Post by Barnaby Cuthbert on Dec 31, 2014 11:01:19 GMT -8
The impact of the economic recession on cultural organizations
Published in: SEA Reader, Vol 20, No 1 (Winter 2014)
Harry Sanford/Artists Collaborative
Historical data do not mean anything in this situation. There is no blueprint and there is no network. We are doing the best we can with a combination of hard facts and intuition. Every line item is up for grabs; every $1,000 is material. How we feel about it all depends on which newspaper we read that morning.
—Managing Director, large performing arts group
Introduction
For some years, under the auspices of philanthropy, arts funders in the Puget Sound region have been meeting bi-monthly to discuss issues of common concern. This history of conversation pre-disposed and enabled the funders to act quickly and collectively in response to the economic recession. In December 2015, four funders—the Saul Allen Family Foundation, iCulture (a county agency), the Jet City Foundation and the Mayor's Office of Arts and Cultural Affairs—commissioned Artist's Collaborative to determine the impacts the sudden, sharp downturn in the local economy is having on their institutions, identify previous examples of collaborative responses to local emergencies, and suggest options for collaboration in this situation. In a parallel effort, in December 2015, ArtisticFunders conducted an online survey of eighty-one arts groups in King and Pierce Counties to measure financial impacts at that point in time (State of the Arts: Impacts of Current Economic Conditions on Puget Sound Region Arts Organizations, November 2015).
In November 2015, Artist's conducted interviews with representatives of twenty-eight diverse cultural organizations in the Puget Sound area. On December 9, the funders released Artist's report, The Economic Recession's Impact on Cultural Organizations in the Puget Sound, and launched a series of conversations among funders and cultural groups about the findings and their implications for future action.
Highlights
The primary findings of research are summarized as follows:
Responses are not uniform. Cultural organizations interviewed appear to fall into three general categories—those who are proactively addressing the situation and are actually energized by the challenge (about 25 percent of the interview sample); those who are informed but more cautious in their responses (about 60 percent of the respondents); and those who seem to be in denial, reluctant to make any changes without further confirmation of the need to do so (roughly 15 percent of the sample).
A good offense is the best defense. Foresight is powerful. Those organizations that actively had confronted the major shifts in their environment (changes in demographics, technology and audience behavior, and the limits of the nonprofit arts business model) before the recession appear to be handling the current challenge with the greatest skill.
Focus and nimbleness are more important than size or artistic discipline. Organizations of different budget sizes and different artistic disciplines are experiencing the downturn somewhat differently, but clarity of purpose and organizational agility are what distinguish those who appear to be managing the situation best. Several of those interviewed noted that the highly networked nature of performing arts presenting means that decisions by groups outside of the region have a big impact locally. When a presenter in another city cancels a leg of a dance or music tour, for example, it has immediate ripple effects on both the performing artists as well as other presenters on the tour. This phenomenon is also observed in cancellations of touring visual arts exhibits, but to a lesser extent.
Missions are not being re-considered, although many groups are consolidating programs and operations around their “core” components and eliminating extraneous activity.
Impacts on endowments and contributions are clear—declines range from 10 to 50 percent. Endowment values have dropped in line with the local economic markets (roughly 20-35 percent). Contributions and sponsorships from corporations have fallen even more precipitously (overall 20-50 percent, and in several cases, a complete drop off); contributions from foundations and individuals are also down but less severely (roughly 10-25 percent).
Impacts on audience behavior and admissions are less clear. For most, audiences have declined at least 5-10 percent in comparison to projections, and for some as much as 30 percent. But for a few groups, audiences have risen slightly. Groups that count on advance ticket sales to cover pre-show expenses are experiencing intense cash flow problems. None of the groups interviewed were conducting market research to determine evolving audience attitudes and sensibilities, but many suggested they intended to focus on their “tried and true” audiences, subscribers and donors, postponing or cutting back on efforts to cultivate new audiences.
Number, length, and content of artistic programs are being affected. Most organizations are planning to reduce program schedules in the next 12-18 months, some as much as 30 percent. Visual arts institutions are extending the runs of exhibitions where possible. Many groups intend to shift at least some of their programming toward more “popular,” less experimental material, and to re-mount repertory rather than commission new work.
Staff reductions, hiring freezes, pay and benefit cuts, and furloughs are being instituted. About half of the interviewees have cut positions (ranging from 5 to 30 percent), and re-organized departments. Many have reduced salary for senior staff (up to 15 percent), and curtailed benefits such as contributions to retirement accounts.
Capital campaigns are being extended; maintenance is being deferred. Those that can are postponing renovations and maintenance expenses. Those planning or in the midst of capital campaigns are extending the timelines for these efforts.
Technology investments are rising. While cutting programs and staff in some areas, many organizations are actually increasing their investments in technology—moving print publications online, boosting social networking and online marketing, building bigger electronic mailing lists, enhancing data mining efforts, etc.
Boards and staff are stepping up. All those interviewed complimented their board members, noting that their commitments of time have increased even if their financial contributions have not. Staff members also received high praise for continuing to work energetically despite longer hours, less pay, and great uncertainty about the future.
Program and resource collaborations are sporadic. Those groups that were involved in collaborations prior to the downturn are sustaining or expanding them; but there does not appear to be a broad-based turn to resource-sharing or joint program ventures. A few performing arts groups are considering merging prop and costume shops.
Communications within the sector are episodic and not strategic. Those interviewed reported that communication across institutions is largely informal, occasional, and not very candid. While peer groups are meeting to exchange ideas about immediate tactical responses (HR directors meeting to explore options on pay reductions and furloughs, for example), no organized, strategic response is taking place within the sector.
Funders can do more. None of those interviewed expect increased funding from foundations and public agencies, at least in the short-term. But all suggested that funders could help in other ways: by reducing application paperwork or extending current grants an additional year; encouraging program collaborations, joint marketing and resource-sharing; offering loan guarantees or lines of credit; hosting workshops on effective ways to manage the recession; and encouraging arts groups to find solutions in concert with nonprofits outside the arts.
Many we interviewed think this current economic situation is only exacerbating problems and changes that have been developing in the sector for years. Shifting patterns of public and private funding; the elimination of arts education in the public schools; changing demographics, technologies and patterns of leisure time behavior—all these factors have been challenging nonprofit arts groups to re-think their operations and adapt. The groups that seem to be grappling with the recession most capably are those that were affirmatively addressing these larger trends prior to the downturn. As a result, most of these groups have strong benchmarks and data-collecting mechanisms already in place to help them make informed and strategic choices now.
Comparing the projections captured by December 2015 survey with the information collected in the interviews in November shows that conditions are deteriorating more rapidly than expected. While most of those surveyed expected contributions to decline no more than 10 percent, for example, the actual declines reported range between 10 percent and 50 percent. Similarly, almost half of the respondents did not expect to make changes in their programming plans while most later interviewees were projecting reductions, some as much as 30 percent.
Collective Responses
After reviewing a preliminary version of this report, the foundations and public agencies that commissioned the research discussed its findings and agreed there are many suggestions that each funder can use (and some already have). But they also agreed there were things that none would be able to do on its own, and require collective responses. They came to a general consensus that they could collaboratively establish a revolving loan fund to address unanticipated cash-flow problems and short-term financing of some arts groups. This could both provide relief to qualified organizations now, but would also be beneficial over the long term. Other concepts also emerged as priorities for further exploration:
Fund for Dynamic Adaptation Many arts organizations realize that the recession presents an opportunity to re-consider basic assumptions and to plan for a different future. In some cases, this may mean “right-sizing” the organization to a place where its revenue and expenditures are in genuine balance, or re-conceiving the fundamental business model of the enterprise. In other cases, it may mean joining forces with other organizations (including non-arts organizations) to share space, costs, programming, or personnel. And for some, it might mean suspending operations for a period of time, a merger between groups, or complete closure—including the thoughtful disposition of assets and archives, and transitioning of staff.
Even those groups motivated by current circumstances to think unconventionally have few resources to do so. Funders in the Northwest could pool resources to create a fund to encourage dynamic adaptation.
Technology Initiative Many of the groups interviewed for this project noted their acute need to invest more extensively and strategically in technology to make internal operations more efficient and communication with external constituents more dynamic and robust. Some organizations are putting more resources into technology, even as they reduce staff and other costs. Given the region's leadership in technological innovation, a collective investment in upgrading arts groups' infrastructure may have particular appeal and merit in the Puget Sound area
Building the Knowledge Network The need for good communications and regular exchange of information only increases in a crisis. Convening members of the cultural sector is important; ensuring that these sessions provide valuable content and help propel the community forward is essential. Funders could pool resources to offset the costs of organizing and facilitating such gatherings. A number of themes might be pursued, including but not limited to:
Highlighting local examples of effective response;
Sharing the results of relevant research in the Northwest and other regions of the country;
Inviting speakers with a national view and/or expertise in managing nonprofits in economic downturns;
Organizing workshops on specific topics such as scenario planning, cost-sharing, collaborative marketing, filing for bankruptcy, or closing.
Exploring Transformation These collective strategies would address pressing needs in the arts sector and, if implemented, would relieve some important distress in the system. But what if the system itself is a major part of the problem?
Whether one thinks that the arts sector is overbuilt or under-resourced (or both), the cultural community as a whole was troubled before the sudden recession started. Growing deficits, flat or declining audiences, diminished public funding, increasing competition for finite foundation dollars, dwindling coverage of the arts in the print media, an exploding variety of technology-based entertainment options—these and other trends have been building for some time. What we may need is a wholesale reconsideration and transformation of the cultural ecosystem, a re-imagining of the function of arts and culture in 21st century communities.
In a recent article in The Not for Profit Quarterly, Roland Grupt, professor of public service at New York University and an expert on nonprofit management, outlines four potential futures for the nonprofit sector in the wake of the recession: 1) “a rescue fantasy” (nonprofits are saved by a massive, unprecedented increase in charitable giving); 2) “a withering winterland” (all nonprofits suffer and most starve themselves beyond the point of effectiveness); 3) “an arbitrary winnowing” (the survival of the fittest—likely the largest, oldest and most well-connected); and 4) “transformation” (a broad and strategic re-design of the sector that leaves it stronger, more vibrant, more sustainable and more impactful long-term). “The nonprofit sector can always let the future take its course… but in doing so, it would almost surely experience either the withering of organizations that comes from inaction or a random winnowing based on influence and ready cash, not performance. It can reap the benefits of transformation only by deliberate choice.”
Transformation is the most appealing of these scenarios, and probably the most difficult to achieve. So other possible collective strategy for arts funders would be to stimulate and finance a community-wide conversation about the possibility of transformation. This would involve engaging a broad cross-section of people—cultural leaders, philanthropists, policy makers, artists, elected officials, and thought leaders from other nonprofit sectors and commercial enterprises—in dynamic and creative brainstorming about the future of the arts in the region. The goal would be to generate an array of “thought blueprints”—alternative ideas and options—that could be shared with the wider community and lead to progressive change. But even if none of the ideas spawned by such a process were implemented, the exercise itself would enlarge the community's options, connect people to new partners and possibilities, and demonstrate an active rather than passive stance in the face of this unprecedented situation.
Conclusion
The severity of this crisis offers us a rare opportunity to do the hard thinking that we have been avoiding: What kind of cultural community do we want? More important, what kind of cultural community can we truly afford? Should everything survive just because it has been here for a while? How are artists and arts groups really contributing to the lives of area residents? Are we relevant? Let's not waste this chance to ask ourselves the scary questions. That way, we may be able to choose our future, rather than having a Darwinian outcome thrust upon us.
—Executive Director, multi-disciplinary arts center
Funders are moving quickly to use the results of this research. Puget Sound arts funders are exploring several of the ideas for collective action. In collaboration with philanthropic organizations, they organized an in-person discussion of the findings, coordinated a conference call for members across the state, and convened arts groups who had been interviewed. In its own work, the Saul Allen Foundation has reduced the number of questions in its application forms and has moved to an invitation-only application to be clearer with groups about their funding prospects. The faltering economy offers both cultural groups and funders an opportunity to reconfigure themselves for greater synergy and impact—and not just survive the recession, but emerge as stronger, more vital and more relevant community resources when the economy rebounds.
It is clear however, that as the winter draws on, fewer people, with fewer dollars are choosing to support the arts, either with funding, or with personally enjoying the broad range of artistic expression available to the Pacific Northwest.
Published in: SEA Reader, Vol 20, No 1 (Winter 2014)
Harry Sanford/Artists Collaborative
Historical data do not mean anything in this situation. There is no blueprint and there is no network. We are doing the best we can with a combination of hard facts and intuition. Every line item is up for grabs; every $1,000 is material. How we feel about it all depends on which newspaper we read that morning.
—Managing Director, large performing arts group
Introduction
For some years, under the auspices of philanthropy, arts funders in the Puget Sound region have been meeting bi-monthly to discuss issues of common concern. This history of conversation pre-disposed and enabled the funders to act quickly and collectively in response to the economic recession. In December 2015, four funders—the Saul Allen Family Foundation, iCulture (a county agency), the Jet City Foundation and the Mayor's Office of Arts and Cultural Affairs—commissioned Artist's Collaborative to determine the impacts the sudden, sharp downturn in the local economy is having on their institutions, identify previous examples of collaborative responses to local emergencies, and suggest options for collaboration in this situation. In a parallel effort, in December 2015, ArtisticFunders conducted an online survey of eighty-one arts groups in King and Pierce Counties to measure financial impacts at that point in time (State of the Arts: Impacts of Current Economic Conditions on Puget Sound Region Arts Organizations, November 2015).
In November 2015, Artist's conducted interviews with representatives of twenty-eight diverse cultural organizations in the Puget Sound area. On December 9, the funders released Artist's report, The Economic Recession's Impact on Cultural Organizations in the Puget Sound, and launched a series of conversations among funders and cultural groups about the findings and their implications for future action.
Highlights
The primary findings of research are summarized as follows:
Responses are not uniform. Cultural organizations interviewed appear to fall into three general categories—those who are proactively addressing the situation and are actually energized by the challenge (about 25 percent of the interview sample); those who are informed but more cautious in their responses (about 60 percent of the respondents); and those who seem to be in denial, reluctant to make any changes without further confirmation of the need to do so (roughly 15 percent of the sample).
A good offense is the best defense. Foresight is powerful. Those organizations that actively had confronted the major shifts in their environment (changes in demographics, technology and audience behavior, and the limits of the nonprofit arts business model) before the recession appear to be handling the current challenge with the greatest skill.
Focus and nimbleness are more important than size or artistic discipline. Organizations of different budget sizes and different artistic disciplines are experiencing the downturn somewhat differently, but clarity of purpose and organizational agility are what distinguish those who appear to be managing the situation best. Several of those interviewed noted that the highly networked nature of performing arts presenting means that decisions by groups outside of the region have a big impact locally. When a presenter in another city cancels a leg of a dance or music tour, for example, it has immediate ripple effects on both the performing artists as well as other presenters on the tour. This phenomenon is also observed in cancellations of touring visual arts exhibits, but to a lesser extent.
Missions are not being re-considered, although many groups are consolidating programs and operations around their “core” components and eliminating extraneous activity.
Impacts on endowments and contributions are clear—declines range from 10 to 50 percent. Endowment values have dropped in line with the local economic markets (roughly 20-35 percent). Contributions and sponsorships from corporations have fallen even more precipitously (overall 20-50 percent, and in several cases, a complete drop off); contributions from foundations and individuals are also down but less severely (roughly 10-25 percent).
Impacts on audience behavior and admissions are less clear. For most, audiences have declined at least 5-10 percent in comparison to projections, and for some as much as 30 percent. But for a few groups, audiences have risen slightly. Groups that count on advance ticket sales to cover pre-show expenses are experiencing intense cash flow problems. None of the groups interviewed were conducting market research to determine evolving audience attitudes and sensibilities, but many suggested they intended to focus on their “tried and true” audiences, subscribers and donors, postponing or cutting back on efforts to cultivate new audiences.
Number, length, and content of artistic programs are being affected. Most organizations are planning to reduce program schedules in the next 12-18 months, some as much as 30 percent. Visual arts institutions are extending the runs of exhibitions where possible. Many groups intend to shift at least some of their programming toward more “popular,” less experimental material, and to re-mount repertory rather than commission new work.
Staff reductions, hiring freezes, pay and benefit cuts, and furloughs are being instituted. About half of the interviewees have cut positions (ranging from 5 to 30 percent), and re-organized departments. Many have reduced salary for senior staff (up to 15 percent), and curtailed benefits such as contributions to retirement accounts.
Capital campaigns are being extended; maintenance is being deferred. Those that can are postponing renovations and maintenance expenses. Those planning or in the midst of capital campaigns are extending the timelines for these efforts.
Technology investments are rising. While cutting programs and staff in some areas, many organizations are actually increasing their investments in technology—moving print publications online, boosting social networking and online marketing, building bigger electronic mailing lists, enhancing data mining efforts, etc.
Boards and staff are stepping up. All those interviewed complimented their board members, noting that their commitments of time have increased even if their financial contributions have not. Staff members also received high praise for continuing to work energetically despite longer hours, less pay, and great uncertainty about the future.
Program and resource collaborations are sporadic. Those groups that were involved in collaborations prior to the downturn are sustaining or expanding them; but there does not appear to be a broad-based turn to resource-sharing or joint program ventures. A few performing arts groups are considering merging prop and costume shops.
Communications within the sector are episodic and not strategic. Those interviewed reported that communication across institutions is largely informal, occasional, and not very candid. While peer groups are meeting to exchange ideas about immediate tactical responses (HR directors meeting to explore options on pay reductions and furloughs, for example), no organized, strategic response is taking place within the sector.
Funders can do more. None of those interviewed expect increased funding from foundations and public agencies, at least in the short-term. But all suggested that funders could help in other ways: by reducing application paperwork or extending current grants an additional year; encouraging program collaborations, joint marketing and resource-sharing; offering loan guarantees or lines of credit; hosting workshops on effective ways to manage the recession; and encouraging arts groups to find solutions in concert with nonprofits outside the arts.
Many we interviewed think this current economic situation is only exacerbating problems and changes that have been developing in the sector for years. Shifting patterns of public and private funding; the elimination of arts education in the public schools; changing demographics, technologies and patterns of leisure time behavior—all these factors have been challenging nonprofit arts groups to re-think their operations and adapt. The groups that seem to be grappling with the recession most capably are those that were affirmatively addressing these larger trends prior to the downturn. As a result, most of these groups have strong benchmarks and data-collecting mechanisms already in place to help them make informed and strategic choices now.
Comparing the projections captured by December 2015 survey with the information collected in the interviews in November shows that conditions are deteriorating more rapidly than expected. While most of those surveyed expected contributions to decline no more than 10 percent, for example, the actual declines reported range between 10 percent and 50 percent. Similarly, almost half of the respondents did not expect to make changes in their programming plans while most later interviewees were projecting reductions, some as much as 30 percent.
Collective Responses
After reviewing a preliminary version of this report, the foundations and public agencies that commissioned the research discussed its findings and agreed there are many suggestions that each funder can use (and some already have). But they also agreed there were things that none would be able to do on its own, and require collective responses. They came to a general consensus that they could collaboratively establish a revolving loan fund to address unanticipated cash-flow problems and short-term financing of some arts groups. This could both provide relief to qualified organizations now, but would also be beneficial over the long term. Other concepts also emerged as priorities for further exploration:
Fund for Dynamic Adaptation Many arts organizations realize that the recession presents an opportunity to re-consider basic assumptions and to plan for a different future. In some cases, this may mean “right-sizing” the organization to a place where its revenue and expenditures are in genuine balance, or re-conceiving the fundamental business model of the enterprise. In other cases, it may mean joining forces with other organizations (including non-arts organizations) to share space, costs, programming, or personnel. And for some, it might mean suspending operations for a period of time, a merger between groups, or complete closure—including the thoughtful disposition of assets and archives, and transitioning of staff.
Even those groups motivated by current circumstances to think unconventionally have few resources to do so. Funders in the Northwest could pool resources to create a fund to encourage dynamic adaptation.
Technology Initiative Many of the groups interviewed for this project noted their acute need to invest more extensively and strategically in technology to make internal operations more efficient and communication with external constituents more dynamic and robust. Some organizations are putting more resources into technology, even as they reduce staff and other costs. Given the region's leadership in technological innovation, a collective investment in upgrading arts groups' infrastructure may have particular appeal and merit in the Puget Sound area
Building the Knowledge Network The need for good communications and regular exchange of information only increases in a crisis. Convening members of the cultural sector is important; ensuring that these sessions provide valuable content and help propel the community forward is essential. Funders could pool resources to offset the costs of organizing and facilitating such gatherings. A number of themes might be pursued, including but not limited to:
Highlighting local examples of effective response;
Sharing the results of relevant research in the Northwest and other regions of the country;
Inviting speakers with a national view and/or expertise in managing nonprofits in economic downturns;
Organizing workshops on specific topics such as scenario planning, cost-sharing, collaborative marketing, filing for bankruptcy, or closing.
Exploring Transformation These collective strategies would address pressing needs in the arts sector and, if implemented, would relieve some important distress in the system. But what if the system itself is a major part of the problem?
Whether one thinks that the arts sector is overbuilt or under-resourced (or both), the cultural community as a whole was troubled before the sudden recession started. Growing deficits, flat or declining audiences, diminished public funding, increasing competition for finite foundation dollars, dwindling coverage of the arts in the print media, an exploding variety of technology-based entertainment options—these and other trends have been building for some time. What we may need is a wholesale reconsideration and transformation of the cultural ecosystem, a re-imagining of the function of arts and culture in 21st century communities.
In a recent article in The Not for Profit Quarterly, Roland Grupt, professor of public service at New York University and an expert on nonprofit management, outlines four potential futures for the nonprofit sector in the wake of the recession: 1) “a rescue fantasy” (nonprofits are saved by a massive, unprecedented increase in charitable giving); 2) “a withering winterland” (all nonprofits suffer and most starve themselves beyond the point of effectiveness); 3) “an arbitrary winnowing” (the survival of the fittest—likely the largest, oldest and most well-connected); and 4) “transformation” (a broad and strategic re-design of the sector that leaves it stronger, more vibrant, more sustainable and more impactful long-term). “The nonprofit sector can always let the future take its course… but in doing so, it would almost surely experience either the withering of organizations that comes from inaction or a random winnowing based on influence and ready cash, not performance. It can reap the benefits of transformation only by deliberate choice.”
Transformation is the most appealing of these scenarios, and probably the most difficult to achieve. So other possible collective strategy for arts funders would be to stimulate and finance a community-wide conversation about the possibility of transformation. This would involve engaging a broad cross-section of people—cultural leaders, philanthropists, policy makers, artists, elected officials, and thought leaders from other nonprofit sectors and commercial enterprises—in dynamic and creative brainstorming about the future of the arts in the region. The goal would be to generate an array of “thought blueprints”—alternative ideas and options—that could be shared with the wider community and lead to progressive change. But even if none of the ideas spawned by such a process were implemented, the exercise itself would enlarge the community's options, connect people to new partners and possibilities, and demonstrate an active rather than passive stance in the face of this unprecedented situation.
Conclusion
The severity of this crisis offers us a rare opportunity to do the hard thinking that we have been avoiding: What kind of cultural community do we want? More important, what kind of cultural community can we truly afford? Should everything survive just because it has been here for a while? How are artists and arts groups really contributing to the lives of area residents? Are we relevant? Let's not waste this chance to ask ourselves the scary questions. That way, we may be able to choose our future, rather than having a Darwinian outcome thrust upon us.
—Executive Director, multi-disciplinary arts center
Funders are moving quickly to use the results of this research. Puget Sound arts funders are exploring several of the ideas for collective action. In collaboration with philanthropic organizations, they organized an in-person discussion of the findings, coordinated a conference call for members across the state, and convened arts groups who had been interviewed. In its own work, the Saul Allen Foundation has reduced the number of questions in its application forms and has moved to an invitation-only application to be clearer with groups about their funding prospects. The faltering economy offers both cultural groups and funders an opportunity to reconfigure themselves for greater synergy and impact—and not just survive the recession, but emerge as stronger, more vital and more relevant community resources when the economy rebounds.
It is clear however, that as the winter draws on, fewer people, with fewer dollars are choosing to support the arts, either with funding, or with personally enjoying the broad range of artistic expression available to the Pacific Northwest.