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The Recession May Be Over, But Its Impact on Cultural Organizations Has Just Begun

(October 16, 2009) – On September 14, the Dow Jones Industrial Average closed above 10,000, prompting some to declare, “The recession is over.”  While this may be true in the broader economy, greater Philadelphia’s cultural sector is just beginning to feel the full impact of the downturn. 

Cultural organizations are being particularly hard hit, because as non-profits they depend on contributions for more than half of their income.  So while ticket sales and admissions are holding steady, steep declines in philanthropy and investment income are clobbering the bottom line. 

In response, cultural organizations are drawing their belts ever-tighter in an effort to further reduce costs while maintaining the quality of their public programs.  As one local leader noted, “Agility and ability to lead change are vital skills right now, not just in our institution but within our local arts landscape.”

According to TempCheck, a periodic survey released today by the Greater Philadelphia Cultural Alliance, the trends over the past six months clearly indicate that while attendance remains strong, the lag effect of the economy is taking its toll on other forms of government, foundation and corporate support which are essential to keeping the arts accessible to all.

“In my thirty-five years, I’ve never seen it so tough,” said Peggy Amsterdam, President of the Greater Philadelphia Cultural Alliance.  “Arts organizations are doing everything they can to keep the doors open.  Thankfully, we’re not having to deal with an arts tax too.  That would have been the straw that broke the camel’s back.”
Findings from the most recent TempCheck survey appear below. 
Click here for an overview of the latest results. 

Trends in Earned Income
•    One in four (26%) organizations report increased single ticket sales, up from 23% in April, 2009.  The largest drop in single ticket sales occurs among very large organizations (budgets >$10 million), 50% of whom have seen declines between 5-15%.
•    Thirty-eight percent of organizations report a loss in investments and other earned income, down from 53% in April.  However, for many organizations this is still a notable loss, as 50% of very large organizations have seen declines of 5-25%.
•    Nearly one in three (31%) organizations reports an increase in subscriptions and memberships, up from 20% in April.  This trend is most notable in the Performing Arts, where 34% of survey respondents reported increases.

Trends in Contributed Income

•    Thirty-six percent of organizations report decreases in foundation support, compared to only 24% in April.  This trend holds true across all cultural disciplines.  The most notable declines are among Support and Service organizations, Community Arts and Education organizations, and mid-sized organizations (budgets between $250,000 - $1 million), who report drops of 5-25% at more than twice the rate of other organizations.
•    Corporate support continues to decline, with 37% of organizations reporting decreases, compared to 34% in April.
•    Almost half (49%) of organizations report a drop in government support, compared to just 38% in April.  More than 1 in 5 of all but the smallest organizations (budgets <$250,000) report declines greater than 25%.
•    Individual giving is the only bright spot in the contributed income landscape, with 32% of organizations reporting increases, up from 30% in April.

Trends in Expense Management
•    More organizations are decreasing programming to lower costs (30% now compared to 13% in April).  Nearly two out of every five of the largest organizations (budgets >$1 million) have decreased programming to lower costs in the last six months, and half of them expect to do so again in the next six months.
•    Half of all organizations (51%) are producing programs with lower budgets, compared to 42% in April, and 49% are altering programming to cut costs, compared to just 28% in April.
•    Three out of every four Performing Arts orgs have not and don’t expect to decrease programming in order to lower costs, compared to just over half of other cultural organizations.  However, Performing Arts organizations appear to be more willing than other types of cultural groups to reduce ticket prices or offer additional discounts, with almost two in five having done so in the last six months, and a quarter expecting to do so in the next six months.  
•    Among other types of cultural organizations, fewer than one in three have reduced prices in the last six months, and fewer than one in ten expect to do so going forward.
•    One-third of all organizations are reducing their marketing budgets, up from 27% in April.  Two of every five very large organizations (budgets >$1 million) have done so, and half of those expect to do so again in the next six months.
•    Two in five organizations have or expect to collaborate or consolidate, down from 45% in April.

Workforce Trends
•    Forty percent of organizations have reduced their staff size or hours, almost double what was reported in April (23%).
•    Workforce reduction over the last six months has occurred most frequently among Community Arts and Education organizations, and Support and Service organizations, with 61% and 75%, respectively, reporting reductions in staff size or hours.  More than 60% of the largest organizations (budgets >$1 million) have reduced their workforce in the last six months. 
•    However, more than 60% of Performing Arts organizations report that they haven’t and don’t expect to implement workforce reductions, as do nearly 77% of small organizations (budgets <$250,000). 
•    Benefits for the remaining workforce appear to be holding steady, with 78% of organizations reporting that they haven’t and don’t expect to reduce employee benefits in order to lower cost.

The Financial Outlook
•    Forty-three percent of organizations surveyed ended the most recent fiscal year in deficit.  Deficits occurred most frequently among Community Arts and Education organizations, 65% of whom reported one.  However, the majority of those deficits were small (between 1-10%).
•    Similarly, 43% of organizations expect a deficit in the coming year, compared to just 34% in April.
•    Many organizations also lack reserves to carry them through additional “rainy days.”  Twenty-eight percent have less than one month of cash available, compared to 18% in April.
•    Twenty-seven percent expect their situation to get worse in the next six months.

These results reflect the experience of ninety-nine organizations representing a wide range of budget sizes and disciplines who responded to a questionnaire assessing the effects of the economy on their fundraising, programming, and other activities. The Cultural Alliance is fielding TempCheck on a regular basis to measure shifts over time. The survey was previously administered in January and April, 2009.