A definitive verdict of the impact of the National Lottery on the UK?s cultural infrastructure will be some time coming, writes Adrian Ellis.
The weighing of architectural failures against financial successes and disappointing economic impacts against artistic triumphs (or vice versa) will challenge the most well calibrated evaluation methodologies - even without taking into account the professional development opportunities / psychological damage the Lottery has offered all those responsible for planning and managing these projects?
There is, however, one important, albeit pedestrian, element in the calculus that is worth edging up the agenda: the inadequate provision being made for the on-going maintenance of Lottery-funded projects and, as a result, the potentially compromised legacy that we are leaving to future generations. Recent capital expenditure on cultural projects ? much of it met by the Lottery ? carries with it long term maintenance and replacement costs. These are conventionally dealt with by setting aside cash in a sinking fund equal to the depreciation on the relevant asset, so that the asset can be replaced or repaired at the appropriate time.
This practice is not being followed for a majority of Lottery-funded capital projects because they have neither the cash to put aside nor the framework in which to do it. As a result, repairs are already being delayed, with higher eventual costs, and with eventual emergency recourse to funding bodies to meet these costs. Given the scale of recent investment, this is both a political and a financial problem. In addition, the financial management of organisations? current accounts is made less transparent by the presence of unfunded depreciation. It is a problem that can be avoided if and only if steps are taken to ensure provision well in advance of the costs falling due ? that is, from now on?
The reasons for the problem are straightforward enough. Lottery awards make no provision for long-term operating costs in general, which include the cost of routine maintenance and up-keep of buildings. Rather, the allocative mechanisms have required applicants for capital funding to show how these costs will be met. What looks like planning is as a result often, in effect, bidding, with those responsible for projects presenting the best case rather than the most likely case in their income and expenditure estimates, massaging them into a paper equilibrium.
As and when life after the completion of a project is less rosy than the original, systemically optimistic figures indicate, then areas of discretionary expenditure get squeezed. Prudential provision for maintenance and replacement of kit is one of these ? so that when, for example, a heating and ventilation system needs replacement, the money will have to be raised at that point, rather than having been put aside routinely. This is, understandably, generally viewed as bad housekeeping by the accounting and construction industries alike.
One might argue that future generations should take care of themselves ? but the sheer size and utter predictability of the expenditure together with the relatively short life that many building parts have make this seem a little irresponsible. One might, equally, argue that the organisations themselves should be making provision for their own maintenance ? but that seems a little naïve. Yes, they probably should, but ? well? they can?t. Their current funding formulae don?t take it into account and fundraising for routine maintenance or depreciation is about as tough a pitch as there is. Were there a mandatory requirement somehow imposed upon them, it would simply bring forward the inevitable funding squeeze, not solve it.
There is no pain-free way of facing up to this reality ? which amounts to between £70m and £200m a year depending on how one interprets current provision in annual accounts and whether one includes the entire range of Millennium, Heritage and Arts projects. It is a Lottery-created problem and it does not seem unreasonable to look to the Lottery to solve it. Do we therefore need to address the possibility of a collective ?sinking fund? for the maintenance cultural projects in the UK, funded in whole or part by the Lottery distributors?
There would be some knotty details to work through:
? Should the eligible costs be met in whole or in part? In whole seems to risk moral hazard. In part requires a formula to determine what proportion?
? Should there be a discretionary element, relating to actual replacement or refurbishment costs, or should a straight line formula be used relating to depreciation?
? Should the fund be confined to the maintenance of Lottery funded capital expenditure and if so, would partly funded projects be wholly eligible?
? How would a distinction be made between replacement and upgrading?
But these are the routine headaches of designing any funding scheme. The real opposition to such an idea, I suspect, would come from those who see such a scheme as making a further claim on the remaining discretionary expenditure for culture generated by dwindling Lottery proceeds, a view for which it is difficult not to have sympathy. This solution to the maintenance and replacement problem would further exacerbate the disproportionate investment in capital, compared with programming and operating, that the Lottery?s scale and eligibility criteria created, particularly in its early years of operation.
This is, however, not a discretionary area of expenditure vying for attention amongst other possibilities. It is an area of expenditure to which, collectively, the sector is inexorably committed by virtue of its past decisions, and that will inevitably present itself. Is this the legacy for which the current generation of arts professionals wish to be remembered? If not, at the very least, problem needs a better airing, some more robust measurement and the fairly narrow band of options for addressing it reviewed. It may look like the dull stuff of accounting, but it is, left to its own furtive devices, also the next-but-one or but-two funding crisis.
Adrian Ellis is a principal at the arts consulting practice AEA Consulting