Balancing act: Local arts groups struggle to survive on tight budgets

THE ECONOMIC downturn that thoroughly rocked the country's financial sector has hit Philly's nonprofit arts world too, and it's not just the largest institutions that are hurting. Smaller cultural organizations may be more able to adapt quickly to these leaner times, but many that were already operating on a shoestring are facing especially difficult choices in the coming year.

"You hear about cuts at the art museum and the orchestra because they send out a news release," said Gary Steuer, the chief cultural officer in the Mayor's Office of Arts, Culture and the Creative Economy. "But the smaller organizations don't send out a news release when they have to lay off their office manager."

Large, endowed institutions, like the Philadelphia Museum of Art, are a highly visible part of Philly's cultural life. But according to a 2008 report by the Philadelphia Cultural Alliance, almost half of the city's arts and culture organizations have annual budgets under $25,000, and 87 percent have budgets under $1 million. (By way of comparison, the Art Museum's latest available tax return showed annual expenses of almost $87 million.)

Organizations of all sizes are integral to the city's cultural vitality and economic health. "I think of the cultural system as an ecosystem," said Steuer. "If one thing goes away at the bottom of the food chain, the whole thing can crumble."

While institutions at the top of the food chain struggle with shrinking endowments, smaller arts organizations usually don't have endowments at all and often survive hand-to-mouth. Even in the relatively flush times of 2005, a report by the Cultural Alliance found that, for the 281 arts groups surveyed, income exceeded expenses by an average of just 5 percent, and 40 percent of organizations were operating with a deficit.

"There was a sense that breaking even was good enough," said Lois Welk, director of Dance/USA Philadelphia, a service organization for the city's dance companies. "There was a misunderstanding that if you're a nonprofit, you can't enter a year with a positive cash net."

According to a recent Cultural Alliance survey of 80 diverse arts organizations, more than 60 percent with budgets under $250,000 have three or fewer months of expenses in cash, putting them at great risk should expected funding fall through.

While the long-term effects of the recession on charitable giving are still unknown, many groups are wisely bracing for a sustained decline. Even though most organizations interviewed expressed optimism about the continued commitment of their supporters, the size of individual donations may still decrease.

"If your retirement savings are down 50 percent, if you've lost your job or are afraid you might lose your job, you're going to give $100 a year instead of $1,000," Steuer said.

Along with expected drop-offs in individual giving, the future of local government funding is uncertain. The Philadelphia Cultural Fund had initially been allocated an additional $2 million for 2009, but, due to the city's budgetary crisis, that was reduced by half. The Pennsylvania legislators who had initially proposed eliminating state cultural funding altogether are still expected to implement significant cuts.

With once-profitable corporations facing massive layoffs and precipitous drops in stock prices, corporate philanthropy is similarly imperiled, and foundations are reeling from the effect of market forces on their endowments.

"We are hopeful that in 2009 and 2010 we'll be able to keep our grant-making at or near its current level," said a statement released by the William Penn Foundation, which funds many of Philly's small arts organizations, and, like many foundations, determines its giving based on a three-year rolling average of investment returns. "The outlook for future years [is] much less certain . . . We are likely to confront tough choices in 2011 and beyond."

While declines in charitable giving affect nonprofits across the board, small arts organizations that were already overextended and undercapitalized are on especially shaky ground.

"They're very often under-resourced in every possible way," said Olive Mosier, director of the Arts and Culture Program at William Penn. "There's not a lot of wiggle room in terms of salary cuts and expenses - those are usually pretty lean already."

Seth Rozin, executive director of the InterAct Theatre Company, echoed Mosier's sentiment. "We're faced with needing to make big cuts, but there aren't really big cuts to be made - unless we cut a show out of our season or a staff person," he explained.

InterAct avoided these scenarios by dipping into a cash reserve it had built up over eight years, and the organization was further buffeted by a $25,000 grant from the National Endowment for Arts, part of the $50 million chunk of the National Recovery and Reinvestment Act earmarked to save jobs in the arts.

While the challenges for small to mid-sized cultural groups are considerable, it's not all bad news.

"Some of the smaller organizations haven't been relying on a lot," said Peggy Amsterdam, director of the Philadelphia Cultural Alliance. "They've been used to figuring out how to live within their means."

As of early August, Spiral Q Puppet Theater still needed to raise half of its budget for the current fiscal year, but executive director Tracy Boyles didn't sound especially concerned: "For us, right this moment, it feels like the rest of the world has a better sense of what it feels like at Spiral Q all the time.

"We've always had to live close to our margins," she said. "We've always had to be creative and adaptive."

Welk pointed to this adaptability as a key advantage of small and mid-sized groups. "Smaller organizations by their very nature are very collaborative and creative in their problem-solving," she said. "They are the masters and magicians of making things work on a shoestring budget."

For example, some small dance companies are increasingly bartering to make ends meet, trading massages for videography or a Web site for lighting design. A few are sharing an administrative staff, and many are using Dance/USA's theater rental subsidy program, which reduces performance costs considerably.

In many ways, these "shoestring" organizations are nimbler and better-equipped to survive a downturn than their larger, more established counterparts.

"It's hard for major institutions to be agile because they have a lot of fixed costs," said Mosier, pointing to buildings and large staffs as primary examples. "The small and mid-sized organizations . . . are better-positioned to contract where they need to or cut costs where they need to."

As organizations contract, they are forced to focus on the parts of their work that are most essential. "People will really need to analyze and assess their core programs," said Welk. "The organizations that come out of this on the other side will have models that are more realistic."

While this kind of forced assessment can be a challenge, it has the potential to leave organizations more efficient and sustainable in the long-term.

"What I'm happy about is that the recession has actually prompted us to go back and revisit the original vision that I had," said Jeanne Ruddy, who explained that her eponymous dance company had been "overextended" by its solo management of a venue, the Performance Garage, on top of a full performance and touring schedule.

InterAct Theatre Company has also used the downturn as an opportunity for reassessment. "We've looked at how we're doing things and how we can be more effective at using our staff and our resources," said Rozin.

As the aftershock of the recession continues to radiate throughout Philly's arts community, the cultural landscape of the city - which is in many ways defined by its smaller, more agile institutions - will undoubtedly shift.

"We can't save everybody - there's just not enough money in the world," said Steuer. "There are going to have to be some difficult choices that have to be made."

Many people deeply involved with the city's small arts organizations see this financially tenuous time as a defining moment. "More and more we're seeing a lot of thoughtfulness in terms of how organizations are thinking about going forward," said Mosier. "They're recognizing [that] there is a new normal."

"Since I've been involved in the arts, which is a long time, we've always been in a growth mode," said Amsterdam. "There have been downturns, but I don't remember it ever being like this. This is a whole new way of operating."

Although many organizations have already contracted, restructured and reassessed, the coming years may prove to be even more trying than the last one.

Rozin called the current economic climate a "new world order" and emphasized that smaller arts organizations will need to make the most of their adaptability by thinking about doing business in new and more efficient ways.

"Last year, everybody kind of got blindsided," he said.

"The next year or two will separate those who were prudent and planned well for the future from those who assumed everything would go back to normal."

He paused dramatically.

"Normal has changed forever."