 2011
Agenda
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About The Kresge Foundation
Institutional Capitalization Goals
Capitalization
Preliminary Application
The Kresge Foundation
• The Kresge Foundation is a $3.1 billion private, national
foundation that seeks to influence the quality of life for future
generations through its support of nonprofit organizations
• The Foundation works in seven program areas:
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Arts and Culture
Community Development
Detroit
Education
Environment
Health
Human Services
The Arts and Culture Program
• The Kresge Foundation’s Arts and Culture Program seeks
to build vibrant communities enlivened by the presence of
healthy arts and cultural organizations, creative and wellsupported artists, and well-integrated arts and communitybuilding efforts
• The Arts and Culture Program is focused in three areas:
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Institutional Capitalization
Artists’ Support Services
Arts and Community Building
• This slide presentation addresses the Facility Investments
and Building Reserves grant opportunity within the
Institutional Capitalization Focus Area
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Institutional Capitalization Goals
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About Institutional Capitalization
• Through the Institutional Capitalization focus area, Kresge
expects to see:
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A shared understanding of basic definitions, principles and practices of capitalization
The adoption of capitalization best practices among organizations
Better capitalized arts and cultural institutions that are stronger and whose
business models are more sustainable, where appropriate
Arts and cultural institutions that are well positioned to produce high quality,
impactful, innovative and relevant artistic product
• This focus area provides support in four areas:
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Field-wide efforts to promote and adopt capitalization principles
Facility Investments and Building Reserves
Sector Leaders
Strengthening Arts Facilities Effectively (SAFE)
About Facility Investments and Building
Reserves
Why facility investments and building reserves?
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The Arts and Culture Team’s Institutional Capitalization focus area uses
facilities and building reserves as an entree to help organizations examine
their level of comprehensive capitalization
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While this grant opportunity places an emphasis on facility investments and
building reserves, it is truly about comprehensive organizational
capitalization
Capitalization
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What is Capitalization?
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Capitalization is the accumulation and application of resources (operating and
working capital, operating reserve, risk capital, endowment and building reserve) to
support achievement of an organization’s mission over time.
Elements Needed by All
Risk Capital
Design, test,
and refine
effective
programs
Operating and
Working Capital
Deliver high
quality and
effective
programs
Maintain
adequate
supportive
infrastructure
Needed by Some
Operating
Reserve
Ensure
appropriate
longevity of
programs
Endowment
Building
Reserve
Steward necessary fixed assets
and collections
Source: TDC
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Why Does Capitalization Matter?
• Without adequate capitalization, your mission is at risk.
Capital
Fund
Inadequate
Risk Capital
Passing up new
program ideas.
Warning
Signs
Underlying
Risk
Inadequate
cash flow to
handle
expansion.
Inability to
innovate or
realize benefits
from innovation.
Inadequate
Operating and
Working Capital
Inadequate
Operating
Reserve
Borrowing from
advance ticket
sales.
Making payroll
is an adventure.
Permanently
drained lines of
credit.
Collections
calls.
Inability to
spend adequate
resources to
create quality
programs.
Inability to
attract talent or
maintain quality
partners and
vendors.
Inadequate
Endowment
Inadequate
Building Reserve
Chronic deficits
are covered by
endowment and
reserve draws
with no way to
replenish.
Roof has been
leaking for past
18 months.
Inability to
weather risks,
and/or inability
to deliver quality
product over
time.
Collections are
crumbling.
Inability to
steward fixed
assets or
collections.
Source: TDC
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How Well Are You Capitalized Now?
• Capitalization is embodied in the balance sheet
• The balance sheet records an organization’s accumulated
financial performance over time
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The Income Statement (the Statement of Activities) shows only one year’s
revenue and expenses
• The balance sheet also demonstrates the strength and
availability of an organization’s asset base to support its
future
• Finally, the balance sheet shows an organization’s degree of
liquidity
Source: TDC
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Unpacking the Balance Sheet
• What are we looking for in your balance sheet?
Elements of Capitalization
Operating
and Working
Capital
Operating
Reserve
Building
Reserve
Risk Capital
Total Assets
Payables
Deferred
Revenue
Debt
Net Assets
Requires Liquidity
Income Statement Balance Sheet
Revenue
Cash/Investments
Expenses
Receivables
Fixed Assets
Net Income
Endowment
Total Liabilities and
Net Assets
Source: TDC
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What Are We Looking For in a
Capitalization Strategy?
• There are no cookie cutter answers
• A capitalization strategy looks at four distinct pieces:
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Mission and vision
Business model drivers
Time horizon
Marketplace
• With this in mind, the strategy determines the types of
funds required
• It then articulates the necessary size of the funds, the
timing of the need, and the method for obtaining the
required resources
Source: TDC
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What Are Your Business Model Drivers?
Audience
Audience + facility
Audience + high fixed costs
Fixed
costs
Audience + facility + high fixed costs
High flexibility
Low capital intensity
Fixed
costs
Low flexibility
High capital intensity
Source: TDC
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What is Your Time Horizon?
Immediate
(Individual View)
Medium Term
(Organizational View)
Artistic expression
fulfills established
brand identity
Highly specific
artistic expression –
often focused on a
particular artist
Rented or borrowed
facilities
Fixed
costs
Highly flexible with
limited fixed costs
Long Term
(Institutional View)
Obligation to persist as
civic anchor or longterm stewardship of
collection or art form
Facility ownership
may or may not be
supportable
Fixed
costs
• Higher risk tolerance may be appropriate
• Requires coverage of basic needs – working
capital, risk capital, and operating reserves.
Fixed costs must be
tightly controlled
Facility ownership
often necessary
Fixed
costs
Fixed costs
extensive and
multi-faceted
• Level of obligations call for low risk tolerance
• Requires larger scale of basics and, often, plant
reserves and endowment to meet all obligations.
Source: TDC
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Importance of the Marketplace
• A thorough understanding of the marketplace tests the
mission and vision and predicts the resources available by
asking:
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Who is the anticipated audience? Is the product or service needed or
wanted in the community? What level of support will they provide?
With whom might the organization be competing locally for audience and
support?
• These questions can only be answered in the context of
the local community and are particularly important during
projected program or facility expansions
Source: TDC
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Resources
• Analyzing the marketplace also helps determine necessary
operating resources for the environment
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With whom is the organization competing for talent and key resources?
How does that impact fixed costs?
What investments are necessary in marketing and development?
• Organizations with facilities must also define long- term
systems replacement needs
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These organizations often operate with a systems replacement plan (SRP),
which articulates anticipated need, but does not address the funding of
those needs.
Source: TDC
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What Are We Looking For in a Strategy?
Time Horizon and Business Model Drivers
Mission/Vision
• Artistic/cultural production
• Theory of change for impact
on audiences and other
beneficiaries
Market
• Customers
• Donors
• Competition
Resources
• Ongoing resources to
sustain operations and a
facility if appropriate
• Human resources
• Key investments
Planning process informed by Mission/Vision, Market, and Resources engages board, staff,
partners, and supporters, and encourages a holistic understanding of the organization.
Integrated Strategy
Programmatic strategy maximizes artistic
Organizational strategy includes adequate
quality and impact
human and other resources for marketing,
development and space
Capitalization strategy articulates size and shape of capital needs grounded in organization’s
inherent business model drivers and strategic goals
Source: TDC
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What Does This Look Like Over Time?
• Once need is defined – prioritize!
Elements of Capitalization
Net Assets
Operating
surplus
Surplus or
non-operating
fundraising
Non-operating
fundraising
Operating
and Working
Capital
Operating
Reserve
Building
Reserve
Risk Capital
Endowment
• The capitalization strategy
identifies the needs and
sources, and prioritizes
among them
• Generating reserves often
implies surpluses. Breakeven budgets do not allow
organizations to implement a
real capitalization strategy
• Preserving the more capitalintensive funds is difficult
without adequate operating
funds
Source: TDC
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300000000000
Preliminary Application
Facility Investments and Building Reserves
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Getting Started
• Read the supporting documents on the Kresge Web site:
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Capitalization Philosophy and Terms
Guide to Strategic Planning
Guide to Building Reserves
Search the Kresge Foundation online library for additional
reference materials.
• Capitalization is a new topic for many, and we believe that
reviewing these materials in their entirety before applying
will help applicants
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Eligibility
• Who is eligible?
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Organizations with arts and culture as the primary purpose of their mission
US-based organizations
501(c)3 organizations not classified as a private foundation
Organizations with facilities that are government-owned, but operated by
separate 501(c)3 organizations
Organizations with audited financial statements
• Who is not eligible?
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Organizations with an active grant from Kresge
Art-focused subsidiaries of larger parent organizations such as universities
or human services agencies
Start-up organizations (less than two years of operational history)
Government-owned and operated entities
Organizations with compilations or reviews, or financial statements
prepared on a cash or modified cash basis
What We Support
• Organizations may apply for two types of grants:
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Facility Investments and Building Reserves
Building Reserves
• If seeking a facility investment, renovation and repair
projects will be prioritized over new construction.
• We do not fund reserves solely for equipment.
• Grant amount will be dependent on the type of project and
the size, scope and business model of the organization.
However, grants will not exceed $1 million and/or a period
of three years.
• Some grants may be awarded on a matching or challenge
basis.
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A Highly Competitive Process
• Spring 2010: 141 preliminary applications; 21 invited full
proposals; nine Facility Investments and Building
Reserves grants
• Fall 2010: 134 preliminary applications; 10 invited full
proposals; five Facility Investments and Building Reserves
grants
• Spring 2011: 152 preliminary applications; 22 invited full
proposals; nine Facility Investments and Building
Reserves grants
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Criteria and Review Process
Step 1: Competitive assessment of preliminary applications
for alignment with the Arts and Culture Program’s values:
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Create opportunity and enhance access to arts and culture through
authentic and relevant programs that exemplify excellence in the field; that
involve people of all social and economic backgrounds; and increase
participation of new and non-traditional audiences.
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Exhibit a high level of community impact through work that contributes to
a vibrant arts and cultural ecosystem and exemplifies excellence in the
field; benefits the broad local community and reflects the diversity of the
community population; advances community building efforts; and embodies
key principles of community planning to enhance quality of life.
Criteria and Review Process
Values continued:
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Stimulate innovation through work that furthers best practices in
the field; uses new and possibly untested approaches; and brings
multi-party, interdisciplinary approaches to problems that defy
solution by a single sector.
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Support institutional transformation and the capacity to
profoundly influence the overall organization and its operations; or
create new business models to strengthen financial stability.
Criteria and Review Process
Step 2: Competitive assessment of the overall quality of the
preliminary application and the strength of the comprehensive
capitalization strategy including:
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Evidence of planning, including but not limited to external market research
and analysis for earned and contributed revenue, benchmarking research,
system replacement strategy
Evidence that the proposed project fits within the larger capitalization
strategy and that it is the next appropriate step in that strategy, and that the
organization understands how the proposed project will impact the future
operating budgets and balance sheet
Evidence of a realistic fundraising plan, if appropriate to the request
Assessment of the liquid unrestricted net assets available for operations
The determination as to whether to request a full application is assessed on
the competitiveness of the overall preliminary application.
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Competitive elements
• Competitive preliminary applications demonstrate the
following:
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Values that are addressed in a detailed way and which align with those of
the Arts and Culture Program
A capitalization strategy that aligns with the organization’s mission and
strategic plan, and which:
• Accurately diagnoses business model drivers
• Defines the needs and plans for each type of fund, and prioritizes
among them
• Includes a strategy to build surpluses and reserves over time
Building reserves strategies based on a realistic plan, accurate data, and
policies which address use, withdrawal and replenishment
Realistic fundraising plans, when appropriate to the request
Evident collaboration among the CEO, CFO and Development staff in
completing the application
Unrestricted Net Asset Tool correctly completed
How to Apply
All Facility Investments and Building Reserves grant
applications must be submitted through our online application
system.
Visit the Facility Investments and Building Reserves page on
the Kresge website and click on “Apply Online” in the Quick
Links section. This will take you to an instruction page and
provide access to the online application.
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Current Preliminary Application Deadline
• Deadline for the Fall 2011 call for applications is Thursday,
March 1, 2012, at 5p.m. Eastern Standard Time.
• This is the final call for applications for this grant opportunity.
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Within 10 weeks of the part-one submission deadline, we will
contact all applicants. At that time, we will invite those with
promising requests to complete the second part of the
application process.
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Final grant-amount decisions will be made after review of the
two-part application and conversations with the potential
grantee. In most cases, awards do not exceed $1 million and
cover a period of up to three years.
www.kresge.org
The Kresge Foundation
3215 W. Big Beaver Road
Troy, Michigan 48084
info@kresge.org
248.643.9630