Edifice Complex

Building new cultural facilities is a risky business for Valley cities.

Arts organizations are constantly on the brink of failure.

Their plight surfaces in the headlines whenever a city has to give a theater company $100,000 to meet its payroll, as Phoenix did for Phoenix Theatre a few weeks back.

Phoenix's Herberger Theater competes against its resident performers for operating cash.
Paolo Vescia
Phoenix's Herberger Theater competes against its resident performers for operating cash.

The Phoenix Art Museum and a number of other cultural nonprofits owe their survival to a combination of business practices that were instilled by the National Arts Stabilization program.

Begun here in 1986 as a joint venture of the Flinn Foundation and business leaders, it infused PAM, the Phoenix Symphony, Arizona Theatre Company and a handful of the state's other top arts groups with the funds and savvy to run viable businesses.

"What we began to realize," says Millinger, "was that even the largest organizations didn't have in place the financial forecasting and business practices that members of their own boards practice in their own professional lives."

Too many organizations had no rolling financial projections, no long-range plans, no ability to think three or four steps ahead of the crisis of the moment.

"The idea was to get organizations beyond this survival level," she says, "so they could genuinely begin to look ahead."

Arizona's stabilization effort was an offshoot of a national program funded by the Ford, Rockefeller and Mellon Foundations.

That program had evolved from the ashes of one of the most expensive failures in American arts philanthropy.

In the 1960s, the Ford Foundation, then the nation's largest single supporter of the arts, was pouring millions of dollars into major ballets and theaters across the country. But the money didn't prevent the arts groups from constantly collapsing in cashless heaps.

So Ford set out to cure the cash flow problems by developing endowments, the interest from which could provide rainy-day operational money for arts groups.

The foundation challenged approximately 60 orchestras, including the Phoenix Symphony, to raise pots of new cash to match the foundation's initial contribution of $80.2 million. The challenge was a roaring success. Orchestra patrons all over the nation kicked in another $84 million. But even those gargantuan sums weren't enough.

Millinger recalls that as one financial crisis followed another, most of the orchestras began piling up losses and eating their reserves just to meet operating expenses. By 1976, most of the orchestras had devoured their share of what amounted to more than $200 million.

The chief problem was that too many of the groups carried too much debt -- sometimes amounting to 25 percent or more of their total budgets.

Instead of giving up, Ford devised a two-pronged approach to kill the debts while simultaneously helping the groups build a reserve fund.

"The idea," says Millinger, "was to give the groups a way to temporarily borrow from themselves, rather than run up more debt by turning to the banks."

The rule was that all the borrowed cash had to be replenished.

In exchange for this kind of fiscal discipline, Ford erased the groups' debts, invested in a cash reserve and, over a period of five to seven years, brought in platoons of experts to beef up the organizations' business savvy.

The program was so successful that, in the early 1980s, Ford teamed with Mellon and Rockefeller to launch the national stabilization program.

Instead of funding one institution at a time, they created a pool of about $9 million and went after clusters of organizations in communities that could muster local support.

Boston and Kansas City were the first two sites. Arizona was the third.

Arizona was the National Arts Stabilization's only statewide effort, and the only one carried out without using any public money.

"There would have been no way to get the public sector to participate here without risking the monies that were then going to the state commission," says Millinger.

Yet the effort was fairly easy to sell to Howard McCready, Gordon Murphy and other prominent business leaders who were all too accustomed to receiving Friday afternoon phone calls from arts groups trying to make their payrolls.

Flinn officials initially thought the program, which included the Phoenix Symphony, Phoenix Art Museum, Arizona Theatre Company and five other of the state's largest arts organizations, might cost about $400,000. But forensic-style analyses of the organizations' finances recommended a cost of about $4.5 million. It wound up totaling $5.7 million, split three ways among the National Arts Stabilization, the Flinn and business.

"The impact of Arts Stabilization was phenomenal," says Ken Husband, an accountant who's on the board of Arizonans for Cultural Development, a statewide arts lobby, and heads the Phoenix Art Museum's planned giving program. "They came in and selected institutions that were not just wonderful ideas in our hearts, but had track records and showed some financial stability. Basically, they forced these institutions into being good businesspeople."

The program compelled the organizations to take a candid, global look at themselves, assessing everything from finances, programs and future plans to how they selected and ran their boards, and compared them with other arts organizations.

"I've sat on a number of boards of cultural institutions around town," says Husband, "and these were thought processes that a lot of arts people just hadn't gone through before."

The program left local arts leaders chanting a new mantra: cash reserve.

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