Financial Report 



Nancy D. Suttenfield, Chief Financial Officer 



Introduction 



The Smithsonian Institution receives funding from both federal ap- 

 propriations and nonappropriated trust funds. Federal appropriations 

 are the primary source of operating funds to address the Institution's 

 fundamental responsibilities in 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 

 through exhibitions and other outreach programs about the collec- 

 tions and research findings. Administrative and support functions are 

 also supported partially by federal appropriations. Federal appropria- 

 tions account fot 71 percent of the Institution's net operating funds. 

 In addition, capital outlays for building repair and restoration and for 

 most new construction are also supported primarily through federal 

 appropriations, although certain construction projects, e.g., the Na- 

 tional Museum of the American Indian and a planned West Court 

 complex at the National Museum of Natural History, rely heavily on 

 private fund-raising or other trust fund resources. 



Trust funds account fot the remaining 29 percent of the Institu- 

 tion's net operating funds. The Smithsonian defines trust funds as all 

 funds it receives from so'irces other than direct federal appropriations. 

 These sources include gifts and grants from individuals, corporations, 

 and foundations; earnings from short- and long-term investments; 

 earnings from membership programs; and gross receipts from auxil- 

 iary activities such as Smithsonian magazine, museum shops, food 

 service concessions, and mail order activities. The Smithsonian re- 

 ceives grants and contracts, primarily from other federal agencies, but 

 also from state governments, which are considered trust funds. 



Smithsonian trust funds, depending on their source, purpose, and 

 applicable restrictions, are used for operations, construction, and en- 

 dowment. These nonappropriated trust funds are used to cover the 

 expenses of income-ptoducing auxiliary activities, supplement federal 

 appropriations for programs, and cover an appropriate proportionate 

 share of the Institution's administrative expenses. The use of Smith- 

 sonian trust funds is furthet classified as restricted ot unrestricted. Re- 



stricted funds are those on which the donor or funding agent places 

 limitations Seventy percent of the trust net operating funds are re- 

 stricted. Approximately 54 percent of the endowment is testricted as 

 well. 



The following sections describe the Institution's general financial 

 situation and its planned responses to changing conditions; specific fi- 

 nancial outcomes for fiscal 1992; measures, both organizational and 

 financial, to assure the future fiscal health of the Institution; and rela- 

 tionships with other affiliated organizations. 



Financial Situation and Prospects 



During fiscal 1992, an analysis of federal appropriations to the Insti- 

 tution for the past several years was conducted. That analysis revealed 

 that a major portion of each annual increment had gone not to sup- 

 port general operating expenses, but to support specific and/or ear- 

 marked purposes, such as the new National Museum of the American 

 Indian, major scientific instrumentation for the Smithsonian Astro- 

 physical Observatory, new global change research programs, subsi- 

 dized participation fees for traveling exhibitions, and special 

 commemorative events such as the Columbus Quincentenary. Despite 

 the apparent increases in appropriation support, many factors, in- 

 cluding the need to apply increases to specific activities, had the effect 

 of eroding the purchasing power of the Institution's operating bud- 

 get. Other such factors include shortfalls in appropriations relative to 

 additional new costs, including mandated pay adjustments, employee 

 benefits, new regulatory requirements, and inflation. 



Although the Institution's federal appropriation for operating ex- 

 penses was $97. 3 million greater than in fiscal 1987, the fiscal 1992 

 funding level (in 1987 dollars) represented a decrease of $22.4 million 

 actually available for the core programs that were in place in fiscal 

 1987. This loss of purchasing power resulted in the inability to fill 

 many positions that perform essential functions, such as collections 

 care and facilities maintenance and repair; the deferral of the replace- 

 ment of scientific equipment; the postponement of the purchase of 

 library books and serials; and the reduction of other basic program 

 support. 



At the same time, the weakened national economy, along with a 

 decrease in the number of visitors, has led to decreased revenues from 

 the Smithsonian's various income producing activities. Unrestricted 

 trust fund income from these activities dropped to prc-fiscal 1987 

 levels. In response, the Institution reduced its budget allocations to 

 fellowships, collections acquisition, scholarly studies, educational out- 

 teach, and special exhibitions to 28 percent below the fiscal 1987 level 

 of $6.4 million. 



Prospects for catch-up funding from both appropriated and nonap- 

 propriated sources are dim. Therefore, in planning for fiscal 1993, the 

 Institution conducted a comprehensive examination of each of its pro- 

 grams and activities, considering centrality to the Smithsonian's mis- 

 sion, qualify, and cost-effectiveness. As a result of that examination. 

 it has begun a multi-year restructuring program to restore and main- 

 tain financial equilibrium. 



