Nonprofit Arts Funding: Why Reward Bad and Punish Good … Still?

Why do funders support the same organizations because they’ve always supported the same organizations, regardless of their results?

I thought this would have stopped by now. Silly me.

In 2017, the AT&T Performing Arts Center in Dallas, Texas was $151 million in debt, partly due in part to escalating expenses from a capital project gone haywire. According to the Dallas Observer, project backers failed to raise the money needed to pay off $151 million in construction bonds. ATTPAC said it had $56 million in cash reserves and couldn't fundraise itself out of the problem.

They had an immediate need for $27 million, just to keep going.

Bad management? Bad idea in the first place? Not enough discussion? Unpaid pledges? Really, really, really, really bad planning?

Who knows?

Instead of allowing the venue to close up shop, the Moody Foundation (a big financial player in Big D and the rest of Texas) donated $12 million. All they wanted was to change the name of a different performance venue (the Dallas City Performance Hall) to Moody Performance Hall.

Previously, Bank of America and JP Morgan Chase had agreed to forgive $45 million of the debt contingent upon the city of Dallas contributing $15 million on top of that.

So, to recap, a company that was $151 million in debt had $45 million forgiven, $15 million from the city (at the expense of…?), and $12 million from another foundation entirely, who also pledged $10 million to smaller arts organizations across Dallas, as long as they were already funded in part by the city of Dallas. Is that rewarding bad management and, because that money had been hoovered by the arts center, punishing good management elsewhere?

In the early 1990s, the Los Angeles Theatre Center (LATC) closed, about $29 million in debt. During previous times of financial crunch, led by extraordinary bad management by the director (who later went on to teach arts management at a university, but had to flee the country to somewhere non-extraditable in the Caribbean because he was about to be indicted for allegedly keeping all the deducted payroll tax monies from LATC), the entire staff was ordered to appear at LA City Council meetings to get extensions on (or, [gasp] additions to) the debt to be serviced.

And yet, the building is still there, still houses performances, just not under a single, poorly-run, badly-managed, ridiculously-led, debt-ridden nonprofit with an eponymous name. It’s managed by the Los Angeles Department of Cultural Affairs.

In San Diego, during this fiscal year (July 2022-June 2023), the city’s arts and culture funding mechanism approved over 100 grants to area arts organizations. The top recipient, the San Diego Symphony Orchestra, received more than the bottom 39 recipients combined. The top 5 recipients received more than the bottom 79 recipients combined. The top 17 recipients received 50% of the funding.

Included in the funding stream was $248,550 to San Diego Repertory Theatre. San Diego Repertory Theatre suspended operations on June 19, 2022. While not technically a closed, bankrupted company, they have not produced any services for the San Diego community at all this year.

They have, however, racked up a lot of debt. So the city gave them $248,550 for past debt. I don’t know the details of the arrangement here and I’ll be the first one to support an arts organization going through tough times not of their own making, which I’ll grant to San Diego Repertory Theatre to a point. The truth is that the company has always been near-closure, seeking bailouts from any source they can. The other truth is that they’ve done more to include forgotten members of the San Diego community than just about any other large organization.

But now they’re closed. Is sending them $248,550 (2.5% of the total money distributed) rewarding bad management, just like the examples at the top of the page?

There are too many examples to cite here, but a terrific article came out in the Stanford Social Innovation Review on this topic, appropriately entitled “Don’t Feed the Zombies: When Funders Aren’t Accountable for Impact, It Ruins the Party for Everyone.”

In it, author Kevin Starr puts it succinctly:

“Think about it. We — social sector funders — are the analog of investors in the commercial world. In that world, companies go broke if they don’t provide value for customers, and investors suffer when companies go broke. When an investment firm makes too many bad bets, it goes out of business. They’re accountable, and their bad decisions have consequences (mostly).

“That kind of structural accountability doesn’t exist in the nonprofit world. Our customers — whom we often refer to as “beneficiaries” — have no way to express value or lack thereof. They have no say as to whether zombies live or die. If funders aren’t accountable for value — for impact — then nobody is.”

Is Zombie Funding — defined here as funding that continues to go to established organizations because there is a track record of giving to those organizations, regardless of impact (or lack thereof) — the sector’s fault for allowing this to happen for fear of reduced funding all around? (In other words, better that some arts organizations got some money instead of potentially none of them?)

There’s plenty of blame to go around. And plenty of organizations that do not deserve the funding they receive regularly (which they receive regularly because they receive it regularly — a riff on “We do it this way because we’ve always done it this way.”)

How do they do arts funding in your community? Is it similarly ridiculous?

Based in Kirkland, Washington, Alan Harrison is a writer and speaker specializing in nonprofit organizations, strategy, the arts, and life politics. His columns appear regularly in major publications. Contact him directly at alan@501c3.guru.

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