Legislative Analyst's Office

Analysis of the 2001-02 Budget Bill

California Arts Council (8260)

The California Arts Council carries on a range of activities in order to further the arts in California. The council's enabling legislation directs it to (1) encourage artistic awareness and expression, (2) assist local groups in the development of arts programs, (3) promote the employment of artists in both the public and private sectors, (4) provide for the exhibition of artworks in public buildings, and (5) ensure the fullest expression of artistic potential. In carrying out this mandate, the Arts Council has focused its efforts on the development of competitive grant programs to support artists and organizations in various disciplines. In addition, in recent years the Legislature and Governor have also included funds in the Arts Council's budget for distribution to specific museums and other cultural institutions.

The Governor's budget proposes expenditures of $75 million, mostly from the General Fund, for support of the council in 2001-02. This amount represents a decrease of $6.7 million, from estimated current-year expenditures. This decrease is misleading, however, because the current-year budget included one-time grants to museums and cultural institutions. After adjusting for these one-time expenditures, the budget for 2001-02 actually increases ongoing programs and operations by $6.6 million and creates a new $20.4 million Cultural Infrastructure Development Fund (CIDF). These proposals represent a 96 percent increase to the council's ongoing programs. The Governor's budget also includes a one-time $3 million augmentation for the "Finding Our Families. . . Finding Ourselves" exhibit at the Simon Wiesenthal Center.

New Cultural Infrastructure Development Fund Poses Questions

The Governor's budget proposes $20.4 million for the creation of the Cultural Infrastructure Development Fund to provide grants to museums and other cultural institutions for local capital needs. We withhold recommendation on the proposed increase and recommend that the Arts Council report to the Legislature prior to budget hearings on (1) the policy and fiscal significance of formally expanding the council's mission, (2) provisions for incorporating the proposal into the state's five-year capital outlay plan, and (3) priorities and procedures for choosing grant recipients.

Background. The California Arts Council currently funds artists and arts organizations to provide a variety of arts programs to the public. Funds are provided through a competitive grant process that relies on peer review of proposals. Over the past three years, the budget also has appropriated an average of $27 million annually to numerous museums and other cultural institutions. These funds were earmarked for specific organizations and distributed with limited expenditure guidelines.

Budget Request. The budget requests $20.4 million to establish the CIDF to provide grants to museums and other cultural institutions for capital needs. These capital needs are broadly defined to include rehearsal and gallery space, community centers and extra-curricular arts education facilities, renovations for handicapped accessibility and earthquake retrofitting, adapting new technology, and building management capacity. This is the first time the council would establish a formal procedure for funding infrastructure needs for the arts community. The request states that the CIDF would provide a competitive, strategic, equitable mechanism through which the state can invest resources in cultural infrastructure. The council indicates grants will be awarded pursuant to a review process developed by the administration in consultation with the Legislature, but has not provided any details for that process.

Proposal Represents a Significant Expansion of Council's Mission. Up until this year, the Arts Council has focused primarily on providing support to artists and arts organizations. We recognize that in the past the council's budget has been augmented to provide funds for specific cultural and museum projects, including capital outlay. The budget proposal, however, represents a significant new direction for the council in that it would formalize a procedure for funding local infrastructure needs for the arts community. Presumably, the council intends for creation of the CIDF to serve as an ongoing source of support for arts infrastructure. Before the council embarks on a formal new role for funding arts community infrastructure and capital outlay, it is important that it lay out what the level and scope of the state's role should be in providing such support.

Proposal Does Not Incorporate Infrastructure Funding Into State's Capital Outlay Process. Chapter 606, Statutes of 1999 (AB 1473, Hertzberg) requires the state to develop and annually update a five-year plan for identifying and establishing priorities for all state infrastructure needs. The first plan will be submitted to the Legislature along with the 2002-03 budget proposal. This new proposal for cultural infrastructure development does not address how funding the capital needs of the arts community would be part of the state's capital outlay process. We note that the most recent estimate of need exceeded $40 billion over a five-year period. In the event that the Legislature wishes to appropriate funds for the capital outlay needs of local museums and cultural institutions beyond the budget year, it is important that the Arts Council develop a permanent process for identifying and ranking these needs in accordance with the process set forth in Chapter 606.

Development of Selection Criteria and Competitive Peer Review Process Needed. Whether the Legislature decides to provide funding for the capital needs of museums and other cultural institutions is a policy decision. If the Legislature chooses to provide additional funds in the budget year, there are a number of ways to ensure their efficient and equitable distribution. For example, establishment of a peer review panel similar to that used by the council in other program areas would allow grants to be distributed to museums and cultural organizations on a competitive basis.

A competitive peer review panel would allow funding decisions to be based on established standards and criteria. Some issues to consider when establishing these review criteria include whether the grant would: (1) be based on a formula that considered museum size, number of visitors, and educational components; (2) make funds available for capital outlay, facility purchases, or ongoing operations and programming; and (3) require a local match.

Regardless of the eligibility and criteria standards agreed upon, the competitive grant process would allow for greater accountability and oversight than the recent practice of earmarking museum and cultural institution funding.

Analyst's Recommendation. We withhold recommendation on the proposed increase and recommend the Arts Council report to the Legislature prior to budget hearings on the following: (1) the policy and fiscal significance of formally expanding its role in funding local museum and cultural infrastructure needs, including capital outlay; (2) how the council intends to conform its proposal to the state's new planning process for capital outlay as outlined in Chapter 606; and (3) additional information on funding priorities and procedures for distribution of the new fund.

Funding for Museum Exhibit Not Justified

We recommend a General Fund reduction of $3 million for an exhibit at the Simon Wiesenthal Center, Museum of Tolerance. Earmarking funds for a specific project, rather than awarding funds on a peer review and competitive grant basis, undermines the council's ability to establish spending priorities consistent with the statewide goals, enforce guidelines, and ensure accountability of state monies. If the Legislature approves funds for cultural infrastructure discussed above, the Simon Wiesenthal Center could apply for a grant through that program. (Delete Item
8260-103-0001 for a savings of $3 million.)

Last year, the 2000-01 Budget Act provided a one-time appropriation of $3 million for the initial planning and construction costs of the "Finding Our Families. . . Finding Ourselves" exhibit at the Simon Wiesenthal Center, Museum of Tolerance. At that time, the project was expected to cost $5 million. Last year's budget also appropriated $2 million for the center as part of an ongoing appropriation for teacher training on tolerance and diversity. The Governor's budget continues the $2 million for training and requests an additional $3 million for the exhibit.

We have several concerns with this proposal. First, the earmarking of funds for the Wiesenthal exhibit is inconsistent with the direction in which the council is moving both in its current procedures as well as in its budget proposal for cultural infrastructure whereby funds are disbursed as part of a peer review and competitive grant process. As an alternative, if the Legislature approves funds for cultural infrastructure as proposed by the Governor's budget, then the center could apply directly to the Arts Council for such funds and have its proposal considered alongside other projects proposed by organizations throughout the state.

In addition, there is little information to explain why the total cost of the exhibit appears to be exceeding earlier estimates by more than $1 million. For these reasons, we find the proposal is not justified and recommend that it be deleted.

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