Financial Status 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, corpora- 

 tions, 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 Institu- 

 tion's core functions: caring for and conserving the national 

 collections, sustaining basic research on the collections and 

 in selected areas of traditional and unique strength, and 

 educating the public about the collections and research 

 findings through exhibitions and other public programs. 

 Federal appropriations 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, 

 constructing and presenting effective and up-to-date 

 exhibitions, and reaching out to new and underrepresented 

 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 environmental 

 factors affecting the Institution's general financial condition, 

 its financial status, and its planned response to changing con- 

 ditions; financial results for fiscal year 1998; and organizational 

 and financial measures being taken to ensure the continued 

 fiscal health of the Institution. 



In fiscal year 1998, the Smithsonian took majot steps to 

 address the increasing financial needs of the Institution. 

 Congress has been very supportive of the Institution in its 

 provision of federal appropriations for core functions and the 

 maintenance of facilities. This support, however generous, 

 cannot be expected to sustain the growing costs of new exhibi- 

 tions and programs that allow the Instirution to continue as a 

 world-class center for research and education. Consequently, 

 in fiscal year 1998, the Institution focused on restoring and 

 strengthening its tevenue-genetating activities, as well as on 

 its fund-raising efforts. 



Over the past several years, income from the Institution's 

 business activities has remained relatively static. In response, 

 the Institution made two critical decisions. The first was to 

 discontinue the commercial activities of Smithsonian 

 Ptess/Smithsonian Productions, transferring the profitable 

 ventures to Smithsonian Retail and establishing the Univer- 

 sity Press division as a programmatic function of the Institu- 

 tion undet the auspices of the Provost with the name 

 Smithsonian Institution Press. 



As an important step to promote the long-term growth of 

 the Institution's business activities and ensure its financial 

 health, the Board of Regents approved a new approach for 

 managing those ventures. Major elements of this new 

 approach include the creation of a separate otganization 

 within the Institution to increase the Smithsonian's major 

 business activities, the cteation of a separate board of directors 

 to help guide the new organization, and the recruitment of a 

 seniot-level business executive to be the new organization's 

 chief executive officer. The goal of the new apptoach is to 

 double the annual level of business-generated trust dollars 

 available for the Institution within the next five years. 



Fund-raising received continuing attention as a critical 

 element in the improvement of the Institution's financial 

 position. Work was begun in earnest on the Smithsonian's 

 capital campaign. An overarching strategy has been developed 

 and a budget established to fund the campaign. Currently in 

 its "quiet phase," the campaign has already achieved substan- 

 tial results. In fiscal year 1998, donor and sponsor support was 

 at its highest level in the Institution's history. 



Fiscal Year ipp8 Sources of Net Revenues 



• Gov't Grants & Contracts (9.9%) 



• Donor/Sponsor (15.1%) 



• Federal Appropriations (68.1%) 



• General Trust (6.9%) 



Fiscal Year ipp8 Results 



Revenues received by the Institution in fiscal year 1998 from 

 all sources totaled $774.5 million. Revenue from federal ap- 

 propriations accounted for $393.0 million, and nonap- 



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