Memo November 1999

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Memo November 1999

Memo to members of the BO international steering team (8 November, 1999)

Dear Daniela, Dorota, Eva, Katrin, Oskar and Vesna,

We have consulted an expert on web-sites and have concluded that we shall buy and use the Dreamweaver programme for our site. You have a few days only to stop us and advise something different. I hope, within weeks I can ask you to comment and criticise the experimental BO home-page.

Best Practices in Financing Culture
Best Practices are not necessarily Fast Practices. All the same, the first half-complete case description has reached me. I have strong promises that this week all three will be around. Then we can sit to the standardisation of the three case studies. The result, the standard sample profiles will be sent to the two stand-by contributors (Dorota and Olinka). And very soon on the web!

Tax Incentives in East-Central Europe
Work has started on our second project, the one on tax incentives for donors and sponsors to culture. On the basis of a paper received from a legal expert we are working now on the grid to which we shall collect information from all countries in East Central Europe and from a few reference countries from other regions.

I shall send it to you in its raw form to allow for comments. (Especially from Vesna!)

This project, too, has arisen interest. I have received an offer to include it in a new series of Council of Europe publications - now we only have to do the project.

Arm's Length Financing in Culture
The possible scope of our third undertaking is less clear to me than the previous one. It started from a simple question from the Hungarian cultural ministry concerning financing techniques applied in arm's length cultural agencies (arts councils). I would not mind extending it into a broader review of those agencies: is the arm's length principle still on top of the cultural policy agenda in our region?

I annex a lengthy illustration on this to the bottom of this message. In one week our McAfee shield caught two Melissa viruses, therefore I avoid attachments, if possible.

Conference on Culture and Regional Development
Our partners in the preparation of the contents are at the Centre for Regional Studies of the Hungarian Academy of Sciences in the town of Pécs. I hope to come forward with a good programme soon which will be ble to elicit financial support from the European Union. My ambition is to be able to bring you again to Budapest and have a working session on the Observatory.

Annex: Arm's Length Financing in Culture

The structure of the annex:

1. The proposed five questions.

2. The presentation of NKA and the issue of financing mechanism.

3. A few early contacts.

4. Part of NKA's web site.

Draft of the five questions which - if approved by consultants - will be sent to national cultural funds:

1. What percentage of your grants (% of cases and/or amount) is paid in advance?

2. Projects lasting more than a year presumably can get advances for one year only. Or is your practice different?

3. Besides the successful application do you require any further documents from the winners prior to payment? (See the Hungarian practice of collecting certificates from various authorities.)

4. What percentage of your grantees fail to report properly or at all?

5. What is the percentage of grants (% of cases and/or amount) which you record as wasted or lost?

Presentation of NKA and the issue of financing mechanism:

The National Cultural Fund (Nemzeti Kulturális Alapprogram, NKA) is Hungary's arm's length agency for the arts, created by a special Act in 1993. NKA is a „quango" - quasi non-govermental organisation, administering public money. Although the two figures of planned total incomes as well as payments of NKA are year by year included in the national budget, resources do not come from the budget itself. Its revenues are based on a special levy, collected by the tax authorities. The decisions over the use of the resources are made by a 9 member central board and 13 committees or panels. The influence of the minister over the selection of the members of these bodies and over the use of the fonds is actually subject of hot disputes.

The „K" in NKA stands for culture (and not just arts), as it caters for a broader cultural clientele including audiovisual arts, museums, libraries and archives.

NKA provides over 4000 grants a year amounting to nearly 4 billion Hungarian Forints. (Cca 15 million Euros, the average grant is thus less than 4000 Euros.) The grantees are selected by way of open competition from a larger number, applying for an even larger amount of financial support. NKA is „sector blind", namely state institutions compete with non-profit private or municipal associations, foundations, individual artists, even business companies. The main principle („in principle" at least) in the evaluation is the cultural merit of the application.

NKA is not allowed to finance investment and basic overhead. No more than 5% of the grant can cover this latter (wages, rents, bills of services). The largest number of grants go to cultural projects of the „third sector", i.e. civilian initiatives. This consequent orientation of NKA towards „programmes" as opposed to the maintenance of institutions has been the source of tensions right form the beginning. And as the funds of NKA grew, especially the dozen or so central „national" cultural institutions have felt it irritating that the state was not able to provide adequate funds for their safe functioning and were forced to compete for additional sources for each project.

These facts and dilemmas have been described in order to present the background of the issue. For more, see www.nka.hu. or the section called „Range of actions" below, copied from this site. (The English translation is poor, at some points misleading. E.g. the „general education" in the text refers to community culture ranging from choruses to poetry recital competitions.)

The issue which the Budapest Observatory has been asked to „observe" is the mechanism of fund allocation.

The money collected and granted by NKA has so far been at arm's length from the Ministry of Finance, too. This latter now would like to shorten the distance and enter the same regulations for the use of NKA grants which apply to the treasury in general. Namely, that payment should come against submitted invoices, usually weeks after submission. Unless they find errors in the invoices, in which case it might take months.

Over 90% of the NKA grants are up to now transferred in advance. Required are: the valid decision of one of the 13 standing NKA panels; a fully completed data sheet and - deeply detested by all applicants: - three documents solicited from three different authorities, certifying the absence of public debt (tax, social insurance, customs). As a fourth, NKA checks if the grantee is not on its own debtors' record. (A "default" client, as these are called at the Australia Council.).

The grantee's approved data sheet determines the deadline of reporting about the use of the grant. About 80% keep to the deadline, to the remaining 20% the NKA administration sends a reminder, pointing at the effects of late or incomplete reporting: exclusion from further applications, obligation of returning grants. The reminder usually works.

The director of NKA claims to have a very good overall record. From the approximately 20 000 grants between 1994-1999, less than 100 had to be taken to court, the disputed amount being below 30 million Forints, less than 0,3% of the total amount of grants.

The director doubts, that a posteriori payment will yield savings in public expenses. He points out that with advance payment grantees are obliged to collect invoices and set them into the required accounting mould once only; similarly, civil clerks (until now NKA administration) do the controlling once only. In the future grantees will be forced to break it down into several intervals, break down accounting into smaller packages and have the Treasury deal with them every month or so. This is because their liquidity does not allow more time (think of the bank account of an amateur dance group in the country side) and most providers will refuse goods and services with many months of payment terms.

There is therefore a general concern about this planned reform. Most applicants fear that without actual cash they will not be able to finance their projects.

We are trying to collect information about the financing techniques prevailing at similar agencies in the world.

Insomuch as the mechanisms depend of the guiding philosophies of the agencies, the concept (and misconceptions) of the arm's length principle may also have to be touched upon. How did the concept evolve in the various countries and where are we now?

A few early contacts:

In the past few weeks I have received advice and help from a few places.

Jocelyn Harvey was the obvious starting point as she has been collecting information about arts councils of the world, in preparation of a conference next year in Ottawa. Besides contacts, I am grateful to her for the following sentences:

„I think the cultural community has reason to be disturbed if this change goes through. The length of time it will likely take for payment to occur may very well prevent cultural projects and activities from taking. Further, in general governments are more heavy-handed, regulation-based, and slower in their response time than arts councils and they tend to have far less understanding of how artistic activities and organizations work and their constraints and challenges. Finally, I would wonder why on earth one needs NKA if the financial relationship is directly between the government and the recipient."

Sarah Gardner, director for strategy and policy of the Australia Council briefly introduced their procedure which seems to be very similar to that of NKA. I am eager to be able to open the forms attached to Sarah's e-mail. (The Australia Council gives about 500 grants to individuals and 1500 to arts organisations each year.)

Jean-Cédric Delvainquière has presented the French system, which is indeed different. There, in the absence of arm's length quangos, cultural grants are given by the administration indeed in the way the Hungarian administration wants to take: recipients get an engagement from the ministry (or regional authority) and payment takes place after realisation of the project. In cases of lengthy projects there is a possibility of payment in instalments and advances up to 25%.

Copied from www.nka.hu:

RANGE OF ACTIONS

Briefly about the National Cultural Fund

The National Assembly set up the National Cultural Fund for the support of the creation and preservation of Hungarian cultural values and their propagation domestically and abroad. The National Cultural Fund is operating under the supervision of the Ministry of Cultural Heritage.

The Minister appoints the Chairman of the National Cultural Fund Committee. The eleven member Committee is appointed for terms of four years. The Committee is the chief strategic and decision-making body at the Fund. The Committee distributes funds to each of fourteen Professional Boards and votes on Annual Priority Schemes. It is the task of the Professional Boards to set policies for their particular discipline. They represent approximately 125 members who are appointed for 3 years, also by the Minister. The Minister appoints persons nominated by professional organizations and union in the particular fields, in the meantime they are representatives of non-governmental cultural organisations' lobbyist groups.

The Directorate of the National Cultural Fund helps the administrative work of the Fund by a staff of 40. The Newsletter of the Fund carries updated information about current applications for grants and about decisions on supports from the Fund.

Incomes and expenditures

The Fund distributes revenues allocated by Law XXIII of 1993 (on the National Cultural Fund): the cultural tax". The cultural tax is imposed on cultural products and services and on culture-related consumer-electronic goods", e.g.: television sets (1%), copy machines and toners, floppy disc and computer monitors (1%), on toy weapons (10%) and many other items.

The assets - income from cultural tax revenues - vary year by year. In 1997 the National Cultural Fund was distributing 2,9 billion HUF (about $ 12,6 million US dollars), 3,4 billion HUF in 1998 (about $ 14,8 million US dollars). This sum is roughly 3,6 billion HUF in 1999 (about $ 15,6 million US dollars).

Expenditures may be made from the Fund for the following purposes:

(a) the support of the creation and preservation of national and universal values in the field of culture and their propagation domestically and abroad;

(b) the support of anniversaries and festivals affecting culture and related events organised domestically and abroad;

(c) the promotion of organising international cultural relations in a new manner, the assurance of appearance at global exhibitions and international fairs, and the support of participation in cultural events and festivals organised domestically and abroad;

(d) the support of new trends in artistic creations, new cultural initiatives, and scientific research bearing on culture;

(e) the support of the activity of culture-creating, culture-propagating and self-teaching individuals and communities;

(f) the administration of the Fund's operation.

Applications for grants

In 1997 10606, in 1998 8409 applications were processed during the last year. All information is entered into a computerised system. The Professional Boards, who make decisions on these applications, represent the following:

Moving Pictures

Choreography/Dance

General Education

Literary and Book

Fine Arts

Library

Periodicals Publication

Applied Arts