Special to the Philanthropy Journal

By Alicia Schatteman

The arts touches many of our lives and often defines our community’s cultural identity. Nonprofit arts organizations can be found in virtually every town or village, city or suburb. However, arts organizations are also one of the sectors that face disproportionate hardship during economic recessions due to their reliance on subscriptions and ticket sales, such as the most recession. The purpose of this research was to determine the overall capacity of nonprofit arts organizations that would help them weather economic downtowns.

Arts organizations typically rely heavily on earned income as well as government funding to support cultural tourism. However during economic downtowns or recessions the arts are typically seen as discretionary, which means tickets and admissions decline at the same time as government funding. This has certainly been the case in Illinois. The Illinois Arts Council, a state agency of Illinois, was created in 1965. Since 2007, state appropriations to the IAC have been reduced by over 50% from a high of nearly $20 million to $9 million. In FY2012, state funding appropriations amounted to 70 cents per Illinois resident, 30 cents less than the national average per capita spending of $1.00.

This research is based on results from an online survey of nonprofit arts organizations in Illinois, adapted with permission from a survey used by Grønbjerg and McGiverin-Bohan (2010) for a capacity study of arts organizations in Indiana developed by the School of Public and Environmental Affairs at Indiana University. The overall response rate was 28.9%.

Results show that most organizations are theaters (16.2%), followed by music organization (15.6%), and historical or non-arts museum (9.1%) but all arts organizations are represented. Most organizations have paid staff (84%) but only about one-third of organizations have an endowment (30.6%). Of those who do, most are under $100,000. Clearly organizations with no endowment are more at risk as they cannot rely on investment income as part of their revenue diversification. This research supports early work by Hager and Pollak (2002).

Despite the challenging financial picture, the majority of arts organizations (56%) continued to add new services or new programs since January 2012. To cope with financial challenges, about one-third reduced or removed services and a quarter reduced staff, borrowed money or froze employee salaries, which speaks to the financial vulnerability of arts organizations. In terms of responses to financial challenges, arts organizations’ greatest challenges were expanding their donor base and obtaining overall funding.

Organizations were asked specifically about capacity issues as they relate to governance and operations. Major challenges for these organizations were training and/or developing the board, followed by undertaking strategic planning for the organization which is also Board related.

Overwhelmingly, nearly all organizations indicated that attracting new members/clients was a challenge (89%). Assessing community needs and evaluating or assessing program outcomes or impact was also seen as either a major or minor challenge by about 82% of all organizations. Both of these issues speak to the challenges associated with data collection and analysis.

Most organizations have definite capacity challenges with technology. The most predominant major challenges included upgrading computers to support new software (so hardware); and creating, updating and effectively using databases.

To help build their overall capacity, organizations were asked what types of assistance would be most useful. Respondents indicated that it would be most helpful to obtain multi-year funding for capacity building as well as general administration funding, followed by endowment funding. This is challenging given that foundations often only fund for one year at a time and rarely for capacity-building.

Government budgets are severely constrained and nonprofits that receive public funds are under increasing pressure to demonstrate results. To do this, nonprofit organizations must strengthen and grow their capacity in the areas of technology, finances and leadership. This study supports the work of Moxham and Boaden (2007) that there are definite contextual and process barriers in measuring the efficiency and effectiveness of nonprofit organizations. Because funding is short term (one year or less), nonprofit organizations tend to be focused on short-term goals rather than longer-term goals, “an obstacle to long-term performance measurement” (p. 837).

The arts are integral to healthy and vibrant communities. They not only support a strong sense of place for residents but they drive real economic benefits through tourism, which drives spending in local businesses and sales tax revenue. When these small businesses do well, that supports property taxes and reinvestment in the community through business purchases, employment, and higher property values. Arts organizations need to focus on those investments that build capacity and funders of the arts need to support capacity initiatives through multi-year funding commitment and including administrative overhead in project funding.

Alicia Schatteman is an Assistant Professor of Nonprofit Management in the School of Public and Global Affairs for the Department of Public Administration and the Center for NGO Leadership and Development at Northern Illinois University. She teaches, consults and conducts research in the areas of nonprofit strategic planning, performance management, volunteerism, financial management, and technology.

Works Cited Gronberg, Kirsten and McGiverin-Bohan, Kellie. 2010. Nonprofit Capacity Assessment:  Indiana’s Arts and Culture Organizations. (Bloomington, IN: Indiana University School of Public and Environmental Affairs).

Hager, Mark and Pollak, Thomas. 2002. The Capacity of Performing Arts Presenting Organizations. Center on Nonprofits and Philanthropy, The Urban Institute. Washington, DC.

Moxham, Claire and Boaden, Ruth. 2007. The impact of performance measurement in the voluntary sector:  Identification of contextual and processual factors. International Journal of Operations & Production Management. 27(8): 826-845.