0.12 Chapter nine: the liabilities of nonprofit assets  (Page 2/5)

The second defining test to identify an asset is whether the item itself can gen­erate revenue without being exchanged or sold. A small portion of the Society's best-known collections, such as the Audubon watercolors or the Hudson River School paintings, meet this standard. They attract visitors, bringing in admissions income; reproductions of the works can be sold, creating royalty income; and the collections themselves can travel to other museums, producing fee income. The great majority of the Society's holdings, however, do not generate revenue. The Society holds millions of documents, letters, prints, decorative art objects, manuscripts, and ephemera that tell the story of early America and early New York. Viewed as a group, these items do not generate significant revenue, nor can they be sold. Consequently, they are not assets in the strict financial or account­ing sense of the word. (Accountants, recognizing this fact, do not require nonprofits to include collections on their balance sheets.)

The fiscal reality is even more ominous: from a purely financial standpoint, the sum total of the Society’s collections resemble liabilities more than they do assets. As was explained in Chapter Eight, the Society’s collections are actually a net drain on its resources. Incumbent with ownership of those collections is an unremitting obligation to catalog, conserve, protect, and make accessible millions of items. Although not shown on a nonprofit institution's financial statement, the present value of this future stream of expenditures represents a very real finan­cial liability.

The value of nonprofit assets

If these collections cannot be called assets, does that mean that they are not valuable? Of course not. It is precisely the inherent value of these collections that is at the heart of the Society's reason for being. But how does one express that value, if not in dollar terms? Do we have any other way to keep score? What should we call the Society's collections, if not assets?

Many years of deficits under various leaders provide evidence that the Soci­ety's collections cost more to maintain than they can possibly generate directly. Were it a for-profit business, it could not survive in its present form; it would be insolvent. So why does the Society continue to exist? And why should it continue to expend substantial resources to preserve and maintain millions of items that most people will not pay to see?

The answer, of course, lies in our belief in the Society's broader purposes. The Society and similar nonprofit institutions are offered some protection from the harsh disciplines of the market because our culture attaches a value to their mission. This "cultural value," which is quite separate from quantifiable economic value, is, by extension, also applied to a nonprofit institution's collections. Thus even though the financial value of a "cultural asset" may be negative, it is still con­sidered valuable if it belongs to and is being cared for by an institution with a mis­sion that the community has deemed worthy of support and protection. In the nonprofit realm, that cultural value becomes monetized through contributions, public appropriations, and private grants. But donors and grantors typically provide these resources based on an assessment of a variety of factors, some of which are independent of the asset itself, such as the worthiness of the institution and its mission, the quality of its leadership, and its long-term financial viability. The value of a cultural asset, then, is not determined through a net present value calculation of the future cash flow it can generate; rather, it is determined by the relevance of that asset to the broader cultural purposes and capacities of the institution to which it belongs.