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How did leading US Think Tanks fare in 2012? Analysis by numbers

Assets, Surplus, Revenue

How do think tanks develop over time? One good answer to this question are their financial statements. Annual expenditure tells us how much a think tank has grown, revenues highlight how much support it attracted, while net assets give a glimpse of financial health. To be sure, financials are not the only dimension of understanding think tanks, yet they ground our analysis in numbers, in the same way that we would expect think tanks to ground their analysis of policy issues in hard evidence.

A previous entry outlined such an analysis for the year 2011, looking at 20 leading think tanks in the US. With the last think tanks submitting their tax declarations in August, we can now see what’s new for the year 2012. Aggregate numbers show that the sector continues to grow. Expenditures are up by 5%. With 3% revenue growth was a bit slower, and net assets stayed flat. As in the previous post, the spreadsheet is available for your analysis (sign-up sheet below).

What, then, do the numbers tell us about specific think tanks?

Financially, seven think tanks have grown strongly. They simultaneously grew their income, their net assets, and also ran a surplus. The Atlantic Council increased its revenue by two thirds and managed to double its assets, to $11m. The Center for Global Development (CGD) reported a 124% increase in income, and added 23% to its net assets, which now stand at $38m. The New America Foundation increased revenue and assets, and also ran a surplus, while decreasing its expenditure by 2% in 2012.

Although you would expect strong growth primarily in boutique institutions, several behemoth think tanks also did well. Brookings had a strong financial year, increasing its income by 30%, reported 39% more income than expenditure, and grew its net assets by 8%, or $27m. The Urban Institute increased its expenditure by 14%, and its income by 16% (small blip: it drew down assets by 3%). At 5%, the RAND Corporation grew more cautiously, but increased its net assets by 13%, putting it in the top quarter for asset growth. Similarly, among midsized institutions, the American Enterprise Institute (AEI) expanded by 11%, growing its income by 12%, and running a surplus of 20%.

These seven institutions thus seem set for expanding their programs, or at least for consolidating their financials further.

In a group of six think tanks we see solid development. In these institutions there isn’t necessarily growth across revenue and assets but their financials suggest that they can continue to do their programming in strength. This group includes the Peterson Institute of International Economics, the World Resources Institute (WRI), and the Center for American Progress (CAP). Yet as the Cato Institute illustrates, the financials in this group can be more mixed. Cato ran a surplus of 48%, and increased its net assets by 21%, but also saw its revenue decline by 18% compared to the previous year. Similarly, the Center for Strategic and International Studies (CSIS) continued to grow its net assets by 9% and ran a 30% surplus, but also posted a 26% decrease in income compared to 2011. The Peterson Institute had the third highest increase in income with 34%, yet also drew down assets by 5%. The Wilson Center ran a 15% deficit, but still managed to increase its revenue by 5%, as well as taking its net assets up by 1%, while contracting expenditures by 4%.

From the financial perspective, two think tanks show trends that may be interesting to follow in future years. The Carnegie Endowment for International Peace reports a decrease in net assets by 6%, as well as a loss of 12%. In response, it seems to have stepped up its fundraising efforts, reporting a 27% increase in income. The National Bureau for Economic Research (NBER) reduced its net assets by 6%, and also faced a 5% decline in income, while still growing its expenditure by 6%, trends that are unlikely to be sustainable in the longer run.

Four think tanks were not doing well, at least not in 2012. In these four cases the financials all point downward. The International Crisis Group ran a loss of 17%, decreased its net assets by 11%, and its income by 7%. Its costs in 2012 nevertheless had increased by 15%, a trend that is not sustainable even in the short run. The Center for Budget and Policy Priorities (CBPP) similarly had a 9% increase in expenditure, a 17% decrease in revenues, a 16% deficit and thus decreased its net assets by 8%. The Heritage Foundation also ran a loss of 10%, and decreased its net assets by 13%, but had already kept their expenditures flat. The German Marshall Fund of the US (GMFUS) already was retrenching in 2012, reducing its expenditure by 2%, while facing a 28% decrease in revenues, a 22% loss, and a 12% reduction in net assets. In all these institutions, you would expect to see some combination of increased fundraising and reduced programming (with some of the unhappiness that goes along with such changes).

Formally, the financials of the Pew Research Center do not look great either. It reported a 26% deficit, and an 18% decrease in net assets. That said, the Pew Research Centers is part of the broader Pew Charitable Trust, and thus less exposed than a standalone institution.

A quick visual comparison suggests that think tanks that were successful in mobilizing funds generally kept their costs tightly under control. The Center for Global Development, for example, actually decreased expenditure by 7% in 2012, while more than doubling its income. By contrast, out of the nine organizations that decreased their net assets in 2012, six grew their expenditure by more than 5%. At the risk of saying the obvious, the biggest risk to net assets is uncontrolled growth of expenditure. Conversely, fundraising success does not appear to require an upfront investment into expanded programming.

Of course, financial statements can be acts of deliberate communication. There are good reasons for stating bad news. To get a fresh start, an incoming leadership team may, for example, want to write down losses in their endowment. Sensible investments into expansion (including new buildings) through a bank loan will reduce net assets by increasing liabilities. Conversely you can put good news up front, by booking future commitments all in the year in which the funds were raised as opposed to prorating them over time.

However, gravity beats temporary levitation. Looking at the budgets over several years will provide a good sense on whether a think tank is thriving. In this particular analysis, we aggregated two years. We are also finalizing a ten year comparison, back to the point where some of the think tanks that now are household names didn’t yet exist. This multi-year data will further ground interpretation, and thus enrich our understanding. The main purpose of our work (Vazha Burduli helped assemble the data) is to provide the numbers for you to analyze them for your own purposes.

There is one broader point to make. US think tanks are transparent on their finances. If think tanks in other countries aspire to be like, say, Brookings, one great step in that direction would be to adopt similar levels of financial transparency. It would be good for the think tanks’ own governance, their credibility as public institutions, and their function as a role model.

One final question, in case any readers care to comment: what indicator would you look at most? Increase in net assets as a sign that a think tank is prepared for a dry spell? The surplus it runs? Or a sustained increase in revenue? My approach here was to look at the combination of increase in net assets, ongoing surplus and increased revenue, as an indicator of balanced growth, but I am curious to hear about other approaches.

If you want to do your own analysis, or just take a quick look at the numbers, get the spreadsheet. The spreadsheet includes medians, means, and aggregates, and we made it very easy for you to run comparisons. To sign up, click here.

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2 Comments Post a comment
  1. Hans Gutbrod #

    I received a number of helpful comments by people, by think tank professionals interested in this type of analysis. Since the aim of this post was to move the discussion forward, I will publish the main comments:

    For a comprehensive assessment, it may be better to use two or three-year averages rather than a single year; according to the IRS, grants need to be booked in the year that they are formally committed, potentially exaggerating the inflows and making it look as if some think tanks are running vast surpluses, when really they are just filling up a pipeline for longer -term work. (Apparently there is some flexibility on how to book future deferred gifts or even legacies, but these are not relevant for most think tanks as a source of income).

    I found this comment particularly helpful, and it is in line with what we are working on. We are currently cleaning the data going back to 2002, so that longer-term-averages are easy to put together.

    [It also does remind you that think tanks have a relaxed reporting rhythm, compared with businesses listed on the stock market which report quarterly earnings.]

    September 16, 2013

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