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A Sector in Peril: Philanthropy’s Role in Responding to COVID-19

ISSUE 4 • March 2020

People standing in a dark room around a piano

By Alan Brown

This blog post kicks off WolfBrown’s new series, Navigating the Crisis. This series is a collection of research papers, blogs and announcements that critically examine the arts sector’s response to COVID-19.

I am indebted to Adrian Ellis, John Shibley, Tommer Peterson, Andrew Taylor, Ingrid Handeland, Shelley Cohn, Rebecca Thomas, John Carnwath, Megan Bander, Victoria Plettner-Saunders, Joe Kluger, Thomas Wolf, and Dennie Palmer Wolf for their many ideas and critical reflections which helped to shape this paper.
– Alan Brown

As the nonprofit arts sector and self-employed arts workers reel from the financial devastation of COVID-19, institutional funders, at this very moment, are left holding a very hot potato. At this precise moment – literally in the next few weeks – philanthropy will be forced to make difficult choices that it has not had to make before.

With their newly diminished endowments, should funders continue supporting the same organizations they give grants to year after year, or shift focus to other, more vulnerable organizations? Should support of institutions be prioritized above support of self-employed arts workers? Should funding be prioritized for keeping viable nonprofits going, or for salvaging the assets of those whose only option is bankruptcy? Or, should capital be preserved for supporting the eventual ramp up of programming activity amongst those fortunate enough to survive?

Arts funders have always held sway over the sector at a disproportionately high level in relation to the amount of funding provided. Suddenly now the influence of philanthropy is arithmetically higher in that its decisions will determine who survives and who doesn’t. 

Image of shuttered venue
Matthew Waring at Unsplash Image of a shuttered venue with the sign “This is just an interval.”

Even with their collective resources foundations do not have anything close to the amount of capital needed to comprehensively meet the needs of the field at this time. Nonetheless, arts funders, working together, can be strategic in defining and deploying the kinds of capital that will provide equitable relief and opportunity to the sector as a whole.

Capital for Artists

I’m heartened to see numerous efforts in this vein already underway. Given the structural forces that marginalize most artists to the gig economy, it would be unconscionable for philanthropy not to prioritize the basic needs of artists, creative directors, stage technicians and other gig workers whose livelihoods have been “canceled.” Among the most vulnerable are teaching artists

It is equally unconscionable that unionized artists on generous contracts with big institutions experience minor hardship whilst artists working as independent contractors lose their livelihoods. And there will be a reckoning for senior executives and artistic directors making the fattest of salaries; a 50% reduction in compensation for people making over $250,000 per year would pay a lot of artists.

The precise mechanisms for getting relief to artists must be worked out quickly. Unemployment benefits for the self employed would be a start. Last week the Norwegian government voted to give independent freelancers 80% of their average income and allocated $26m to Arts Council Norway to cover loss of income for artists – just for the months of April and May.

Beyond relief we must consider if this is an opportunity to start a groundbreaking new work program for teaching artists and other artists working in community contexts, akin to the depression-era Works Progress Administration (WPA). Initially this might involve paying artists for virtual engagement with children and other community members, as the National Arts Centre in Ottawa has already begun doing, but could evolve into something much larger.

Capital for Survival

Should foundation funders take up the cause of mitigating the harm stemming from layoffs? Here in Detroit, I figure the collective payroll of the regional arts and culture sector is somewhere in the neighborhood of $10m per month. No one has that kind of capital. Even if the work stoppage were to last only three months, with sudden (and improbable) rehiring of all staff, there is still not enough capital to address even a fraction of the need. 

For foundations, there is no avoiding triage. Organizations facing insolvency will be an immediate priority, but there are other dimensions to consider. Should organizations serving historically marginalized and under-served populations be prioritized over others? Should organizations working with youth be prioritized?

Should stronger organizations with cash reserves be passed over for short-term assistance precisely because they’ve done a good job of preserving cash? This raises yet another set of thorny questions for organizations with endowments and board-designated reserve funds. When is it prudent to deplete long-term capital funds to reduce short-term hardship? When is it irresponsible? Should foundations penalize organizations who’ve demonstrated good capitalization practice?

The amount of capital required to stabilize small and mid-sized organizations is an order of magnitude lower than the amount of capital required to stabilize large institutions. For the health of the ecosystem, it seems that stabilizing small and mid-sized organizations should be a priority. As many of them rely on volunteers for all or some of their capacity, they may, in some respects, be more resilient than larger organizations with higher fixed costs.

Capital for Asset Preservation

It is possible that many organizations with fixed assets like buildings, long-term leases, and collections of art and artifacts will face a difficult choice between insolvency and selling or abandoning some of these assets. If electric bills cannot be paid and security guards must be laid off, our cultural infrastructure will be in jeopardy. The amount of capital required to secure facilities and collections would seem to be relatively small, but there might also be new opportunities in a softer market to acquire facilities at low prices.

A strong argument can be made for allocating capital for asset preservation, both to prevent loss of assets from foreclosures and bankruptcy sale, and to take advantage of rare opportunities to strengthen the sector’s infrastructure. Organizations such as Community Arts Stabilization Trust (CAST) in San Francisco would be well-situated to focus specifically on the real estate aspects of the crisis.

Capital for Gearing Up Again

Understandably, the sector is currently focused on managing down costs whilst keeping patrons engaged. But the financial risks are also great on the upside of the recovery, when decisions about re-hiring staff, committing to venues, and making large deposits on artistic programs must be made in a highly uncertain environment. Over-estimating demand and moving too quickly could be disastrous, as cinema operators in China are learning this week.

As the sector moves into post-virus recovery mode, getting started again will require capital. The need will vary significantly from organization to organization, and might be addressed through a loan program with a liberal pay-back timeline. It would be short-sighted of funders to deplete resources on short-term survival and show up at the recovery party without sufficient capital to re-animate our museums, galleries and theatres with high quality programs.

Capital for Re-invention

In many respects, cultural production can be understood as an ecosystem. In one important respect, however, the analogy fails. In natural ecosystems there is birth, competition for resources, and regular dying and repurposing of nutrients. The cultural sector has been prolific at birthing and vigorously competitive for resources. But we are lousy at dying and regeneration, lacking the structural mechanisms for end-of-life interventions short of bankruptcy. Thus, one might argue, the sector is long overdue for a mass extinction event.

With only a few months of cash on hand, at best, most arts groups live perpetually on the brink of extinction. There will almost certainly be a large number of insolvencies, perhaps hundreds or even thousands. The question the philanthropic sector must ask over the next few weeks is whether to allow these insolvencies to wend their way through the bankruptcy courts, or whether philanthropy might create a different pathway through the re-organization process that does not require bankruptcy or dissolution.

A voluntary receivership program might offer a structural alternative to some organizations who are out of cash but not laden with too much debt or encumbered by fixed commitments that require bankruptcy to resolve. Boards would vote to place the organization into the receivership program as an alternative to bankruptcy, transferring legal responsibility to a caretaker entity that agrees to preserve the assets and allow for the possibility of a new life at a future time.

Or, large institutions might be funded on a case by case basis to take temporary responsibility for small organizations in their communities that are facing insolvency. Staring down their own massive shortfalls, it seems unlikely that leaders of large institutions will see this as a time for outreach and generosity to other, smaller players in the ecosystem. Regardless, funders might offer incentives to large institutions to support a system of trickle-down stewardship, as a local strategy for stabilization and recovery.

Deploying capital against insolvency will help to preserve assets, but there are many other reasons why a pool of capital is needed to assist solvent organizations with the inevitable restructuring, re-envisioning and wholesale re-invention required to deliver programs in the post-COVID-19 environment.

Imagine, for example, if health officials begin lifting restrictions on public gatherings incrementally. First, gatherings of 100 are allowed. Then, a month later, the limit is raised to 250. But what if the 250-person limit persists for nine to 12 months or even longer? If I were a theatre or an orchestra right now I’d be thinking hard about a new, if temporary, business model in which small ensembles play in smaller venues around the community. Even in good times, new business models require capitalization.

Acting Collectively is Mandatory

If anything, what we are witnessing now is a painful lesson in the downside risk of allowing an entire sector to delude itself about what a healthy balance sheet looks like.

To their credit, foundation funders have worked hard over the past 10 years to promulgate good capitalization practice. We might not have figured that a pernicious virus would destabilize the sector, but we most certainly understood the extent of vulnerability fueled by good intentions but pervasively weak fiscal discipline. The writing was all over the wall.

It is not only foundations’ financial capital that is needed now, but also their intellectual capital, political capital, and social capital, and specifically their ability to influence public policy and to leverage resources amongst individual philanthropists for the good of the sector.

After 40 years of community cultural planning it is time to go back to the drawing board if we have no contingency plans for stabilizing and then re-capitalizing a local arts sector after a crisis. There are valuable lessons to be learned from 2001 (9/11), 2005 (Katrina), and 2012 (Sandy). If anything we are learning that disaster preparedness is not just the ugly stepchild of institutional planning but a capitalization issue at the sector level that must be addressed through policy, both public and private.

Consider the carnage to be avoided, for example, if the emergency plan for re-capitalizing a city’s arts sector after a major crisis involved deaccessioning a van Gogh or a Matisse. A terrible loss to some, for sure, but perhaps a better outcome for the sector as a whole. It strikes me as the epitome of self-mutilation that we would allow such widespread devastation while our biggest assets, having steeply appreciated in value, are safely tucked away in climate controlled storage lockers, unavailable as collateral. My point is that foundations are not divinely authorized to save the arts sector in times of trouble and other sources of capital must be considered. Our Strategic Petroleum Reserve reduces the risk of a disruption in the supply of fuel. Where is the strategic reserve for arts, culture and creativity?

The rapidity with which the sector is responding is breathtaking. We are anything but slow. With so many guns firing so quickly there is an urgent need for greater clarity as to the specific and unique roles that national funders can play alongside regional funders and local, state, and federal agencies. While regional and local funders concentrate on their respective geographies, national funders, for example, might step in to support the backbone apparatus of national associations and service organizations.

What seems obvious is that the long and capital-intensive process of re-building the arts sector after COVID-19 will be for naught if it merely restores organizations to the same precarious under-capitalized situation that they faced before it. Somehow, we must come out of this with an entirely new appreciation for the role of capital in protecting both artists and nonprofits from risks that are both predictable and unpredictable.

For arts funders, the moral dimensions of the COVID-19 crisis are heartbreaking but unavoidable.

Who will survive? Should women and children be given the first seats on the lifeboats, or is it every man for himself? Which cultural assets should be preserved and which should be allowed to perish? When is it morally justifiable to send large amounts of money to endowed institutions with privileged access to philanthropic resources?

Thinking both equitably and strategically about capitalizing the sector at this moment in time will require funders to look at the sector through an ecosystem lens and make distinctions between threats to individual actors and threats to entire species.

Most importantly, now is the time for arts funders to think and act collaboratively. The first step will be committing to a collectively-adopted framework for deploying capital into a highly-stressed sector, with one eye on the short-term and the other fixed on a horizon not yet in view, but considerably brighter.

A version of this paper originally appeared in Arts Professional.