measures, both organizational and financial, being taken to en- 

 sure the continued fiscal health of the Institution. 



Financial Situation and Prospects 



Financial Report 



Introduction 



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 

 Institution's core functions: caring for and conserving the na- 

 tional 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 find- 

 ings through exhibitions and other public programs. Federal 

 appropriations also fund a maiority of the activities associated 

 with maintaining and securing the facilities and with various 

 administrative and support services. 



Smithsonian trust funds allow the Institution to undertake 

 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 under-represented audiences. In recent years, 

 the Smithsonian has also begun to rely, in part, on trust funds 

 for the funding of ma]or new construction projects. 



The following sections desctibe the external environmental 

 factors affecting the Institution's general financial condition, 

 the Institution's financial status, and its planned response to 

 changing conditions; financial results fot fiscal year 1996; and 



The Smithsonian's 150th Anniversary year was one of extraor- 

 dinary accomplishment in carrying out the programs and ac- 

 tivities of the Institution. This was especially true of those 

 programs that were part of the 150th celebration. The Institu- 

 tion took its show on the road with the spectacular success of 

 its traveling exhibition, America's Smithsonian. By the end of 

 the fiscal year, the exhibition had visited four (4) cities and 

 had been seen by more than I.I million people. Additional 

 cities will be visited in fiscal year 1997. Throughout the year 

 outstanding efforts in education, exhibition and research were 

 well received by peers and the general public. Three prime- 

 time television specials showcased the Smithsonian's research 

 and collections. Capping the year was a marvelous two-day 

 birthday celebration on the National Mall. Through these ef- 

 forts, the Smithsonian shared its treasures of American history 

 and culture with the American people in unprecedented ways, 

 both physically and electronically. These activities represent a 

 major investment in the future of the Institution. 



At the same time that the Institution takes ptide in what 

 it has accomplished, it recognizes the significant financial 

 challenges ahead. The federal budgetary environment, down 

 turns in specific business activities, and increased competition 

 fot scarce grant and other philanthropic resources continue to 

 constrict the revenue side of the budget. On the expense side, 

 critically important investments in the development of new 

 revenue streams, new technologies, and meeting new legal 

 and other external requirements all put pressure on rhe 

 budgetary equation, already stressed by aging facilities and 

 on-going program needs. The Smithsonian's many respon- 

 ses to these challenges include some that are short term in 

 nature and others that must necessarily take a longer tetm 

 perspective. 



The deterioration and obsolescence of the Institution's 

 aging facilities present a major challenge. With over 5.5 mil- 

 lion square feet and buildings up to 140 years old, manage- 

 ment estimates that at least S50 million annually is needed to 

 fully meet the tequirements fot systematic facilities renewal 

 and maintenance to offset normal wear and tear. Congress has 

 been especially helpful in working with us on this challenge. 

 Annual federal funding for facilities repair and restoration was 

 increased by $10 million to S34 million in fiscal year 1996. 

 Funding was further increased to $39 million in the 

 Smithsonian's fiscal year 1997 appropriation, a two-year in- 

 crease of 62.5%. 



The Institution has taken a number of short- and long- 

 range steps to improve the return from its business activities. 

 Many of these steps have been successful in improving the 

 results of the Smithsonian business activities this yeat. To sus- 

 tain and expand these successes, the Institution has estab- 

 lished advisory boards for the business activities made up of 



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