A piece in yesterday's New York Times sounded a note that's all too familiar to our consultants at Nonprofit Finance Fund.  "For Arts Institutions, Thinking Big Can Be Suicidal” highlighted a new study by the Cultural Policy Center at The University of Chicago showing that the enthusiasm for fancy new buildings and extensive renovations has put an incredible strain on arts institutions.   

This Edifice Complex is indeed omnipresent in the cultural sector. In our 30-plus years advising and financing arts organizations at NFF, we’ve seen scores of organizations jeopardize the long-term vibrancy of their programs because they focused on getting the building built rather than having a healthy organization inside it. In our experience, the institutions that undertake facility expansion successfully run capital campaigns that place the facility expansion in the context of the organization’s overall vision and strategy. These campaigns have several things in common.

First, they are grounded in a reality-based business plan, meaning the organization has done a reasonable job of market-testing demand for its expanded programs within the new space. Because growth of artistic programming rarely, if ever, leads to increased earned revenue sufficient to cover expense growth, successful organizations are able to attract a “market” of reliable paying customers and donors who together will meet the larger institution’s full annual operating costs…every year, forever.

Second, we are increasingly seeing campaigns that include two or more years of flexible capital to pay for the temporary deficits likely to be incurred as the organization’s programs grow ahead of revenue expansion.

Third, the campaigns go beyond fundraising for classic restricted endowments (which need to be quite sizable to generate meaningful annual income) to include one or more cash reserves that can be designated by the board of directors, then spent and replenished for a number of purposes, including the long-term care and feeding of the facility, future rainy days and creative risk taking.

There are many organizations that complete beautiful building projects without having achieved all of the above. Many of them are in an annual struggle to pay their bills and maintain their facilities while delivering imaginative artistic programming. Our advice to our clients, with great respect for their desire to remain energized, competitive and relevant, is summed up well by Duncan Webb in the New York Times article, “Don’t build what you can’t sustain.”

Learn more about NFF's work with arts organizations here.