Funders Convene in Seattle

Memo
To: David Landers
From: Holly Sidford
Re: December 4 Conference Call
Date: December 29, 2008

As promised, this memo summarizes the main points I made during the conference call of Northwest area foundations on December 4. I apologize for the delay in getting these notes to you; pre-holiday deadlines seem to have stolen several weeks of my time. But I suspect with all the snow you've had, you may have lost a few work days yourself. I hope you are shoveled out and back in business.

I'm happy to discuss these further with you, or clarify anything that seems opaque. Thank you again for including me in that interesting session.

My remarks were framed by six questions posed before the call, as follows:

1. What are the implications of shifts in earned and contributed income, endowments, cash reserves and other investment portfolios; audience behaviors; corporate, foundation, public and individual giving?

Response:

• All the signs are negative, and scarier than any patterns we've seen in other recessions during our lifetimes. This is likely to be a perfect storm—not just for the arts but for all nonprofit sectors. Cultural organizations depend on four sources of revenue: ticket sales and admissions and other fees for service; government contracts; charitable contributions; and other income such as interest on investments or facilities rentals. As the economy slides, all these revenue sources are crumpling. People scared about losing their jobs are not buying tickets or memberships (and those that are spending on arts events are showing a decidedly conservative taste). Foundations and wealthy donors whose portfolios are shrinking are pulling back on contributions (and some are reneging on pledges of long-standing). Corporations are cutting their contributions, and not spending as lavishly on entertainment, so there are fewer rentals of arts facilities for corporate soirees. The relatively few arts organizations that have accumulated endowments or cash reserves are seeing the value of these investments fall. Government sources are cutting back and—even worse—in some cases, failing to reimburse organizations for services already rendered under grants or contracts.
• Perhaps less obvious, but also important, are the effects of our national and global inter-connectedness. Many performing arts presenters in the Northwest, for example, partner with other presenters on touring national or international performing arts groups. If one or more of the partners cannot fulfill its commitment, that will cause trouble for others. Similarly in the museum world, many institutions collaborate on developing and touring exhibitions. If one institution decides to pull out of the project, it will have negative consequences for others.
• The current economic crisis only exacerbates and further illuminates trends in the nonprofit arts that have been building for some time. These trends include the decline in public support for the arts at all levels; the need for stronger business plans and more diverse sources of income (or, failing that, reductions in expenses); the under-capitalization and over-extension of the sector financially and terms of human resources; and technology's influence on consumer behavior (which poses multiple challenges to arts organizations).
• We are telling our clients that they should be actively developing alternative scenarios, and at least one of those scenarios ought to include a 30% drop in revenue for next year and the two years following. If the stock market is down 30-40%, major foundations have lost equivalent amounts in their portfolios, the auto industry and the financial sector are in free fall, can we expect something better for the arts community?

2. When organizations are in crisis, how can funders talk about retrenchment, closure or merger?

Response:

• What better time than the present? This crisis should be forcing organizations to consider a range of options and, in some cases, to fundamentally re-think their future. As the competitiveness expert Michael Porter, at Harvard, said in a recent article in Business Week: “Short-term crises create opportunities to address long-term challenges.”
• To repeat myself, those organizations that are not anticipating significant reductions in income are deluding themselves. (And in my view, “fear itself” is not the only thing we have to fear—in the arts community, delusion is a much bigger worry than fear.)
• I think everyone can cut 10% out of a budget and still have a recognizable entity—smaller, tighter, but recognizable. That is not true when the cut is 30% or 40% or more—then you must re-think fundamental assumptions, and be budgeting for a different organization.
• I listened this week to the Congressional hearings on the auto industry. A representative from the General Accounting Office asked a very important question: What is the problem we are trying to solve?
• “What is the problem we are trying to solve?” I think this is the question that every arts organization, and every funder, should be asking itself. Are we trying to find a way to put our finger in the dyke and forestall the inevitable? Or are we trying to understand the lessons of the past and find the opportunity in the current changes we are experiencing? Are we trying to hold on to the past or invent the future? Are we trying to save existing arts organizations or build cultural enterprises adapted to the realities of the 21st century? In my view, the realities of the 21st century are not going to support the cultural establishment that we now have, and cultural groups of all kinds must seriously re-consider how they contribute to their communities, construct sustainable business models, and attract and retain talent.
• Anne Focke quoted Bill Ivey, and I concur with Bill's view that we are at the end of an era. In the arts, we are either overbuilt or under-resourced (depending on your point of view), but either way, what we have is unsustainable. As Ivey and his associate Steven Tepper outline in their book Engaging Art, the trends point toward people's greater participation at the grassroots and informal levels and away from involvement with established cultural institutions. Shrinking philanthropic and public support combined with declining audiences can present a death sentence to arts organizations, or an opportunity for creative re-invention.

3. How can funders identify and support innovative organizations that use this as an opportunity to change and grow?

Response:

• I don't think funders need spend much time worrying about identifying innovative organizations—surely they will find you.
• But there are going to be many groups who will claim their approach is innovative, so some guidelines for considering their proposals might be useful.
• If I imagine myself in the funder's seat now, I might use five general guidelines to test the viability of change efforts:
  • Analysis and anticipation: Is the group thinking deeply about their future audiences and means of support, or just looking to fill a current hole in their revenue? Are their plans informed by demographic, economic and technological projections? Do they have at least a couple of scenarios about their financial future (including one that accounts for significant reductions in revenue)?
  • Attitude: What is the attitude of the organization, its general stance toward this situation? Are they in a retrenchment mode, a defensive mentality, holding on at all costs to their current iteration? Or do they see opportunity here and are they genuinely re-thinking assumptions embedded in their mission, program, community engagement, finances and structure? Are they exploring new kinds of partnerships, and cost-saving or cost-sharing arrangements?
  • Adaptability: What is the organization's history of adapting to external changes? What is the leadership's track record on eliminating programs or services that are no longer viable? Is the group known for seizing strategic opportunities? Is the organization capable of evolving?
  • Articulation: How clear is the proposed plan? Does the business plan make sense? Has it been vetted with internal and external stakeholders? Has the organization gone beyond the “usual suspects” in formulating this plan, and identified genuinely new strategies? Does it have at least some track record in working these strategies? (For example, if it's a technology-based innovation, does the group have experience in this realm and is its plan based on solid research?)
  • Audacity: Is there boldness in the plan equal to the seriousness of the situation?

4. What is the impact of the international context and tourism?

Response:

• As I mentioned earlier, Northwest area performing arts presenters and other cultural institutions have extensive relationships with their counterparts overseas. And given that the economic crisis is global, these international partners are likely to experience financial difficulties also, and may not be able to fulfill their agreements for tours or cultural exchanges. This could have negative consequences for cultural groups in the Northwest. Similarly, constrained budgets will make it harder for staff of Northwest area cultural groups and artists to travel abroad, plan international exchanges or invite their counterparts to visit here.
• I'm not an expert in tourism, but all I've read suggests that discretionary travel will suffer considerably in the next 12-18 months. “Staycations” are going to become more the norm, both in this country and others. So cultural groups can anticipate declines in out-of-town visitors that will have impacts on local economies, which then will have additional impacts on arts groups. And as you know, many groups are dependent on “bed tax” funding, so drops in tourism will impact the revenue generated by such taxes. Encouraging local and regional tourism, presumably, should be the central focus for the immediate future.

5. What is the impact of decreasing media coverage given widespread layoffs?

Response:

• The decline in arts coverage in the media (print and tv) is a trend that has been obvious for some time, and the current economic crisis only highlights it rather than creating it.
• In my view, the entire “media” conversation is moving to the Internet, and the blogosphere in particular. There has been no decrease in activity there—quite the contrary, there's a huge increase in various kinds of arts commentary and criticism online. This seems to me to be an area of tremendous opportunity. Not without some perils, but generally positive. The more people who are seeing work and sharing their opinions about it with others, the better.

6. What are the indicators of a healthy arts sector?

Response:

• Maria-Rosario Jackson, a researcher at the Urban Institute who has worked for many years on classifying indicators of community cultural health, suggests there are three main components of cultural vitality in a community:
  1. the presence of opportunities for cultural participation—the availability of options
  2. actual cultural participation itself—the depth, breadth and variety of the people who participate, as well as how they participate
  3. support for cultural participation—the informal and institutionalized ways that culture is resourced
• In my view, the health of an arts sector is directly related to its relevance to its community. If an arts sector—or an individual arts institution—is not authentically connected to its community, then it will not be adequately supported. It may be supported by individual patrons or foundations for some time, but without a broad community base, it will weaken over time. Particularly in eras of constraint, people are drawn to the cultural experiences that give them deepest pleasure and meaning. This will be a rough test for many cultural institutions and the arts sectors in many communities.

Closing comments

• Anne mentioned the comments of Peter Hutchinson at the Grantmakers in the Arts conference this year. “This situation is a set-up for the arts.” What Peter meant is that this is a time when people are hungry for higher meaning, for connection with others, for the inspiration and stimulation and reassurance that the arts can provide. As the dominant ethos of material success is challenged by the current economic crisis and by growing concerns about saving the planet and larger issues of social justice, people are turning inward for meaning and comfort—for things that will feed the soul. Music, poetry, visual imagery, theater, dance â�� the arts are important sources of nourishment for the spirit and they help people make sense of troubled times. This is why musicians played in the London Underground during the Blitz and why poets and musicians performed for people on the streets of New York after 9/11. It's why the WPA employed muralists and photographers and playwrights to create great public works during the Depression.
• We will survive this turmoil; the economy will rebound eventually. But what do we want people to remember about the arts during this recession? That they helped people sustain their spirit and their hope and their sense of connection with each other? Or that a set of cultural institutions managed to survive?
• While you may be looking at fewer philanthropic resources to dispense, you are still in business. And your purpose is a charitable one. Even as you try to craft a strategic response to this unprecedented situation, I urge you to stay open to possibility. Think about various ways you can ease the situation for your constituents. You may decide only to accept proposals from groups you've already funded—but can you make those operating instead of project grants? Or supplement last year's grants with a second year of funding now, without extensive application procedures? Can you simplify application processes, or change some of your other practices?
• Finally, please remember the least among us. Many of the arts groups that serve working families and poorer neighborhoods will be hardest hit by the current economic crisis—they are the ones most heavily dependent on grants from government sources and foundations. This recession will have differential impacts, and part of your opportunity as funders is to anticipate and understand those differences, and act accordingly.

Thank you for including me in this conversation.