Puget Sound Funders Act Together

Introduction

For some years, under the auspices of Philanthropy Northwest, 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 2008, four funders—the Paul G. Allen Family Foundation, 4Culture (a county agency), the Seattle Foundation and the Seattle Mayor's Office of Arts and Cultural Affairs—commissioned Helicon Collaborative to determine the impacts the 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 2008, ArtsFund 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, January 2009, ArtsFund).

In January 2009, Helicon conducted interviews with representatives of twenty-eight diverse cultural organizations in the Puget Sound area. On March 9, the funders released Helicon'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 Helicon's 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 stock market (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 ArtsFund's December 2008 survey with the information collected in the Helicon interviews in January 2009 shows that conditions are deteriorating more rapidly than expected. While most of those surveyed by ArtsFund expected contributions to decline no more than 10 percent, for example, the actual declines reported to Helicon in January range between 10 percent and 50 percent. Similarly, almost half of the ArtsFund respondents did not expect to make changes in their programming plans while most Helicon interviewees were projecting reductions, some as much as 30 percent.

Suggestions for Funders

Responses from the interviews fell into four main areas:

Flexibility All those interviewed urged both public and private sector funders to be more flexible in recognition of the special economic circumstances. Specific recommendations included:

• Allowing groups to renegotiate or re-purpose their grants, if necessary, to address unanticipated circumstances.
• Extending existing grants (ie, adding a year of additional funding with a minimum of additional paperwork).
• Simplifying grant application procedures to reduce the time groups spend in the “fundraising dance.”
• Funding collaborative projects such as joint marketing, centralized ticket functions, or consolidating back-offices of several organizations.

Candor Organizations realize that most funders are being buffeted by the economy, and many cannot forecast the resources they will have available for grants. Even so, organizations hope that funders will be as open with them as the organizations have been with the funders. Specific recommendations included:

• Keeping current grantees up to date on the options funders are considering and the allocation decisions they are making.
• Letting organizations know as early as possible about whether they will not receive support. Bad news is hard to take, but it's easier to recover if the news comes early in the organization's planning cycle.

Advocacy Multiple organizations mentioned the need for funders to individually and collectively advocate for the area's arts and cultural sector, internally within their foundations and public agencies, and externally with elected officials and other community leaders. This would ensure that

• The arts are part of the larger conversation about the recovery of the region's nonprofit sector—linking the arts to education, social services, economic development, and environmental issues.
• Artists and cultural organizations have a role in the local administration of funds from the federal Recovery and Reinvestment Act.

Leadership Cultural groups look to the Northwest area public and private sector funders for both strategic leadership and a long-term perspective. Specific ideas for leadership initiatives included:

• A systematic effort to broker partnerships on space, programs, fundraising, administrative services, and audience engagement—within the cultural community and between the arts and other sectors.
• A collaborative marketing or advertising campaign.
• Revival of the National Arts Stabilization Program in Seattle, or adapting other programs that have been successful in re-capitalizing arts groups.
• A “Sunsetting Fund” or other incentives to encourage marginal groups to cease operation.
• Funds for “hybrid” organizations that use nonprofit and commercial strategies.
• Using foundation assets in ways other than grantmaking: offering to guarantee loans for cultural groups in good standing; providing bridge financing for groups suffering cash flow problems; or extending lines of credit.
• A revolving loan fund, like that in San Francisco, for cultural groups in the Northwest.

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 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 Nonprofit Quarterly, Paul Light, 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.” ¹

Transformation is the most appealing of Light's 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

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 GIA and Philanthropy Northwest, they organized an in-person discussion of the findings, coordinated a conference call for GIA members across the country, and convened arts groups who had been interviewed. In its own work, the Paul G. 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.