As I travel around the country speaking with theatre leaders, I detect a lot of passion and enthusiasm—for artistic successes, for innovative education programs, for new audience- and community-engagement efforts. But I also hear, in some quarters, a sense of weariness, prompted by the ongoing struggle to balance an organization’s budgets and to maintain strong cash flow. From an economic point of view, it can be a Sisyphean task to keep the good work going.
Theatre Facts 2012—this year’s edition of TCG’s annual survey of the finances and productivity of the field, deftly summarized in this issue under the headline “Expect the Unexpected”—helps explain both the excitement and the fatigue. On the one hand, 2011–12 was a time of lively artistic experimentation, of trying new things, the report notes. But working capital, it goes on to say, continues to be weak field-wide. All of the numbers within the report are based on averages, so while some theatres may have no cash-flow issues whatsoever, others are struggling. While some may be seeing a decline in subscriptions, others are holding steady or growing. Still, our theatres operate as an interdependent ecology, and it must be acknowledged that the overall status of the field, based on the 200 theatres reporting, is a matter of concern that needs addressing.
One of the important concepts I learned early in my theatre career was a capitalization model devised by the Ford Foundation’s National Arts Stabilization Fund, launched in 1983 and also supported by the Andrew W. Mellon and Rockefeller Foundations. The fund offered challenge grants for achieving stability through proper capitalization, and, generally speaking, there were four key steps to achieve this end:
• The first was to eliminate debt, balance the budget and/or achieve surpluses consistently.
• Second was to build up a cash reserve or current net assets that could cover an organization’s operations for three months, helping to guard against the instability inflicted by a sudden downturn in the external economic environment or, internally, a less successful show.
• Third was a quasi-endowment for artistic exploration and innovation.
• The last was a permanent endowment, which, if properly invested, would provide an ongoing stream of interest in perpetuity.
For organizational stability, this four-step plan was an extremely useful model. When the FASB rules changed how nonprofit financial statements are presented, that system ceased to be discussed regularly. The operating, cash reserve, facilities and endowment columns were all collapsed into new categories—unrestricted, temp restricted and permanently restricted assets became the new terminology. Fiscal health (or lack thereof) became obfuscated by little-understood concepts, such as the fact that buildings are unrestricted assets and can make an organization’s unrestricted financial picture appear far stronger on paper than it actually is.
Through a new initiative of Grantmakers in the Arts, capitalization is being studied once again. In principle, the recommendations are similar. Arts organizations must clear operating shortfalls and budget for surpluses, and also set aside reserves for cash, innovation, facilities and so on. The question of endowment is dependent on the specific needs of an organization and not recommended for all, according to the Technical Development Corp and the Nonprofit Finance Fund. There is some variability in the thinking about these terms—the study recognizes that there’s not a one-size-fits-all solution, and, furthermore, strong capitalization is important to the smallest start-ups as well as long-standing, large theatre organizations. TCG’s Fall Forum on governance, slated this month in New York City, will focus on capitalization for organizations of all sizes. At the moment, no national (or even local) funding sources are putting forth Ford-style grant programs to help generate capitalization support for theatres. Often, organizations are tacitly penalized or feel embarrassed to discuss financial stress with funders. (A typical reaction to such problems: “They’re theatre people, they don’t know how to run a business.”) In 2008, when Lehman Brothers went down and banks were being bailed out with taxpayer dollars, our theatres were riding the rough waves of the recession, and proving how nimble and adaptive our businesses really are.
And things are different now—it’s a new era. There are questions about equity, in terms of who is getting (or would get) funding; there are few national foundations, let alone ones that are crafting programs to stabilize the arts. And the question is: How will the understanding of proper capitalization marry with funding in order to bring about a more workable climate for our organizations?
The theatre system we have built is full of potential to bring people together, to cultivate artists and audiences, to provide the gift of theatre to new generations of young people. The knowledge we have, through TCG’s regular surveys and the generosity of field leaders such as Barry Grove, Tom Parrish and Chris Widdess, who candidly share their concerns in these pages, are what give us the invaluable ability as a field to examine our strengths and weaknesses—and to grow stronger in terms of both artistic accomplishment and financial stability.
While NASF helped stabilize theatres after the rapid grown of the 1960s and ’70s, there hasn’t been a large-scale effort since—even though our field continued to grow by leaps and bounds. If the trends continue to develop as our research indicates, that effort is a necessity. The facts speak for themselves.