This article came out in the Washington Post a couple of weeks ago about Arena Stages’ inability to hold up the promise of full productions of new American plays in their Kogod Cradle space. It is a well-written article about promises made at the beginning of a triple-digit million dollar capital campaign compared to realities nine years (and an economic crash) later. Those more enmeshed in the world of new plays have written far more eloquently on the impact of the programmatic changes at Arena than I could. What struck me most keenly about this situation comes on the last page of the article:
Rocky finances are commonly cited as complicating Arena’s current programming choices. As of this summer, Arena continued to carry $16 million of what could be called “expansion drag,” debt from the fundraising shortfall around the refurbishment.
In this, Arena is hardly alone. Recently the University of Chicago released its study Set in Stone, which starkly chronicles the debt and post-opening revenue shortfalls endured nationwide by new or expanded museums and performing arts complexes between 1994 and 2008. Of a timetable to retire the debt, Smith says, “We’re always hopeful.”
If you are planning to build/refurbish a facility and haven’t read Set in Stone, I suggest you do it now. These are problems we can fix. Here are a few points I think are key to “doing it right” so that you can fulfill the promises to your mission, your trustees, your employees and artists, and your community:
- Resist the urge to cut the capital budget to bare bones: I know everyone wants to get that capital campaign nut down as small as possible so that the feasibility studies say you can get it done. However, if you cut things like paying down debt, operating cash cushion, cash reserve / risk capital (or, if you must, an endowment), and construction contingencies you are asking for trouble. Those “add-ons” to the bricks-and-mortar budget aren’t sexy enough for a campaign of their own, as many organizations who have tried a “follow up” campaign have learned all too well. If you can’t raise the money to fund it right then you should wait. By rushing the process you are not only putting the organization at risk, you are mortgaging your future and the future of those artists and leaders who are coming behind you.
- Don’t go public with your campaign too early. The old rule of thumb was to announce when you were 60% of the way to your goal. These days I wouldn’t announce a campaign until at least 90% (perhaps 95%) of the needed funds were raised. Information travels at the speed of light now. Once you announce your project people will want to see progress continuously. A major capital campaign is not IndieGoGo, but many of your constituents (and the press) will expect the same speed of resolution once you make your plans public.
- Don’t break ground too early. Related, but equally important, to #2. I’ve seen many an arts organization decide to start building once the funds for the bricks-and-mortar portion have been raised mistakenly believing that the sight of the progress on the edifice will inspire additional giving. Again, if you start this ball rolling before you’ve raised the “add-ons” mentioned above, chances are (as Arena found) you aren’t going to raise them.
- Consider the impact of a capital campaign on your unrestricted contributed operating revenue. Is contributed revenue currently a significant component of your annual operating budget? Make sure you consider the fact that a major capital campaign can severely cannibalize your unrestricted general operating donations. This trend may not recover for a few years after the new facility is running. Too many organizations actually plan for the opposite: a new building will inspire new donors! Remember, new donors take cultivation. All those new patrons that will come when you build it aren’t going to automatically jump to the top of the cultivation ladder.
- It is always more expensive than you think. In addition to resisting the urge to cut the capital budget, you must also plan for higher operating expenses and lower operating revenue than you hope. Plus, build a percentage of your first two years’ operating expenses into the capital budget. Even if your conservative estimates show you breaking even or better in your first year of operation, you need that cushion. If you plan this way, the worst that could happen is that you have higher net income than budgeted and put the cushion into an account to fund artistic risk.
It is possible to have exciting new facilities without killing the artistic output, or worse, the organization itself. We don’t have to be slaves to our buildings. It may not be the fast track, blaze of glory path, but we can run successful business and take artistic risk at the same time.