Financial Situation and Prospects 



Financial Report 



Rick Johnson, Chief Financial Officer 



The Smithsonian Institution receives funding from both 

 federal appropriations and nonappropriated trust sources. 

 Nonappropriated trust funds include all funds received 

 from sources other than direct federal appropriations. 

 These other sources include gifts and grants from 

 individuals, corporations, and foundations; grants and 

 contracts from federal, state or local government 

 agencies; earnings from short- and long-term 

 investments; revenue from membership programs; 

 and revenue from sales activities, such as Smithsonian 

 magazine, museum shops and restaurants, mail order 

 catalogues, and licensed products. 



Federal appropriations provide funding for the Institution's 

 core functions: caring for and conserving the national collec- 

 tions, sustaining basic research on the collections and in 

 selected areas of traditional and unique strength, and educat- 

 ing the public about the collections and research findings 

 through exhibitions and other public programs. Federal ap- 

 propriations also fund a majority of the activities associated 

 with maintaining and securing the facilities and with various 

 administrative and support services. 



Smithsonian trust funds allow the Institution to under- 

 take new ventures and enrich existing programs in ways 

 that would not otherwise be possible. These funds provide 

 the critical margin of excellence for innovative research, 

 building and strengthening the national collections, con- 

 structing and presenting effective and up-to-date exhibi- 

 tions, and reaching out to new and under-represented 

 audiences. In recent years, the Smithsonian has also begun 

 to rely, in part, on trust funds for the funding of major new 

 construction projects. 



The following sections describe the external environmen- 

 tal factors affecting the Institution's general financial con- 

 dition, the Institution's financial status, and its planned 

 response to changing conditions; financial results for fiscal 

 year 1997; and measures, both organizational and financial, 

 being taken to ensure the continued fiscal health of the 

 Institution. 



Having celebrated its first 150 years in fiscal year 1996, the 

 Smithsonian began long-term planning for its future. In order 

 to respond to funding and programmatic challenges, the 

 Smithsonian needed a blueprint for moving forward into the 

 next millennium. The first step was to develop a strategic 

 plan. Building on the earlier work of the Commission on the 

 Future and their May 1995 report, senior management and the 

 Board of Regents developed a strategic plan in fiscal year 1997. 



A major focus of that plan is to take the Smithsonian to the 

 American people, expanding its reach beyond Washington 

 through traveling exhibits, electronic exhibits on the World 

 Wide Web, and affiliations with museums across the nation. 

 This goal is important for two reasons. First, a significantly 

 larger number of citizens will have the opportunity to share in 

 the Smithsonian's programs, knowledge, and artifacts. Second, 

 it will expand and develop a national constituency that will 

 be critical to helping the Institution meet its funding require- 

 ments in the future. 



The 150th anniversary traveling exhibition, "America's 

 Smithsonian," continued to play an important role in this 

 strategy. The exhibition visited five more cities and was seen 

 by an additional 1.8 million people in fiscal year 1997. The 

 Smithsonian continues to build upon relationships developed 

 as a result of this exhibition. 



The major new strategy in the Smithsonian's outreach focus 

 is its Affiliation Program. The Board of Regents adopted the 

 new policy on this collections-based program to provide 

 greater public access to the Smithsonian and to provide an al- 

 ternative means for the exhibition of its collections. The 

 policy allows for larger portions of Smithsonian collections to 

 be available to audiences beyond the geographic limits of the 

 Smithsonian's museums. Collections will be made available in 

 a context created by the proposing organization and will, 

 therefore, reflect the interests and needs of local constituen- 

 cies. These collaborations allow museums to fill gaps in their 

 exhibitions, research collections, and programs at their own 

 expense and result in the exhibition and study of collections 

 that might otherwise be in storage. 



The Institution faces continuing financial challenges. 

 While Congress has been supportive, federal budget balanc- 

 ing efforts make obtaining federal appropriations to support 

 new programs and facilities more difficult. Revenues from the 

 Smithsonian's business activities have been declining or flat. 

 Contributions received, although significant, have not been at 

 a level consistent with the potential for such support. At the 

 same time, the Smithsonian must find ways to fund the sig- 

 nificant and costly activities required to maintain the Institu- 

 tion as a world-class organization and provide the care, 

 display, access, and research that our many important collec- 

 tions require. 



In fiscal year 1997, the Smithsonian engaged a consultant 

 with significant experience in publishing and retail activities 

 to perform a complete analysis of all its business activities. He 



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