How Are Private Funders Responding to Cuts in Public Funding?

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Public agencies of all kinds are facing severely constrained budgets as a result of the ongoing effects of the recession, escalating public debt, and slow economic growth. States, in particular, are in rough financial shape. In FY 2012, forty-two states and the District of Columbia had budget deficits totaling $103 billion. This is on top of similarly large budget deficits that most states have faced each year since 2008.¹ As a result of a slow economic recovery and the expiration of federal recovery aid funds, states are having to substantially trim expenses in order to balance their budgets, making significant cuts to social services, education, the arts, and other sectors. Public resources are further strained by increased demand for social safety net services like Medicaid and food stamps as a result of sustained high unemployment levels.

State and local funding plays a unique role in the nonprofit arts ecology, and declines in public funding will have both immediate and long-term effects on cultural organizations of all kinds. Private funders, who fill a much different but complementary role in supporting the nonprofit arts sector, are finding that lower levels of public funding have implications for their work as well.

Grantmakers in the Arts commissioned Helicon Collaborative to research how private funders are thinking about and responding to public-sector cuts. During July and August 2011, Helicon conducted an online survey of GIA’s members, interviewed seventeen public- and private-sector funders and reviewed a range of resources about this issue.

Public Funding Trends

Between 2001, when legislative appropriations to state arts agencies were at their peak, and 2011, appropriations declined 39 percent, from $450.6 million to $276 million. Direct expenditures on the arts by local governments have declined by almost 20 percent in just the past three years, down $169.5 million — from a high of $858 million in 2008 to $688 million in 2010. Calculating these drops cumulatively, since 2001 the arts sector has lost more than $1.2 billion in state support alone, not adjusting for inflation.² More detailed data on public funding streams from 1986 through 2011 can be found in this issue on pages 12–13.

Since the recession started in 2008, forty states and Washington, D.C., have decreased their allocations for the arts. The degree of magnitude of the cuts has ranged quite dramatically. Ten states have made extreme cuts of over 50 percent of their arts budgets. Five states were on the other end of the spectrum, experiencing cuts of less than 10 percent of their budgets. The remainder of the states that experienced cuts were somewhere in between. The median size cut over the four-year period was 35.8 percent.

Two states received no legislative appropriations at all in 2012: Kansas and Arizona. Both states have seen the rise of a very conservative political movement, with a strong Tea Party component, that does not believe that government should play any role in funding the arts. The Kansas Arts Commission is not receiving state funding this year. The Arizona Commission on the Arts has alternative sources of revenue that allow it to continue to function, albeit with a much reduced capacity. The experiences of these two states demonstrate that the current challenges facing some state arts agencies are ideological as well as economic. While many states are making cuts to arts budgets reluctantly and in proportion to cuts to other government agencies, some are singling out the arts to make a point about what government should and should not do.

Many of the states that received increases in funding for the arts have natural resource reserves and so were sheltered from some of the impacts of the economic recession. Of the ten states that saw their budgets increase over this period, three states experienced dramatic increases: Arkansas (88 percent), Wyoming (98 percent), and Minnesota (186 percent).³ Wyoming and Minnesota now receive the most money per capita of all states.

Funding Ecology

Public funding — both state and local — has immense value to the cultural sector above and beyond the dollar amounts involved. In fact, because state and local arts agencies distribute their resources across a very broad constituency, their grant amounts can be small relative to other sources of revenue for many arts organizations. However, most public arts agencies’ select their grantees through rigorous peer-panel processes, which involves a high level of due diligence about quality and relevance. This functions as a “seal of approval” that often unlocks other sources of support. Many private funding sources — foundations, corporations, and individuals — look for evidence of public funding as a prerequisite for their own grants. If they have not received public funds, cultural groups may be excluded from other sources of support.

State arts agencies fulfill a unique and critical function in the arts ecology by virtue of their statewide reach. Few private funders operate arts programs statewide, which means that they do not have a statewide perspective on the needs and activities of the cultural sector, and they lack the ability or mandate to act on state-level initiatives. As a result, state arts agencies are often the only entity that can coordinate statewide initiatives or connect the arts with other areas of public policy, such as education, community development, and economic development. This convening and coordinating capacity is essential in the development of innovative new services (such as the Cultural Data Project) and in a variety of multisector planning conversations that occur at the state level.

Finally, public agencies are important because of the kinds of support they offer and the range of organizations they fund — both more broad-based than most private funders. Many public agencies provide general operating support, which is critical to cultural institutions’ ability to fund the basic costs of doing business. In addition, they often provide technical assistance programs, networking opportunities, and information services that private funders are not equipped to offer. Public agencies will support smaller and newer groups, and community-based organizations, where private funders might not. Because they have a statewide reach, they often fund in rural regions or areas of the state that are not served by private foundations. Recent information from the Cultural Database Project, for example, indicates that Bay Area groups with budgets under $250,000, on average, received 24 percent of their funding from local, state, and federal government sources, while public funding accounted for only 6 percent of revenue for groups with budgets over $1 million.⁴

Responses by Private Funders

Both public and private funders recognize that the mandate of private funders is substantially different from that of public agencies. In the survey and interviews for this report, several funders indicated that their charters or missions specifically prohibited them from replacing public funding. In addition, private foundations have also been hit by the recession, and many have fewer funds to fulfill their existing commitments, let alone add new ones. For multi-purpose foundations, the pressure to address safety net and social service issues continues to escalate, which makes increasing arts funding more difficult. Despite these challenges, our research indicates that some private funders are adjusting their work to respond to the effects that public funding cuts are having on the arts ecosystem.

The survey of GIA members conducted for this project generated responses from seventy-seven funders located in twenty-five states. Slightly more than half (57 percent) of survey respondents indicated that they have not changed their grantmaking approach in response to declines in public funding. The thirty-two survey respondents who have shifted their programs or funding have done so by increasing support for:

• Arts education
• Arts service organizations
• Small organizations
• Artists
• Community-based arts programs and organizations
• Technical assistance
• Operating support

In addition, some foundations have increased their commitment to convening cultural leaders and providing forums for discussion of issues and concerns.

It’s worth noting that private arts funders have increased their commitment to operating support substantially in the past twenty years. The Foundation Center’s report in this issue confirms that 35 percent of private funders’ grants went to operating support in 2009, up from just 13 percent in 1989. This reflects a growing awareness of the importance of this type of support.

Approximately half of the respondents (thirty-nine foundations) reported that they partner with their state arts agency, working together on:

• Joint funding of programs
• Joint data gathering or research
• Regranting programs
• Information sharing
• Public education and policy work

Three-quarters of the survey respondents (fifty-four foundations) work with their local arts agencies in a variety of ways.

In interviews we heard that the degree to which private and public funders are working together now to address declines in public funding is related to their history of collaboration. In many states, private and public arts funders have little background in collaboration, and it is hard to start new partnerships in times of constraint. “For the most part, the state arts councils and the private foundations are two trains running on separate tracks. There has been little connection and almost no joint planning or coordination,” said one private funder. There are exceptions to this general rule. In Indiana, for example, recent cuts have spurred the state arts council to convene private funders to assess the cultural ecology, identify issues of common concern, and select a few areas in which they can collaborate or coordinate their actions.

Those states where public and private funders do have a history of collaboration have not been less susceptible to cuts, but they are more likely to be sharing information and communicating about appropriate responses. In Washington, where the State Arts Commission has been cut 57 percent since 2008, public and private funders say that tough times have brought them closer together by necessity, and they are sharing information and pooling resources for high-impact initiatives, like convenings. States that have implemented the Cultural Database Project have established a baseline for collaboration (public-private partnership is a prerequisite for participation in this program). Public and private funders in Arizona and Pennsylvania report that the history of working together on a complex project like the CDP has paved the way for coordinated and responsive action now.

No one believes that private funders can fill the gap left by public funding cuts, and neither public nor private funders we spoke to think that is desirable. “Public support for the arts is as important for psychological reasons as for anything else,” said one foundation officer. “Mostly it speaks of city or state’s acknowledgement that the arts are important for quality of life, that the arts make a place an exciting place to live.”

Implications for Private Funders

While private funders may not be changing their strategies and activities in response to declines in public funding, interviewees all acknowledged that these cuts will have significant implications for their work.

Fewer public resources will mean more cultural organizations will be looking to private funders for assistance, and those already receiving private funding will be making the case for increased aid. In addition, private funders may lose an important mechanism for vetting the quality of cultural organizations. “For lack of funds, the public agencies may have to change their grant review system or cease making grants at all,” said one foundation officer. “If this happens, we won’t know if the lack of public funding for a given organization means that their programs aren’t deserving, or if they don’t have funding because the state doesn’t.” As a result, private funders may have to invest in new due diligence mechanisms in order to reach beyond their current funding portfolio.

The cultural system is an ecology composed of a web of interconnected, diverse organizations of different sizes that are focused on a broad range of art forms and that serve a broad spectrum of communities. Without public funding, certain parts of this ecosystem will suffer more than others. It may not be possible for private funders to fill in these gaps, but the cuts will have implications for the shape and vibrancy of the cultural ecology as a whole, and for different communities’ access to arts and cultural programs.

Looking to the Future

Are current cuts to public funding a temporary blip or a permanent shift? A majority of survey respondents (56 percent) believe that current funding cuts mark a permanent decline in public funding for the arts that will not rebound when the economy does. Nearly seven in ten survey respondents believe that even if funding is restored, what is funded and how it is funded will change in the future.

Interviewees agree that the future for public funding will be different than it was in the past. “Public funding for the arts is going to have to be squarely focused on serving people, not institutions,” said one state arts agency director. “That idea is so foreign to our sector that it’s a revolution in thinking, but it will be the only grounds on which we can restore funding.” “Public arts agencies need to evolve,” suggested the director of another state arts council. “In ten years, the state arts agencies are not going to look essentially identical, as they do now, but may look very different from one another as they evolve in response to their local conditions.” A private funder suggested, “Unfortunately, many public arts agencies are not considered to be progressive, relevant, or accountable. In numerous places, arts agencies are not seen as effective as public agencies in other sectors — housing, education, community development, and health, for example. They’re going to need to be more in touch with what’s happening in communities, and more responsive to the public if they are to get more public support.”

Recommendations

Private funders have many concerns, as well as escalating demands on their time and attention. But the severe cuts to the budgets of most public arts agencies will have both short-term and long-term consequences for private funders. This may be a time for private funders to rethink their relationship to the public funding system, and act in new ways to address the long-term prospects for public-sector support. Here we offer a few suggestions:

• Engage in conversation. Talk with public arts agencies about what’s going on and the possibilities for joint action. Are there opportunities for new public-private partnerships related to research, programming, or advocacy that will help maximize resources and impact?
• Consider the implications of public funding cuts on the cultural ecology. Which kinds of organizations and communities are most dependent on public funding sources, and therefore least capable of finding replacement funds from private or individual sources? What might that mean for your foundation’s work?
• Look across sectors and learn from others. Private funders in all sectors are dealing with the impacts of public funding cuts and increased community needs. Grantmakers for Effective Organizations has sponsored cross-sector conversations about this issue. Are there ways that arts funders can work with foundation colleagues in other fields to address common issues and have a stronger impact?
• Participate in making the case for the public value of the arts. In what ways can private funders contribute to making the argument that the arts are a necessity rather than an amenity?⁵
• Help cultural groups explore business models that are less reliant on foundation or government income. What are great examples of developing individual donor and earned income strategies, for example, and how can they be replicated?
• Champion alternative public funding mechanisms that have been successful elsewhere. Public agencies in Minnesota, Arizona, Cuyahoga County, Ohio, King County, Washington, and Denver are among those that have revenue streams independent of legislative appropriations. How can these examples be used to stimulate more diversified revenue bases for public support of the arts in other locales?

Notes

1. Elizabeth McNichol, Phil Oliff, and Nicholas Johnson, States Continue to Feel Recession’s Impact (Washington, DC: Center on Budget and Policy Priorities, updated June 17, 2011).
2. Kelly Barsdate, Public Funding for the Arts: 2011 Update (Washington, DC: National Assembly of State Arts Agencies, August 2011).
3. Minnesota voters passed a constitutional amendment in 2008 creating a new 3/8-cent sales tax to support outdoor heritage, clean waters, sustainable drinking water, parks and trails, arts, history and cultural heritage projects and activities. Of the total proceeds from the sales tax, 19.75 percent is dedicated to the Arts and Cultural Heritage Fund.
4. San Francisco Grants for the Arts, Cultural Database Project, 2011.
5. A recent New York Times article quotes Bill Ivey, director of the Curb Center for Art, Enterprise and Public Policy at Vanderbilt University: “The positioning of arts within the public policy arena has always been tenuous . . . . The arts are considered an amenity — nice to fund when you have a bit extra but hard to defend when the going gets tough.” Robin Pogrebin, “Arts Outposts Stung by Cuts in State Aid,” New York Times, August 1, 2011.