Photo of Ballet X by Chris Kendig | Courtesy of the Philadelphia Cultural Fund
By Nancy Burd and Marcelle Hinand
As many of you know, most mid-sized arts organizations in the United States have less than three months of cash in the bank and no reserves such as endowments or other permanent capital according to the Nonprofit Finance Fund 2018 survey of nonprofit organizations. Larger cultural organizations are protected by endowments and reserves. Small community-based arts organizations are often working hand to mouth and weathering cash flow crises on a regular basis. Precisely because they are neither insulated nor agile, mid-sized organizations, which play a significant role in our national arts ecosystem, are most vulnerable to the mounting COVID-19 economic crisis.
As former Nonprofit Finance Fund (NFF) directors of regional offices in Philadelphia and the San Francisco Bay Area, philanthropic foundation leaders and nonprofit cultural sector consultants, we have worked with arts groups for over 25 years on building financial sustainability. We are deeply concerned about the future of the cultural sector post-COVID-19 and feel strongly that successfully getting arts and cultural activity back up and running in the wake of this unprecedented public health emergency requires immediate action and planning now.
The intrinsic value of art and culture in people’s lives is more apparent and urgent than ever. Cultural organizations provide access to music, dance, theater, and visual arts that illuminates our shared humanity, inspires critical dialogue, educates our children and expands our understanding of diverse cultures and perspectives. For the first time, we are facing a global crisis without the refuge, distraction and powerful shared experiences that only cultural organizations can provide. The explosion of arts activity on the internet, from virtual museum tours to streaming live theater performances to arts classes on Zoom to fiction podcasts underscores our need for culture and the ends to which we will go to stay connected to it. We do not know when people will be able to gather in groups again, but arts and cultural has a critical role to play in bringing our cities, communities and citizens together through the most basic human impulse of creative expression.
A few quick facts:
- The nonprofit arts and cultural sector has largely been ignored in efforts to shore up the nonprofit sector during the current economic downturn. Safety-net organizations, including food banks, direct social services, hospitals and childcare need to take precedence and emergency funds are being allocated to those nonprofits—as they should be.
- Arts and cultural organizations will and already have suffered inordinate losses. Some regions are reporting that the cultural sector has already suffered up to a 40% loss of projected earned and contributed income for FY20.
- Mid-sized arts and cultural organizations are notoriously undercapitalized. Forty percent (40%) of San Francisco Bay Area and Greater Philadelphia cultural organizations with budgets between $1 and $5 million have three months or less of operating cash in the bank. This current crisis will not be over in three months. And even if it is, the loss will not be recoverable.
- While the San Francisco Bay Area and Greater Philadelphia Region may differ in their demographics and defining characteristics as cities, they have similar sized arts communities with analogous profiles. In San Francisco the nonprofit arts and culture industry generates $1.45 billion in annual economic activity and supports 39,699 FTE jobs. In Philadelphia more than 55,000 FTEs are employed by arts and cultural organizations and the sector generates $1.99 billion annually (Americans for the Arts Arts and Economic Prosperity 5 Study 2017).
Just like millions of other small businesses, when we can all go back to work, arts and cultural organizations will need to hit the ground running. To do so, they will need critical capital – to bring staff back on, to secure performance and exhibition venues, to hire artists, stagehands, light and tech crews, installers, and art handlers, and to re-book tours, and ramp up marketing; and for some, restructuring.
That is why we are recommending a bridge loan program for arts and cultural organizations, to help arts organizations now, and develop sustainable financial futures so they can get back to business quickly.
Andrew Ross Sorkin’s recent opinion piece in The New York Times, This Is the Only Way to End the Coronavirus Financial Panic, (March 18, 2020) laid out an impressive and radical plan to smooth the transition of the workforce from this unprecedented work stoppage to a post COVID 19 economy—
“…offer every American business and every gig worker a no-interest ‘bridge loan’ guaranteed for the duration of the crisis to be paid back over a five-year period”
The plight of the mid-sized arts organization is not dissimilar from the for-profit business in that they both operate on limited reserves and are heavily reliant on earned income. With audiences sheltering in place, cash has dried up for most of these nonprofits. If they haven’t already been exhausted, these organizations are currently operating on fumes. As in previous economic crises, programmatic fundraising has come to a standstill as foundations shift priorities.
Returning to Sorkin’s proposal, we believe a parallel to this approach exists within the arts and cultural organizations sector. Our “bank”, we surmise, could be the private foundation.
It’s time for foundations to rethink how funds can be used. Foundations have at their disposal a rarely used investment tool called Program Related Investments (PRIs). By making low or no interest and unrestricted loans from their endowments to grantees at this critical and exceptional moment they can come to their aid with flexible paybacks and minimal due diligence efforts.
Private foundation grantmakers who have experience with PRIs know what a powerful catalyst for grantee growth this tool can be. To stabilize the cultural sector at this crucial moment and help it get back on its feet, institutional funders can lead their philanthropic colleagues by leveraging their endowments to create a pooled fund of flexible capital to lend to arts organizations through low or no-interest loans.
Emergency grant programs are needed, as is Federal assistance, as well as expanded unemployment for the predominately gig workforce of the cultural sector. But lending can play a significant role in quickly restoring our critical cultural activity after this crisis. With a limited infusion of as little as $10M in loan capital for the San Francisco Bay Area and $10M in Philadelphia, this sector could be brought back online, and we can establish a model which could resuscitate our national arts ecosystem. The future sustainability of the arts and cultural sector rests on substantial changes in the way we give and use money. Structural and systematic changes already afoot are reshaping the arts sector—this crisis will accelerate those changes, and an infusion of loan capital and good advice will steer us toward a healthy arts ecosystem.
Our experience at Nonprofit Finance Fund, where we have always said “Advice & Money” need to go hand in hand, will ensure that cultural organizations have time to restructure and get back online after this crisis. Both San Francisco and Philadelphia have CDFIs that could quickly manage such funds, provide advisory services and steward the immediate impact.
We appeal to arts grantmaking foundations to consider leveraging their endowments and aggregating a loan pool now, so we are ready as a cultural community to rebuild and open our theaters, art centers, concert halls and museums when its safe for San Franciscans and Philadelphians to return to work and everyday life.
Marcelle Hinand ran the first Nonprofit Finance Fund office in San Francisco, worked at the National Endowment for the Arts, led a $41M nationwide arts sector capitalization program for the Ford Foundation, and was a Program Director for the Arts at the Irvine Foundation, among other roles. She currently leads M. Hinand Consulting, a management consulting firm that works with philanthropies and nonprofits. mhinand@me.com
Nancy Burd was Vice President for Grantmaking at The Philadelphia Foundation, directed the Nonprofit Finance Fund in Philadelphia and New Jersey and led the growth of NFF Programs nationwide. She is currently President of The Burd Group, which consults with grantmakers and nonprofits on strategy, capitalization and financial sustainability. nancy@theburdgroup.com