It’s been an exciting few weeks for us. For the second time in four years, a DC metro company has been honored with the coveted Regional Theater Tony Award, this time going to The Shakespeare Theatre Company, which in my opinion was long overdue.
The Kennedy Center’s remarkable production of Follies garnered 8 Tony Award nominations, and Clybourne Park, which received a crucial early development production at Woolly Mammoth Theatre Company, walked away with four nominations. Shortly before the Tony announcements, theaterWashington revealed data from its 2011 survey of Washington theaters which showed a healthy 9.5% increase in the number of theater attendees from the previous year, the first increase in many years. Things seem to be looking up.
And then my inbox started filling up with requests to sign a petition in support of the D.C. Commission on the Arts and Humanities, which seemed to be on the chopping block once again.
The District of Columbia isn’t the only municipality struggling with arts funding. According to Grantmakers in the Arts, from 2010 to 2011, government funding for the arts from the NEA dropped by 8%, state agencies by 6% and local sources by 10%. Overall, government support nationally is roughly the same in terms of dollars to where it was almost 20 years ago not indexing for inflation.
Although we struggle like other cities, we are unique. Given that DC is not a state, government funding is a little different. We don’t have a state arts agency, and some funding comes directly from Congress.
In the District, there are two major sources of government support—the D.C. Commission on the Arts and Humanities and the National Capital Arts and Cultural Affairs program. In recent years, the D.C. Commission on the Arts and Humanities was cut by 70% going from $13 million to $3.9 million and the National Capital Arts and Cultural Affairs program was cut by 74% going from $9.5 million to $2 million. In comparison to our peers nationally which on average faced cuts of 6-10% range, cuts in the 70%+ range seem crippling and disproportionate. In comparison to another great theater city up north, DC receives 54% less in federal funding from the NEA, and a whopping 83% less in state and local funding per capita.
At some DC theaters, government support levels in the current fiscal year are lower than where they were in the 1970s, with the biggest hits to funding occurring unexpectedly and quickly. In the case of Arena Stage, seemingly overnight roughly $1 million in contributed revenue from the National Capital Arts and Cultural Affairs program spread across two fiscal years disappeared.
Let’s not beat around the bush. By nature, theater people are resourceful, as from day one we are born into an under resourced world. But we are not miracle workers. A combined annual loss of $16.6 million in government funding in the current fiscal year if not reversed will have a significant ongoing impact in our community.
I’m pleased to see that the aforementioned lobbying efforts for the D.C. Commission on the Arts and Humanities seem to have paid off. Just this week, DC City Council gave preliminary approval to a couple of budget adjustments, including an increase in funding for the Commission, bringing its total budget to $11.9 million. Although the increase is being described as a “one time cost,” thereby implying that it might be temporary in nature, it will most likely provide for an additional $6.3 million increase in grant funding next year totaling roughly $10 million in grant support.
Although the increase is excellent news for the city, it still provides for $4 million less in grant funding when compared to 2009. [kudos to the excellent reporting on funding coming from Jonathan Fisher at the City Paper and thank you to the City Council.]
So how do reductions in government funding impact local theaters? Non-profit theaters have two sources of revenue—earned and contributed. Contributed revenue comes from individual donations, government funding, corporate sponsorships, special events, foundation support, and planned giving. Aside from investment proceeds, most everything else is considered earned revenue, coming mostly from box office proceeds.
For a theater to maintain its current level of programming after a significant decrease in government funding, it needs to increase its earned revenue or increase its other sources of contributed revenue. Unfortunately for us, many other sources of contributed revenue have also taken a hit twice in the last decade, once immediately following 9/11 and then again during the global economic crisis. On average, arts organizations have lost market share in terms of total philanthropic giving in the past decade, dropping from 4.9% of all giving to 4.5%. A 0.4% loss might not sound like a lot, but it represents a $1 billion difference.
In response to the sudden decrease in government support in DC, some theaters took to emergency fundraising campaigns from individual donors to make up the difference. And I’m happy to report that a few of these initiatives were successful in privately raising the lost funds. However, although absolutely necessary in this case, this approach is only a temporary fix to an ongoing problem. A company can only do so many emergency fundraising appeals before it becomes apparent that you can’t fix a gaping wound with a few Band-Aids.
In an effort to maintain the same level of programming activity in a sustainable manner, many theaters are looking to bolster their earned revenue streams. Nationally new sources of earned revenue are popping up everywhere from real estate ventures, event rentals, restaurants, parking, corporate visibility opportunities, summer camps, bars, consulting services, commercial tour bookings and partnerships with for-profit ventures. And although that may provide long term relief, it takes time to launch a new revenue stream and often they result in negative net revenue for the first year or two.
It should also be noted that contributed revenue funds risk. If non-profit theaters were solely supported by earned revenue, we would become commercial ventures, similar to Broadway. Now ask yourself, how much artistic risk do you see on Broadway these days? Our business model provides a revenue stream separate from market demands to supply risk capital to programming not viable in a commercial environment. When contributed revenue shrinks, the resources that were once available to develop new or risky work decreases.
I should go on the record at this point by saying that I believe a decrease in government funding the arts is short sighted. Aside from the intrinsic value the arts provide, economic indicators show that investments in the arts pay significant financial dividends. While working at Americans for the Arts, we released Arts and Economic Prosperity III, the most comprehensive study of the economic impact of the arts and culture sector. It revealed that the arts industry is responsible for $166 billion in economic activity, almost $30 billion in tax revenue and 5.7 million full time jobs. Given these results, why would a decision be made to cut an already meager amount of arts funding when each dollar leverages much more in economic activity?
All that said, unless we hop into Michael J. Fox’s DeLorean and travel back to the 1980s, our standard business model might not adequately support us in the future. A new nonprofit arts organization is birthed every three hours in the United States, while at the same time, 43% of all existing nonprofit arts organizations have operating deficits. We continue to train future arts managers in a system that isn’t fairing too well, and some would argue is on life support. Why do we continue to birth new nonprofits using the same business model that doesn’t adequately support almost half of the non-profits that currently exist? It seems somewhat cruel.
New managers are taught “best practices” at training institutions which in many cases aren’t aligned with today’s realities. When Zelda Fichandler founded Arena Stage in 1950, she did so as a for profit company. Later when that model was no longer adequately supporting her company, she transitioned Arena Stage to become one of the first non-profit resident theater companies in the nation. Talk about a shift in business model! But would the resident theater movement have even begun if we held on to the more prevalent for profit model at the time? For the first time in fifty years, we have come to a moment that demands a thorough evaluation, top to bottom, of our business practices.
At a gathering of non-profit theaters, Zelda said: “While we are gathered here in the name of the non-profit corporation (and, indeed, without the non-profit income tax code, our American theater would simply not exist), being non-profit does not really define us—our goals, our aims, our aesthetic, our achievements. What defines us, measures us, is our capacity to produce art.”
Her quote reminds me that our business models do not define who we are, as they are simply a means to an end. A support mechanism if you will. If what does define us (our capacity to produce art) is impacted because our invented support infrastructure is struggling, then we could be at a tipping point.
This isn’t to say that we should all abandon the way we operate, but just as we innovate in terms of our artistry, we should prepare, test and evaluate innovations to our business models today so that we are well prepared for where we will need to be in ten years. It is a daunting challenge, as I’ll be the first to admit that trying to repair the plane while flying it is a delicate procedure. But I have tremendous faith in the creativity and experience of today’s managers, and I know we are up to the challenge.
“You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.” – Buckminster Fuller