This article is from the Nonprofit Quarterly’s winter 2015 edition, “When the Show Must Go On: Nonprofits & Adversity.”
There is ample evidence to demonstrate that nonprofit arts and culture organizations in the United States are rebounding from the Great Recession—albeit more slowly than other parts of the nonprofit sector. The 2014 National Arts Index compiled by Americans for the Arts notes that while the overall economic recovery began in 2009, it did not positively affect the arts until 2012.1 A report from the Urban Institute in 2014 showed that more arts, culture, and humanities nonprofits took the largest hit—proportionately—on revenue during the recession, and also had the largest decrease in total numbers of organizations of any of the subsectors studied.2 Two more-recent reports—one from the Nonprofit Finance Fund (NFF), based on a 2015 nationwide survey of 906 nonprofit arts leaders, the other from the Greater Philadelphia Cultural Alliance, based on data from 5,502 cultural nonprofit organizations in eleven metropolitan areas—highlight some positive trends, as well as continued areas of concern, for the cultural sector.3
Our purpose here is to consider preexisting conditions that made the arts sector particularly vulnerable to the recession, as well as to evaluate actions taken by arts leaders—first to stabilize their organizations, then to experiment with new approaches to delivering their missions. We will begin with three structural weaknesses of the sector that were present, though perhaps not fully understood, before the economy collapsed—the recession exacerbated each of these underlying problems, and in some ways created a sense of urgency around them. We will discuss ways the community has responded to the postrecession landscape. We will end with lingering questions about the future of artmaking organizations.
Three significant areas of weakness were already at play in the nonprofit arts sector before 2008: (1) arts organizations generally were undercapitalized, with only modest liquid assets available to cover unexpected costs or see them through a rainy day (or rainy five years); (2) audiences and traditional audience behaviors were changing in important ways; and (3) employment practices at both the smallest and the largest cultural institutions were showing signs of strain.
For decades, many nonprofit arts organizations operated with zero-based budgets, aiming to break even at the end of each fiscal year. In fact, philanthropic support often hinged on break-even budgeting, and nonprofit arts groups were sometimes penalized by funders if they showed operating surpluses. This dynamic began to shift in the early 2000s, as funders increasingly looked for healthy balance sheets. But many arts groups were not able to adjust their budgeting models or build up operating reserves before the economic downturn, and most did not have a “Plan B” in place. A study commissioned by The Pew Charitable Trusts, the William Penn Foundation, and leading funders of the arts in the Philadelphia region—and carried out by researchers at TDC—highlighted two key reasons why nonprofit arts groups needed to focus on capitalization:4 (1) to avoid the “distracting and debilitating” stresses of working with narrow operating margins or even deficits; and (2) to continue to allow for innovation and experimentation and provide a cushion for artistic risk taking, rather than being “one failure away from closing.” Of course, arts leaders—board and staff—ought to have been asking “what if” questions about slim operating margins all along; and no doubt some were, although they seem to have been in the minority.
By their very nature, arts organizations are entities that need to invest in new works and take chances, which means there is an ongoing need for reserve funds—both as “R&D” capital and as a cushion for the projects that don’t succeed artistically and/or financially. Many arts organizations had to learn this lesson in real time when the recession hit: some saw steep losses in investment income eroding what cushions they had; others were caught midstream in capital campaigns or real-estate investments that floundered; some simply couldn’t keep the lights on, and closed shop. And, since no one knew how long the dark days would last, even those with reserves had to guess at how much spending down was tolerable—and many guessed incorrectly.
Foundations mostly maintained their prior levels of arts funding during the early years of the recession—until investment losses caught up with their giving cycles. Still, the sector had to think differently about capitalization, and do so at a time when just breaking even was harder than ever—virtually all categories of earned and contributed income waned as the recession wore on, and cost-cutting measures meant that many arts groups learned to live with deficits, to defer facilities maintenance, or to make difficult choices that helped the balance sheets but destabilized them in other ways.
Another shift that began before the economic downturn was a decline in subscriptions for performing arts groups and in memberships or dues for other types of cultural organizations. A number of factors were at play: increasing competition from within the growing arts sector for consumers’ time and money; a consumer trend toward “à la carte” cultural experiences rather than commitment to full seasons of programming; and declining audiences for traditional arts, like classical music and opera.
Arts groups that historically had done well with subscriptions or memberships could no longer rely on a healthy infusion of up-front earned revenue to cover the costs of presenting a season of performances or year-round exhibitions, or to make payroll and maintain facilities. Newer organizations sometimes attribu