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Show Me the Money: Nonprofit Theatre and the New Overtime Rules

After reading through the official Department of Labor’s brief on the new overtime rules and the non-profit sector yesterday, I made the mistake of tweeting my first thought. I don’t call it a mistake because I said something I regret or because some people had a knee jerk response but rather because 140 characters is not nearly enough to truly examine all the implications this new rule brings. It isn’t a matter of “just pay them more” or “just let them go home after 40 hours.” It is, like most things in life, much more complex than that, much more complex than a couple of tweets can handle.

Let’s start with a broad view of the current “normal” for work. I haven’t worked a 40-hour week since I was paid hourly a couple decades ago. I don’t know anyone who works a 40-hour week most weeks, much less all weeks. This isn’t just in nonprofit theatre, this is in most industries today. I’m not sure that a 40-hour week has ever been the norm in nonprofit theatre.  Think about it, working from 9:00am to 6:30pm Monday-Friday (or 10a-6p Tuesday-Sunday) would put you at 47.5 (or 48) hours.  At the ASC we try to compensate for this by having a very flexible paid time off policy with no set limit on the number of days a full-time employee can take off in any given year.  We know we all work harder during portions of the year so we try to make sure to balance it by taking the time we need in our slightly less crazy times of year.  The new overtime rule does not take any of this into account.  It simply demands that we completely change our business model by December 1, 2016.

That’s my next issue: the time frame for compliance.  For most rules issued by the Federal government we see a “ramping up” period of at least a couple of years.  Not so for these new rules.  They double the salary at which overtime exemptions come into play and says that they go into effect six and half months from the date of the announcement.  The move from the previous threshold of $455/week ($23,660/year) to $913/week ($47,476/year) is tremendous and not easy to make up.

If we continued to operate as we do now, assuming that our (as of Dec 1) non-exempt employees currently average 48 hours/week, paying for eight hours of overtime per week would add over $20,000 to our MONTHLY payroll.  Almost $250,000 per year.  To put this in perspective, that is equal to 8% of our total budget.  We have worked extremely hard over the past six years to get into the black and stay there, to pay off a sizeable amount of debt, and to start investing again in our people and our programs.  Our success in these areas is due to very careful budgeting.  We currently project being able to grow our expense budget by 2.6% next fiscal year if we want to stay in the black.  This is not something we can turn on a dime.

The next answer I hear is “make your employees stop working after 40 hours.”  Again, this is not something that can be reversed in a blink.  We all have more work than we have time to do it in already.  That is one of the reasons we are currently examining the costs and benefits of all our programming.  Can we get the programs down to a level that can be sustained on 40 hours a week and still make the revenue to pay for those people and programs?  I currently have no idea.  Again, I’m not saying that it is not a worthy goal or that every single employee doesn’t deserve every single penny that this new rule requires.  I’m saying that a fundamental business model change, an industry-wide cultural shift, takes longer than 6.5 months to figure out how to fund.

I’m even more concerned with smaller organizations.  Sure, this rule doesn’t apply to companies with under $500,000 in business revenue (not including contributions), but what about those with $525,000 in revenue?  Many of which have executive leaders that are suddenly non-exempt.  How can they continue to function?  Some of these are organizations that are scraping by with 2-4 employees doing all the work.  This could very well put them out of business.

We need to improve wages and honor the time put in by everyone.  However, this rule is too big an increase and too quick a turnaround.  I’m very concerned we are about to see the next wave of nonprofit theatre closures (to say nothing about other small businesses).  Is job loss better than incremental wage improvement?  I think not.

 
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Posted by on May 20, 2016 in Arts management

 

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Learning from Arena Stage: Budgeting for capital and programmatic success

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:

  1. 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.  
  2. 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.
  3. 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.
  4. 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.
  5. 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.  

 
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Posted by on November 5, 2012 in Arts management, funding, theatre

 

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