I just finished writing an article for American Theatre Magazine that focused on fundraising strategies theaters across the country have used during moments of crisis, from natural disasters to financial insolvency to controversial producing decisions. I’m amazed by the ingenuity of our sector and the resiliency of non-profit theaters.
Shortly after coming to Milwaukee Repertory Theater, we too faced some challenges, though admittedly not nearly to the degree of the theaters I profiled. For a wide variety of reasons, our 2012/13 season ended with a significant deficit that brought our accumulated deficit extending back to 2004 to nearly $1M. At the same time, our three-theater complex built partially on the remains of a 1890s power plant was sinking due to rotting wooden pilings that support most of downtown Milwaukee, earning Milwaukee the nickname of the “sinking city.” As a new Managing Director, I was introduced to hundreds of donors over breakfasts, lunches and dinners, but one meeting was particularly memorable. I had lunch with a noted philanthropist who was concerned about our financial situation, ending with him advising that he could not support the theater while we were running deficits, as he felt we could be better stewards of his philanthropy. His love for the theater and concern for our situation was honest, and I appreciated the candid feedback.
We had a battle on two fronts – fixing an acute annual deficit and repairing our sinking building. The first required a temporary reduction of expenses along with an influx of contributed revenue directed toward annual support, while the latter required significant capital fundraising. Both were achieved relatively easily with a challenge grant for our 60th Anniversary Season and deeply committed donors that gave nearly $2M for building repairs. By the end of the following year, we ended with a surplus and had repaired our building. Four years later, the theater is in excellent shape. We’ve completely eliminated our accumulated deficit, built a cash reserve equal to 3 months of operating expenses, grown our budget from $9.5M to $12.5M, and produced balanced or better budgets for four fiscal years. Our stakeholders – subscribers, single ticket buyers, donors – are all growing in number, and we’ve completed a capital campaign allowing us to significantly invest in artistic programming, new play development and vastly expand our engagement and education work.
But we’ve hit a new challenge that I haven’t yet encountered in my career. Along the way, we’ve received some recognition for the company’s commitment to artistry and sustainability, receiving the Good Steward Award from our local United Performing Arts Fund and earning Charity Navigator’s Four-star ranking. Many positive things have come from the theater’s growing reputation for strong fiscal management, including the ability to attract exceptional trustees, staff and artists, but at the same time, we were starting to hear that a few donors were beginning to perceive that we didn’t need support, particularly if other organizations were in more dire straits. Recently, the Milwaukee Journal Sentinel ran a story on philanthropy in Southeast Wisconsin and the numerous capital campaigns in the region. In the story, it was highlighted that non-profits need to constantly raise money in order to avoid deficits. While there is certainly truth in that statement, it demonstrates that for some donors, the primary driver for philanthropy is to help organizations offset and/or avoid deficits, tempting them to move giving where there is perceived greater financial need.
In discussing this conundrum with a colleague whose organization went through a serious financial crisis during the great recession, he said that it was somewhat easy to raise money when death was at the doorstep, but when the ship was steadied and they had found some success, it became much more difficult as funders assumed support was no longer needed. In an off the cuff remark, he said the ironic thing was that it was easier to raise money when the artistry was excellent but their financial results weren’t.
In an ideal world, the pie of cultural funding is large enough to meet the needs of all worthy organizations whether in crisis or not. In reality, a question often arises – how should funders weigh competing requests for a finite pool of dollars, particularly in communities where giving to the arts isn’t increasing? On one hand, organizations in crisis could need a vital infusion of capital to remain a going concern, but on the other, cities with renowned arts organizations have prioritized funding organizations that were artistically and managerially ready for strategic growth, leading to global recognition and stronger brand awareness in a highly competitive arena for talent attraction particularly in mid-sized markets.
In reading how Charity Navigator evaluates financial performance, they note why financial performance is so important for donors to consider. By looking at an organization’s liabilities-to-asset ratio, donors can see if their gifts are being used to service debt rather than servicing the organization’s charitable mission. By examining working capital, donors can tell if a non-profit has sufficient working cash to sustain a financial downturn. If not, it would be likely during a recession that an under-capitalized non-profit would need to eliminate vital programs, staff, or face insolvency. By looking at how a non-profit spends its resources, a donor can ascertain if money goes to programming or to pay a bloated administration staff. But perhaps the most important factor is that a financially strong non-profit is much more likely to deliver on mission, which presumably is why donors give.
With the above, one would think a strong financial position would lead to increasing philanthropic support, and for many donors, this is the case. So how to explain the others? It seems to me that the challenge of success rests with the well-known economic theory of loss aversion. In a community with finite resources that wrestles with where and how it should invest those resources, it is clear and easy to ascertain the ramifications of not investing in an organization on the edge of insolvency – the result being the loss of that organization. On the other hand, it isn’t always clear what a community is giving up by not investing in organizations ready to make the leap from good to great. As the theory of loss aversion teaches us, people strongly tend to prefer avoiding losses to acquiring equivalent or better gains.
The reality of these cultural funding decisions is complex and this quandary isn’t new. I’ll never forget producing an event at Arena Stage when NEA Chairman Rocco Landesman bluntly, and infamously, stated that if arts & cultural funding wasn’t going to increase, then funders needed to focus resources on organizations that could create the most impact while willingly allowing others to die. While perhaps his response was somewhat dire in nature, having come off the brutal years of 2008-2010, it did bring to national attention the conflict between the challenge of crisis and the conundrum of success.