It’s undisputed that the nonprofit arts industry has a large fiscal impact on the nation’s economy. According to Americans for the Arts, a nonprofit organization dedicated to advancing the arts in America, the arts and culture industry generates over $166 billion in “economic activity.” This activity includes both spending by arts organizations and event-related spending by audiences.

What is not so clear, however, is the reverse; how does the state of the economy impact the fiscal health of the arts organizations? While there are many arts organizations around the country that are for-profit enterprises, the vast majority of regional theaters, operas, symphonies, museums, dance companies, fine arts organizations and more are designated 501(c)(3). This is an IRS status that relieves the organization of most federal income taxes and generally offers tax deductions for qualified donations as well. These not for profit groups depend heavily on donations and grant monies from individuals and other entities including municipalities like state arts programs, city arts programs, community foundations, private foundations, etc.; but many arts organizations also depend heavily on private donations to stay afloat as well. How these nonprofits are faring in today’s shaky economic times is, for now, a mixed bag.

Economic downturns often have long-term effects as well as immediate pain. The lack of funding resulting from a slowdown can take years to recover. Many nonprofits and the organizations dedicated to advancing philanthropy are taking steps to help organizations brace and prepare for the potential pain that may follow an ever-softening economy. MassNonprofit.org, an organization that shares news and information on nonprofits in Massachusetts, has recently published an article especially geared to arts and social service organizations to help them respond to a potential recession. The article includes pointers such as how to handle donor relations, contingency plans and revenue.

“Keep ‘Em Comin’!”

Marc Solomon, the interim chairman of the Palm Beach Opera board of directors, recently submitted a plea via the Palm Beach Daily News to supporters requesting they not let the slumping economy deter them from making donations. Attempting to head the problem off at the pass, he points out the need to step forward in support despite tough financial times.

Alex Aldrich, the Vermont Arts Council head, says in the Rutland Herald, “The severity of this economic downturn may prove particularly challenging for the nonprofits. We’re low on the discretionary spending totem pole.” The Northeast Florida Jazz Association has revamped its approach to sponsorship based on economic realities – the title sponsorship has gone up for auction on Ebay! According to Muriel McCoy, president of NEFJA, “This year, because of the economic downturn in the economy, getting sponsorships for the festival in the traditional manner is not working.” A press release by NEFJA says, “McCoy attributes the slumping economy and limited business resources as the primary catalyst for NEFJA’s innovative approach to raising funds for the festival.”

Amid the cautionary tales, however, are several bright spots. Surprisingly, foundation monies represent one of the more stable sources of income for nonprofits. Foundations include community foundations, corporate foundations and family foundations. The Foundation Center, whose mission is “to strengthen the nonprofit sector by advancing knowledge about U.S. philanthropy,” released the May 2008 Foundation Growth and Giving Estimates: Current Outlook report which is reporting a 10% gain in foundation giving in 2007, following on the heels of a 7.1% gain from 2006. Additionally, the report says over half of the nation’s 72,000 foundations expect additional increases in giving in 2008.

A Parable for Proper Planning

The biggest reason for this stability in giving is a direct result of proper planning by foundations. Sara Engelhardt, president of the Foundation Center, says, “Foundations — especially the larger, endowed grantmakers — often engage in long-range planning to ensure that they can maintain relatively stable levels of support for their grantees regardless of periodic dips in their assets.” This type of forward thinking helps arts organizations weather the storm during economic periods of downturn or instability which may affect individual donations.

Yet another beacon to arts organization and a reason for continued hope and confidence is the National Endowment for the Arts. The NEA, a governmental agency, is the largest funder of the arts in the U.S. each year. While funding has not yet resumed the peak funding level of $176 million back in 1992, the funding appropriates for 2008 were $144 million, a $20 million increase over 2007. And for 2009, the House Appropriations Interior subcommittee has, as of June 16, set 2009 funding for $160 million.

Arts organizations are, like other nonprofits, particularly sensitive to fluctuations in the economy, especially those that hinder the average citizen’s discretionary income like increases in taxes, a widely fluctuating stock market, gasoline that costs over $4 per gallon and widespread housing problems. However, at least so far, the pinch is not too tight for many arts groups. Those that rely most heavily on individual donations will likely feel the pinch first while those whose primary source of funding comes from a bigger machine, such as foundation grants and governmental entities, will likely weather the economic storm better.

Related posts:

1. Theater Attendance: Affected by the Economy or Are There Other Forces at Play?
2. Can President Obama “Fix” The Economy?
3. The U.S. Economy as One Big Red-Light District
4. Seeking a Shallow Bottom: The U.S. Economy Going into the Second Half of 2008
5. The U.S. Economy in Recession: A Look at the Numbers