Financial Situation and Prospects 



The Smithsonian celebrates its 150th anniversary in 1996. It will 

 be an exciting year marked by the spectacular traveling exhibi- 

 tion, America's Smithsonian, as well as many other grand events. 

 These events will be funded almost exclusively by private contri- 

 butions and funds generated from business activities related to 

 the events. Funding for these celebratory events exemplifies the 

 paradigm shift facing the Smithsonian and many education and 

 cultural organizations — less reliance on government and more 

 reliance on the private sector. 



The transition to this new paradigm will be challenging for 

 the Smithsonian as it will be for many public institutions. For- 

 tunately, the Smithsonian enters the new year with a strong 

 balance sheet and excellent prospects for the future. The Smith- 

 sonian occupies a special place in the hearts and minds of Amer- 

 icans and receives generous support from its many constituen- 

 cies. Congressional and private support continues to be strong. 

 Through many years of prudent financial management, the 

 Smithsonian has built a sizeable and growing endowment and 

 adequate reserves. Moreover, the Smithsonian has taken decisive 

 action to address prospective funding shortfalls over the last few 

 vears. Immediate steps have been taken in recent budgets both 

 to cut cost and enhance revenues. 



More fundamentally, the Institution has recognized the need 

 to restructure — both programmatically and organizationally — 

 to meet the challenges of the future. To better inform the restruc- 

 turing process, the Smithsonian Board of Regents established 

 the Commission on the Future of the Smithsonian Institution in 

 September 1993. This Commission was asked to conduct "an 

 examination of the Smithsonian, its mandate and its roles, and 

 an examination of the cultural, societal, and technological fac- 

 tors that influence its capacity to act." The Commission deliv- 

 ered its report to the Board of Regents in May 1995. The report 

 describes the Commission's vision of the future of the Smith- 

 sonian and makes specific recommendations for making that 

 vision a reality. The Regents formed a committee to consider the 

 recommendations and to work with the Secretary in his strategic 

 planning process. 



Last summer, the Secretary formed a Strategic Planning 

 Group of senior management staff to analyze, at a detailed level, 

 potential restructuring, consistent with the mission, vision, and 

 priorities of the Institution, that will assure fiscal stability. Sev- 

 eral restructurings have already taken place. The Office of Plant 

 Services, Design and Construction, and Architectural History 

 and Historic Preservation were consolidated into the new Office 

 of Physical Plant. This consolidation brings together three inter- 

 dependent organizations for more efficient management of the 

 Institution's facilities. 



The Smithsonian continues to take a close look at the effec- 

 tiveness of its revenue-producing and fund-raising activities. 

 Senior management currently is addressing several years of de- 

 clining revenues at Smithsonian magazine and examining a 

 major loss at the Smithsonian Institution Press this past fiscal 

 year. On the fund-raising side, the Institution plans to rely on 

 the promotion of its 150th anniversary celebration activities in 



forming new and expanded relationships with individuals, cor- 

 porations, and foundations. 



The deterioration of the Institution's facilities continues to be 

 a major concern. The current rate of facilities deterioration and 

 obsolescence will, if not fully addressed, place the collections, 

 ongoing activities, and public accessibility at risk. Smithsonian 

 facilities total more than 5.5 million square feet of space and 

 range in age from new to more than 140 years old. Funding for 

 maintenance, repair, and renovations has not kept pace with the 

 deterioration of the buildings. Best estimates indicate that at 

 least $50.0 million annually is needed to fully meet the require- 

 ments for systematic facilities renewal and maintenance to offset 

 normal wear and tear. While funding in fiscal year 1995 was 

 only $24.0 million, prospects for a significant increase in fiscal 

 year 1996 are strong. Congress has been very helpful in working 

 with the Smithsonian to meet this challenge. It is hoped that in- 

 creased appropriations in future years will be at a level that will 

 arrest the rate of decline of those buildings in greatest need. 



The Smithsonian faces significant challenges, but it has 

 prepared itself to meet them by emphasizing strategic planning, 

 focusing on a future vision, and by setting resource allocation 

 priorities that are tied to its mission and its core functions. 



FY 1995 Sources of Net Operating Funds 



Federal 71% 



Gifts & 

 Grants 4% 



Investments 3% 



Gov't G&C 11% -l 



Membership & Sales 10% 

 Other 1% 



Fiscal Year 1995 Results 



Revenues received by the Institution in fiscal year 1995 from 

 all sources totaled $708.1 million. Federal appropriations ac- 

 counted for $358.0 million, and nonappropriated trust funds 

 provided an additional $350.1 million. When adjusted to 

 remove auxiliary activity expenses of $185.8 million, net 

 revenues for operations, construction, and additions to endow- 

 ment totaled $522.3 million, a 5.7% increase from fiscal year 

 1994. The following chart reflects revenues by source and broad 

 purpose of use. 



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