As the air clears following three years of economic stress
for arts organizations across America, we're seeing a new
reality, a new requirement for communities where arts
organizations and institutions aren't solidly protected by
endowment funds. (We're predicting a big move to shared
endowments for all types of nonprofit and community entities.)
The Hampton Roads case study is of merit for many reasons.
First, the organizers and funders of the feasibility analysis
and subsequent initiative were the numerous economic development
agencies of the Hampton Roads region, plus the community
foundations of the region, not the arts groups themselves.
Together, these economic leaders were concerned over the
financial health of their major institutions, recognizing the
importance of strong arts to create the economic environment
they need and that new businesses looking to locate in the
region demand. Here's an example of economic leaders - CEO's,
city managers, mayors, and foundation leaders - taking the lead
in seeking a solution to the arts' needs.
This group asked a number of questions, testing the
feasibility of the shared endowment concept and in addition
wondering what the revenue forecasts were for future earned and
contributed income. Simply put, was an endowment really needed,
or could incremental revenue growth stabilize their major
institutions?
As we observed, increased earned income is a possibility, and
so are increased contributions, but not at the rate needed to
stabilize the organizations. Why? Even though a number of these
organizations are diversifying their venues/performance sites
throughout the region with the opening of new halls, those
multiple new seasons may quickly max out the currently untapped
potential audience and new contributors opportunities. At the
same time these new seasons will peel audiences away from the
existing core seasons. Marketing and production costs will
increase with the multiple season venues. There will be more
coverage, more visibility, and more prominence. But it won't be
stabilizing.
Hampton Roads is also a challenging corporate philanthropy
market. About half of the employment base in its many
municipalities is the military. There simply aren't enough major
corporations to foot the annual "corporate support"
bill for the arts.
The regional aspect of this is another challenge. Major
performing arts institutions elsewhere have benefited from joint
endowment campaigns linked to specific buildings and to the
strengthening of a single, unified arts hub. Here the
organizations are without home buildings that can be named to
rally a campaign.
Further complicating things: endowment in and of itself isn't
the only stabilization needed. There is a pressing need for debt
elimination, as well as the critical need for working cash
reserves, something often overlooked by outsiders. Like most
arts organizations in America, these majors in Hampton Roads are
undercapitalized and need the relief of an immediate clean slate
and working capital. Then they need the long term stabilizing
factor of guaranteed endowment as a revenue line item.
A $28 million goal emerged from the analysis, and it may grow
bigger. About six million of this will address the debt and
working capital need. The goal is for this phase to be kicked
off shortly with debt forgiveness and lead gifts from
municipalities and major corporations, signaling the mutual
interests that the cities and corporations have in vital arts
organizations.
The endowment phase includes $19 million for the endowments
of the four major organizations, plus a $3 million goal (which
might grow) that would produce grants for the other smaller and
mid-sized arts organizations in the region.
Another interesting part of this case study is the
requirement put forward by the steering committee that launched
the initiative - a firewall to protect the endowments and the
working capital from any potential threat of being consumed
during some future budgetary crisis. So the Hampton Roads Arts
Trust - a new entity likely under the umbrella of one of the
community foundations in the region - will provide governance
and stewardship of the funds, giving donors confidence and
providing an annual structured financial review process that
will hold the organizations to high fiscal standards. Both of
these conditions were critical in creating the necessary
confidence factor to win significant public-private support.
Much work lies ahead. As this is written, the Trust is being
formed, and the various municipalities and regional economic
development agencies are sorting out their approaches to meeting
the goal. The timeline: six years, with the working capital
phase completed in three. The desired outcome: vibrant arts
organizations, stable long into the future.
There are several take-aways here. 1) Economic development
leaders spearheaded this venture, coming to the arts groups,
rather than the other way around. 2) These major organizations
are representative of a huge sector of undercapitalized arts
organizations throughout the country, those with budgets in the
$3 million to $10 million range, many of them relatively young
in age, found in mid-sized cities. Stabilizing organizations of
this size is now a task for cities from coast to coast. 3) When
there is debt and lack of working cash reserves, stabilization
is more than endowment-raising. Working capital has to come
first. 4) The concept of a firewall is particularly important to
donors and government agencies with this size organization. 5)
Success requires many partners from the public and private
sectors alike, committing to a campaign like this on behalf of
all their institutions.
Comments or ideas? We'd love to hear from you.
lstevens@artsmarket.com
