Ensuring a Long Run for the Arts

Charity teaches management, financial ropes to cultural groups

Center Stage Theater’s endowment will soon be worth more than $20-million — topping the value of endowments at all but a handful of non-profit theaters nationwide.

The theater here, which produces comedies, dramas, and musicals ranging from the classics to new works, has also operated deficit-free for more than two decades, a record matched by few of its peers.

Because of its strong financial health, the theater is commissioning more plays, hiring larger casts, and paying artists higher salaries than it ever could have in the past. Center Stage has also bought seven row houses for visiting actors, playwrights, and others to live in while they are here for a production, and it is now embarking on an ambitious effort to attract young theatergoers and to support fellowships for people in theater arts.

Center Stage’s good fortune did not come easily. It almost collapsed under a mountain of debt it had accumulated in the 1960’s and 1970’s, and suffered from other poor fiscal-management practices as well.

But the first steps in its recovery set the stage for the creation of a national non-profit organization that has brought fiscal stability to many of the nation’s arts institutions in the past 20 years and that has become a model for the kind of financial-management training that experts say would benefit many non-profit organizations nationwide.

Center Stage’s woes came at a time when several of the nation’s prominent foundations were trying to figure out how best to help arts organizations overcome their financial struggles. One of them, the Ford Foundation, volunteered to pay half of Center Stage’s debt and help the theater raise the rest from other sources, as well as build a cash reserve to avoid future deficits.

But Ford officials soon realized that one foundation by itself could do only so much. So Ford joined with the Andrew W. Mellon and Rockefeller Foundations to set up National Arts Stabilization, a non-profit organization whose sole mission is to teach struggling non-profit arts groups how to improve their financial management.

Since 1983, National Arts Stabilization, which has its headquarters here, has worked with more than 100 arts organizations, including Center Stage. It has helped those groups increase their “working capital” — surplus funds that function as an internal line of credit — by $43.4-million, expand their endowments by a total of $404.1-million, and secure $256.1-million to improve or build facilities or purchase equipment. In addition, it has helped generate $44.1-million in new money from grant makers that want to support arts groups in their hometowns.

City by City

While other organizations provide financial advice to any charity that wants help, National Arts Stabilization is unusual in that it focuses its efforts on a wide range of arts groups in the same city. It works with a cluster of arts organizations in five or six cities at a time, usually for an extended period — sometimes as long as a decade.

The goal is to help arts groups develop closer relationships with one another, and to bring grant makers and local political, civic, and business leaders together so they will learn more about the financing, management, and artistic challenges facing their city’s cultural institutions.

To persuade National Arts Stabilization to work in a city, local grant makers must demonstrate their commitment by contributing a specific sum that is based in part on the number and size of participating arts groups and their fiscal condition. Most of the money, usually $1-million to $8-million, ends up going back to the arts groups in the form of grants. National Arts Stabilization’s services are usually paid for with interest earned from the money raised, or through a separate contract with local grant makers.

Though National Arts Stabilization’s limited size means it can only operate in a handful of cities at a time, it is unusual in the comprehensiveness of the services it offers. Several other efforts to help arts groups deal with fiscal matters are more limited in focus.

Among the major ones:

• The Working Capital Fund, an arm of Community Loan Technologies, in Minneapolis, provides grants, loans, and training to mid-sized groups that showcase the work of members of minority groups.
• In New York, the Nonprofit Finance Fund offers loans to help arts groups nationwide to buy, build, or renovate buildings to house their organizations.
• Many foundations, such as the Pew Charitable Trusts and the Cleveland Foundation, as well as many local governments have also developed programs to help arts groups. Some grant makers have crafted programs for specific artistic disciplines, such as the Andy Warhol Foundation for the Visual Arts, which now has a program to help small groups manage and expand their financial resources.

Nancy R. Sasser, National Arts Stabilization’s president, believes there is an unmet demand for similar assistance in fields other than the arts.

Ms. Sasser, who has a master’s degree in business administration and has worked in both the corporate and art worlds, says that her organization is asked to provide help to other types of groups, but it has declined so that it can stay focused on its mission of serving cultural organizations. To better meet the demands for help from arts groups, however, the organization has started offering executive-education programs that are open to officials of any arts organization.

Strategic Plans

While National Arts Stabilization tries to tailor its approach to the particular strengths and weaknesses of arts organizations in each city where it works, its basic procedures don’t change much from place to place. In each city, it provides arts groups with grants that they can use to pay off current deficits or to create a cash reserve that functions as an internal line of credit. The grants are paid out in installments as the groups meet specific financial targets.

At the outset of a project, the National Arts Stabilization staff conducts a detailed assessment of each group, reviewing its basic organizational structure, analyzing its financial state, and examining its use of technology in managing, fund raising, and other operations.

Using the information from the three-part reviews, arts leaders begin working with their trustees, staff members, and others to draft a three- to five-year strategic plan.

While the arts leaders are working on the plan, they also participate in professional-development programs that teach them how to improve their marketing, fund raising, and financial management.

Valuable Training

Many arts leaders say that grants offered by National Arts Stabilization were what first attracted their attention, but that in the end what was far more important was the management and fund-raising training they received.

In 1992, shortly after National Arts Stabilization came to Seattle, the opera company there had a deficit of $3.6-million — more than a third of its annual budget.

For Speight Jenkins, general director of the Seattle Opera, being asked to develop a five-year plan was revolutionary. “You hear about the Russians having five-year plans,” he jokes, but he had never done one. When the opera did its first such plan, it included artistic goals as well as goals for every department from development and marketing to finance and administration.

“This document is vital,” says Mr. Jenkins. “It tells us where we are going and what we are looking forward to, and lays out what we need to do to get there.” It is a “living, breathing document,” he says, that is updated annually, with changes approved by the board each October.

In drafting the plan, the Seattle Opera involved not just board and staff members but local business and civic leaders, and their participation is making a big difference in the opera’s overall operations.

“It became a community project; it wasn’t just something where we were isolated out there,” says Kathy Magiera, the opera’s administrative director.

Business and community leaders learned that the opera must negotiate employment contracts with nine labor unions, and that producing Wagner’s celebrated “Ring” cycle — a complex, large-scale series of four operas — can require as many as 700 people on and off stage, and costs much more than four regular operas.

That knowledge appears to have helped when the opera started soliciting donations in a campaign to raise $10-million to produce the “Ring” cycle in 2001 and 2005. It has raised $8-million so far toward that goal. And the opera company is now operating deficit-free, even as its annual budget has nearly doubled, from $10-million to $19-million.

Saying No to Spending

Some groups that National Arts Stabilization assists don’t even have a formal accounting system or a full-time employee who oversees financial matters.

For instance, when National Arts Stabilization began working in 1996 with El Museo del Barrio, a New York City museum that focuses on Latin American and Caribbean art, the institution had no formal accounting system. A bookkeeper kept records on day-to-day cash flow, but the museum had no way to keep track of long-term assets and liabilities. That was one reason it was more than $200,000 in debt and had run a deficit every year for 15 years.

National Arts Stabilization encouraged the museum to create a full-time post for a professional trained in accounting and finance.

Anita Leach, who took the job and is now the museum’s director of finance and business affairs, recalls that when she arrived, museum officials “would think, ‘Well, we are getting a grant from the National Endowment for the Arts any day now,’ so there was money coming in. But they didn’t know how much of their income was restricted and how much they had left over to pay their expenses. They also didn’t know how much money they were spending to raise money.”

“You need someone to keep people reined in,” she says, “someone who has the ability to say no — and that is very difficult even when you have a strong person there. You have to constantly remind them, and you have to have the power to do that.”

Even today, Ms. Leach says, her role is to be the museum’s financial disciplinarian.

“Keeping that under control is important, because people get happy whenever they have a little money, so you have to constantly remind them what it was like when they were poor.”

Not a Painless Process

Currently, El Museo del Barrio has a $267,000 cash reserve and two new endowments totaling more than $1-million. The museum’s annual operating budget has grown from $800,000 to $3-million, and it has not had a deficit since 1996.

“It is just wonderfully, wonderfully solid ground we find ourselves on now,” observes Susana Torruella Leval, the museum’s director.

But she is also quick to note that the process wasn’t easy or painless, especially for a small organization like hers.

It took the museum 13 months to draft its strategic plan, during which time the staff met weekly and the board met every other week. For Ms. Leval and her development director, there were many late nights spent at the office writing and revising the plan.

While her colleagues sometimes groaned at the labor-intensive process — and she admits that even she sometimes got tired of it — putting energy into long-term planning instead of crisis management enabled them to expand the museum’s budget, diversify its board, and hire more employees.

While National Arts Stabilization often works with groups that are in the early stages of improving their financial management, it also helps organizations that are further along.

In 1991, two decades after Center Stage initially got help from Ford in paying off its debts, it sought help from National Arts Stabilization in raising an additional $1-million for a “working capital” fund, and advice on how to continue building an endowment then worth $13.5-million.

Asking Questions

Peter Culman, Center Stage’s managing director, says he found it especially helpful when National Arts Stabilization’s Ms. Sasser would walk him and his director of finance through the theater’s budget and financial statements, asking questions as they went along, such as: Do you have enough actors? Are you paying them salaries that are competitive regionally and nationally? Do you have enough money to market Center Stage to secure the audiences you really want? Can your development department turn initial contributors into repeat annual givers?

These were the kind of thought-provoking questions that come from a fresh set of eyes and ears, he says, and that “allow you to take what you know and suddenly see it in a different way.”

Adjusting Ticket Prices

The outside perspective provided the theater with new ideas, such as placing a “demand tax” on tickets to popular productions like Romeo and Juliet or Gilbert and Sullivan’s H.M.S. Pinafore.

Previously, it had charged the same prices for all shows, whether they were guaranteed sellouts or unknown new plays that might draw smaller crowds.

Now it charges five dollars more per ticket for shows that are certain to be popular — bringing in more revenue while continuing to keep the theater filled for performances.

As Mr. Culman retires and hands over duties to his successor this month, he feels confident that the organization is in a good position to handle future challenges.

“We have in place a culture of operations,” he says, “that includes the best possible interaction among our artists, artisans, administrators, audience, trustees, and volunteers.”

Purpose:

National Arts Stabilization is a non-profit group that helps cultural organizations improve their managerial and financial skills. It also provides consulting services, conducts research, and offers executive-education programs for officials of arts groups from across the country.

History: Founded in 1983 by the Ford, Andrew W. Mellon, and Rockefeller Foundations.

Sources of funds: For fiscal year 1999, fees for consulting and other services amounted to $1.3-million, contributions from foundations and corporations totaled $563,845, and investment income provided $458,577.

Key officials: Nancy R. Sasser, president; Donald J. Kirk, chairman of the board.

Address: 7 East Redwood Street, Ninth Floor, Baltimore 21202; (410) 332-1900; fax (410) 332-8260; info@artstabilization.org

World Wide Web site: http://www.artstabilization.org