Philadelphia's culture boom strains under the costs of upkeep

First of three parts

When the idea first bubbled up more than two decades ago during the Rendell administration, a greatly broadened arts and culture sector was to be Philadelphia's savior. Hundreds of millions of dollars in public and private money was poured into expansions and new buildings, sometimes creating institutions from whole cloth. New audiences, economic development, and civic vitality would follow, planners said.

The arts were the centerpiece of the plan, and it worked. Today, at least one arts booster harbors no doubts about how much of Center City's success can be traced to the arts.

"All of it," says former Mayor and Gov. Ed Rendell. "There is no question the Avenue of the Arts started it. If you look at the arts, the Barnes and Art Museum and the orchestra, they appeal to high-end tourists and high-end people who want to live in the city. It was the trigger for the restaurant revival, it was the trigger for the retail revival, and it was certainly the trigger for the population revival. Empty nesters are moving back into the city to be near all this stuff, and young people are moving in because it made Philadelphia a happening place."

A new Kimmel Center and National Constitution Center are up and running. FringeArts is settling into a new building. The Please Touch Museum, Barnes Foundation, Philadelphia Theatre Company, Wilma Theater, Arden Theatre, and others have moved into larger, more visible - and expensive - homes. Arts immigrants from New York are choosing South Philadelphia over Brooklyn - bringing street art, coffee club culture, and $700 strollers with them.

Thanks to the arts, Philadelphia feels different today. But now that the building boom of new facilities is over, the question is whether the city and its benefactors can muster the support to become savior to the arts.

With operating costs up and philanthropy and ticket sales failing to keep pace, stress cracks are appearing in institutions all over town. Some groups, saddled with debt payments, are adjusting offerings to become more commercial. Others have declared bankruptcy or are contemplating it.

A scaling back of the cultural scene not only would put at risk the tourism and population growth the city has worked hard to achieve. But it also would represent a staggering loss of artistic quality that, in some cases, has taken decades to accumulate. Theaters could go dark; masterpieces might be put on the auction block. The Philadelphia Orchestra has stood shoulder to shoulder with the best of Boston and Berlin since the 1930s; funding its aspiration at a level lower than the $200 million it currently seeks likely means reducing its stature to that of a regional ensemble.

There have been successes, instances in which smart planning and good timing have coincided to create expansions, keeping groups in the black and true to mission. The Curtis Institute of Music's new dorm building was built on time, under budget, and now covers its increased operating costs with new income. The Arden Theatre has twice expanded, taken on debt, and still has managed to make its mortgage. But too often, the response to rising operating costs has been painful cutbacks or reduced ambitions.

"There is a huge shift on the ground for arts and culture and philanthropy," says David L. Cohen, former Mayor Rendell's chief of staff, who now is executive vice president of Comcast Corp. and cochairman of the Comcast Foundation, which fields 10,000 requests a year for funding. "At the same time we've made a huge capital investment [in new facilities], the operating costs have not always been there. I think it's almost inevitable that we're going to lose some groups - some entirely and others through mergers or other kinds of consolidation."

The vision shared by Ed and Marjorie O. Rendell, the late developer Willard G. Rouse 3d, and other promoters of the arts as key to civic revitalization can take credit for much of what has been achieved in terms of Center City's growth. Though other factors certainly contributed to wave after wave of restaurant openings, Walnut Street's resurgence as a high-end retail spine, the expanding rings of revitalization into neighborhoods, and downtown population growth, the arts today largely define the city's profile. Travel + Leisure magazine in 2011 ranked Philadelphia as the No. 1 city for cultural offerings; it consistently draws critical attention as home to some of the nation's most admired arts organizations.

Any losses would be artistically wounding, but a contraction also would have economic consequences. Millions of visitors each year come to the Philadelphia Museum of Art, the Franklin Institute, and the Philadelphia Zoo. Arts groups and audiences spend a combined $1.4 billion annually. There are about 7,600 full-time workers in the arts and culture sector, supporting 36,000 additional jobs of other types, according to the Greater Philadelphia Cultural Alliance.

Philadelphia may be a great sports town, with 5.9 million fans paying good money each year to see its five major sports teams win or lose. But Thomas Eakins watercolors, Saturdays on the zoo's new trails, and Sundays at the theater with Sondheim draw more: 8.1 million.

Yet, dozens of arts leaders echoed the assessment that many institutions are at the breaking point. "My gut says there is not enough money" to support all that has been built, says Page Talbott, senior arts and culture consultant to the Philadelphia-based Barra Foundation and interim president of the Historical Society of Pennsylvania.

Can Philadelphia provide the resources to keep open everything that has been built? Susan Sherman, president of the Independence Foundation, which funds theater work and individual artists to the tune of about $1.1 million per year, is blunt: "No."

Rendell says arts groups are experiencing a "perfect storm" - diminished corporate support and reduced funding from the state and the city.

The city-funded Philadelphia Cultural Fund disbursed $1.7 million in grants to local arts and culture groups, according to tax returns for the year ending June 2011. That is down from $3 million the year before.

"Because of the recession, corporate giving went down and government money was tight," he said. "And we lost not so much the RCAP monies [state funds for new buildings], because [Gov.] Corbett continued that, but in terms of operating support from the state arts commission, that was essential to keeping groups out of the red.

". . . [T]hat went away, in part because of the recession, and even when revenues returned, the legislature wasn't doing that anymore. That's really unfortunate," Rendell said, "because, when you compare us to other developed nations, other governments provide 70 percent of operating costs for most arts groups."

Cautionary tales support the view that costs are outstripping resources. After decades of budget growth, the Philadelphia Orchestra filed for Chapter 11 in 2011 in large part to reduce pension obligations, labor costs, and Verizon Hall rent, and still has not brought income into line with expenses. When it filed for bankruptcy, the orchestra swept with it into Chapter 11 protection the Academy of Music and the Philly Pops. The Prince Music Theater recently emerged from its (unrelated) bankruptcy, and at least one more high-profile arts group has considered going the same route.

Others are operating under severe strain. The Please Touch Museum and Philadelphia Theatre Company moved into new buildings, unable to finish fund-raising, leaving them owing tens of millions of dollars. Please Touch recently decided to default on loan payments, triggering a process that may end in bankruptcy. The Franklin Institute ended its Futures Center campaign more than two decades ago without reaching the goal, and will be paying off its debt through 2026.

"We'd love to be using that money on programming," said Franklin COO Larry Dubinski, "but you learn from experience."

Learn the Franklin did. For its current expansion, opening next summer, the museum decided not to put a shovel in the ground until 90 percent of the money had been raised.

To boost earned revenue to lower rents paid by its resident companies, the Kimmel Center has renovated facilities and restructured its reason for being. After several seasons of importing visiting orchestras and other artists, programming now favors the Cake Boss, comedians, pop acts, and other commercial presentations. The National Constitution Center has stayed true to its stated mission as "the place where the U.S. Constitution is celebrated, debated, and illuminated," but also has hosted shows on baseball and Princess Diana. (No more, however. Its new director, legal scholar Jeffrey Rosen, says the focus now is to "put the Constitution back in Constitution Center.")

The Mann Center, struggling to make budget every year, has increased presentations of commercial acts relative to the roster of nonprofits. But how far can an arts presenter dip into the commercial milieu and still be an arts presenter?

"You can't just rely on contemporary and popular programming," says Mann president Catherine M. Cahill. "We are committed to presenting great art." A developing strategic plan aims to settle the question of the center's future.

Does Philadelphia simply not have enough wealth to support all it has built?

Arts professionals look longingly at New York City, Los Angeles, and the Silicon Valley as centers of new wealth creation. But the Philadelphia region does not lack for individuals with the capacity to give. According to research compiled by Prudent Management Associates at the behest of The Inquirer, the zip codes around Philadelphia in Pennsylvania, New Jersey, and Delaware are home to 118 registered investment advisers with more than $500 million each under advisement, with a total of $2.9 trillion under management. Backing out numbers from firms drawing nationally - such as Vanguard Group and BlackRock International - still would leave slightly more than $1 trillion in wealth managed locally.

"That's unbelievable," says Robert Capanna, a Prudent Management director, who also earned a strong reputation as an arts leader during 27 years of running the Settlement Music School. "The wealth here is enormous." How much of that wealth is interested in supporting arts and culture? "If you look at the people arts and culture traditionally depends on for support," says Capanna, "they are in the $10 million-to-$50 million range, and not a lot of people in the billion-dollar club."

But that does not mean the region's millionaires and billionaires won't support arts and culture, many believe, if they are engaged in the right way.

The smartest groups already have figured out how to lure support by wrapping the artform with innovation, and are courting philanthropists well beyond the traditional list of names. The Art Museum has steadily increased its involvement with the region's burgeoning Korean community; Baroness Nina von Maltzahn is now a trustee of the Curtis Institute.

The number of nonprofit cultural groups in the region has soared, from 1,669 in 1995 to 2,546 in 2013, according to the Greater Philadelphia Cultural Alliance, and their needs have been great. Analyzing 86 organizations, a cross section of the sector, the alliance found that the amount of money raised through philanthropy rose 157 percent between 1995 and 2011 - to $212 million a year from $82 million a year. With corporate philanthropy down 32 percent in that period, individuals and foundations dramatically increased their giving, assuming much greater importance.

The operating costs of new organizations - and of existing groups that are now substantially larger - have mushroomed. The Barnes Foundation, for instance, now raises more than $7 million as part of its normal annual campaign. To support more programs and exhibitions, its total budget went from $7 million for its last year in Merion to $17 million a year on the Benjamin Franklin Parkway. "It's a completely different institution," said Barnes COO Margaret B. Zminda.

The Kimmel, which did not exist until several years before opening in 2001, raises $4 million in funds annually, plus another $4 million or more every other year for its Philadelphia International Festival of the Arts. The new National Museum of American Jewish History pays for the vast majority of its $10 million operating budget each year from fund-raising, attracting $8 million.

Since arts groups often seek help from many of the same donors, these new or expanded arrivals represent unprecedented competition.

Serious fund-raising above and beyond normal annual campaigns is a perpetual state for most groups. No sooner was the Kimmel finished than tens of millions in needed renovations were sketched out. A project to improve acoustics in Verizon Hall has been completed, and this summer, the Spruce Street side of the complex was being made more permeable with a new restaurant that extends onto the sidewalk and a separate entrance to the Innovation Studio.

The Curtis Institute in May completed a quiet, five-year campaign that raised $158 million for new dorms and endowment and is already laying the groundwork for a campaign centered on endowment, to ensure continuation of its tuition-free policy. That practice, school leaders say, allows talent to remain the sole criterion for admission.

"It was very sobering for everyone here to read about Cooper Union," says Curtis executive vice president Elizabeth Warshawer, referring to the New York art and architecture school that, caving to financial pressure, announced it would start charging some tuition after a long run of not doing so. "We just completed a campaign, but we took 30 seconds to congratulate ourselves, and before the minute was over, we were figuring out what we were going to do next," Warshawer said. Though no goal has been set, the number, she said, would be big.

A new wave of unannounced campaigns is biding its time to become public as the economy improves. University of the Arts has a board-approved master plan in motion to renovate the Gershman Y at Broad and Pine and, this school year, aims to nail down a budget and fund-raising campaign expected to be in the tens of millions. A Kimmel Center master plan, also involving tens of millions, awaits support, as do projects at the Wilma, Pennsylvania Ballet, and Free Library of Philadelphia.

A string of renovations and expansions has rolled off the line at the Philadelphia Museum of Art in the last decade-plus, and it's not nearly done. The museum is undertaking an endowment campaign with a preliminary goal of $150 million and is in the process of completing and pricing out a facilities master plan that could stretch on for an additional 15 years or so. The total cost is as yet unknown. "It will be substantial," says Gail Harrity, president and COO.

The more creative groups have come up with ways of raising money for operating support while not calling it that. Opera Philadelphia is campaigning to raise $5 million over five years to finance creative capital - special projects that, in another era, would have simply been called operating support. But by separating them out and matching them with specific initiatives, Opera Philadelphia can speak to an emotional impulse to give that is especially important to younger donors.

"They've rearticulated the transaction to make donors feel like they are having impact, which they are," says Nancy Burd, president of the Burd Group, a philanthropic consultancy.

After two decades of supporting expansion, foundations are now supporting contraction; several local foundations are providing grants to examine the feasibility of mergers or lesser forms of consolidation. The Academy of Natural Sciences was absorbed by Drexel University; the Free Library and Rosenbach Museum boards have approved a merger.

A group of historical organizations is looking at the question of consolidations, on a spectrum from sharing staff to outright merger.

"Is there a way several of us can hire an education director and share that resource?" says Charles Croce, CEO of the Philadelphia History Museum at the Atwater Kent. "Foundations for years have been nudging us as a sector to look at those efficiencies. Do we all need our own buildings? Do we all need our own staff?"

Some seemingly logical matches may prove otherwise. After undertaking a foundation-funded study of consolidation options, Opera Philadelphia and the Academy of Vocal Arts decided to continue a certain amount of cooperation - but not to merge.

It is perhaps ironic, given the investment of hundreds of millions of dollars in downtown bricks and mortar, that arts groups now are looking to expand their footprint beyond their homes and beyond the city - even virtually. An Opera Philadelphia "Hallelujah Chorus" startled and warmed shoppers at Macy's three years ago when 650 choristers burst into song. But reverberations went far beyond Market Street: A video of the event has been viewed 8.2 million times on YouTube, along with 5,200 comments and a few donations. Opera Philadelphia also is reexamining the very definition of opera. A performance in November at the new FringeArts building is to be more an "immersive experience" than a linear performance. The a cappella work Svadba - Wedding tells a story surrounding a Balkan wedding, after which the audience participates in a reception with food and a band.

This dovetails nicely with FringeArts' aim of surrounding art with food and generous social time. A restaurant is built into its new home near the Delaware River; letting audiences interact with the artists is considered a core part of the experience. "The Kimmel Center is trying to retrofit that" with its new restaurant, "and that's smart," says FringeArts president Nick Stuccio. In his new building, "vitality means this energy and the impact is heightened. That can translate into funding."

Others are looking outside the city for support. The Philadelphia Orchestra has a blossoming relationship with China. The Philadelphia Museum of Art has increased the part of its board that lives elsewhere, in California or Europe, to about 10 percent, says board chair Constance H. Williams. A new strategic plan completed for Pennsylvania Ballet by Kennedy Center president Michael M. Kaiser calls for renewing touring, establishing a school in the suburbs, and partnering with other troupes such as Miami City Ballet to fill out the corps to mount works for which Pennsylvania Ballet does not have enough dancers. Partnerships are greatly appealing to funders, since they often exploit efficiencies.

Like the Cleveland Orchestra, which cultivates much of its support each winter in South Florida with a monthlong residency, the Curtis Institute is expanding its reach.

"We have become more consciously global," says president Roberto Díaz. Curtis has long had a strong reputation in China, but now it is taking students to and hosting events in London, Berlin, Seoul, Paris, Spain, Mexico, Costa Rica, Brazil, and elsewhere, and is drawing donors and board members from some of these places.

"There are very interesting funding opportunities that have come with these types of events," says Díaz. Curtis insiders believe board chairman H.F. "Gerry" Lenfest's successor could very well come from outside Philadelphia.

"The fund-raising landscape is changing, it has changed, the Annenbergs are no longer here," says Warshawer of the deaths of the Annenberg Foundation founders and its subsequent move to Los Angeles. "And we have to be mindful not only of Philadelphia, but that there are all those other people out there in the world who care about what we do."

How does it feel to have spent decades raising millions for homes on the Avenue of the Arts and elsewhere downtown and to realize that the future may lie not anchored to those buildings, but unmoored and in search of love elsewhere?

"The decision to build [what would become] the Kimmel Center was made in 1986. That was a generation ago," said Joseph H. Kluger, who spent all his 16 years as president of the orchestra working to get that project done. "You can argue about whether it was the right choice, and I think it was. But times change, and for a lot of organizations using facilities on the Avenue of the Arts to reach audiences today, it means getting out of those facilities."

Growth in the arts sector has coincided with dwindling government support. While the state and city provided millions to help build on the Avenue of the Arts and elsewhere, operating support, not substantial to begin with, has withered. There was a time when the Free Library, the Atwater Kent, and the Philadelphia Museum of Art were heavily supported by the city. Atwater Kent was fully funded from 1938 until 1995; now it gets 20 percent of its budget from the city.

"In the historical and heritage community, things are particularly dire," says Talbott, head of the Historical Society of Pennsylvania, which merged with the Balch Institute in 2002. "There are some 600 historical agencies in the five-county area, and most have no professional staff, but all have collections, and most have a physical site of some sort. There's no question we are at critical status in terms of patrimony and the ability to take care of those collections."

The arts community's grail for nearly 25 years has been the establishment of a tax in some form that could provide a reliable base of operating support so groups could begin each year with some portion of the fund-raising line item already covered. Data have been gathered about the arts' contribution to the economy, cases made about their power to attract business, the role they play in education - all to bolster the argument that, in exchange, they merit a slice of public funding.

Various funding mechanisms have been proposed, the latest of which was extending and capturing the "temporary" added portion of the city sales tax (7 percent to 8) that was set to expire in 2014. Arts leaders figured it could mean a pot of $60 million to share annually. But political reality once again reared its head, and that tax seems likely to go to the schools.

Mayor Nutter says that, before his term ends, he will make it a priority to establish a dedicated funding source for the arts. He said that he has not identified a mechanism - other cities use various models - but that he would like funding to come from across the five-county area.

How much could be raised that way? "Something significant that could grow over time," said Nutter, "but I would not want to start throwing numbers out there."

The addition of such a funding stream for the arts would have several huge benefits, said Michael Norris, interim executive director of the Greater Philadelphia Cultural Alliance. "One is that we would no longer be in the red as a sector, since we know the majority of the organizations we are tracking are operating at a deficit. And, obviously, it would allow the level of affordability and accessibility to be continued."

But can the arts sector today successfully jockey for funding when so many basic needs - education, health and human services - are underfunded?

"The answer is that we need it all," says Stuccio. "We need money for the schools, but we also need it for arts and culture."

"I think we want to position arts and culture as part of our civic life in a much deeper way," said Norris. "When people think and understand that art and culture impacts the economy, quality of life, educational outcomes, it becomes part of what we have to address for the good of the city and region, and not just this silo of activity that doesn't connect with the rest of the community."

Many say the path to greater relevance means filling gaps where other sectors have fallen behind. Play On, Philly is capturing hope - and funding - not because it trains underserved schoolchildren in classical music, but because that training keeps them productively engaged at high-risk times of day outside of school. The Art Museum can surround its Zoe Strauss collection and Asian art portfolio with programming for children, while courting hipsters and donors from various Asian countries.

This kind of work isn't an easy fit for all groups. Some leaders suggest that the Philadelphia Orchestra's musicians become more like citizen artists than performers, going into schools and communities for programs that, these days, attract new funding. But the orchestra's freedom to deploy its talent is governed by a labor contract thick with work rules. And does it make sense to match a musician at the top of her field with a nascent violinist still working through Suzuki Book One?

Does Cliff Lee coach Little League?

Regardless, a rapid evolution is at hand - and the stakes are high. "The world we live in is Darwinian," says Stuccio. "Those that have the capacity to adapt will survive."