An obvious, crucial, and (on this blog) overdue question — how will the economic mess affect classical music?
In the short run, it won’t be pretty. Yesterday I recorded a short broadcast for the BBC, about the state of the arts in the US, on the eve of the election. This was a discussion — me, Dana Gioia, the chairman of the National Endowment, and Karen Stone, who used to run the Dallas Opera, and now runs a company in Germany, along with a BBC radio host.
We all agreed the economic downturn would hurt. Maybe in the long run, it’ll help arts institutions be more entrepreneurial (because they’ll have to be), but in the short run — big trouble. If you want to know which candidate would be better for the arts, their arts policy (or whatever hint they’ve given of it) counts a lot less than their economic policy.
And the immediate problem, at least for big institutions may not be completely obvious, except of course to people who regularly think about with big-institution arts budgets. It’ s not that donations and ticket sales will very likely fall, though they probably will. It’s that endowments have already declined. If you’re a major orchestra, you have an endowment that might well top $200 million (as it does, for instance, in the case of the Chicago Symphony). Or at least it used to be at that level. Now, because most of it is invested in securities, it’s taken a hit. When the stock market falls, endowments fall.
And major institutions take money every year from their endowments’ earnings, and put that into their operating budget. A six percent endowment draw would be, on the average, considered reasonable. Your endowment earns dividends, and you also — historically — can expect its value to rise. So you take perhaps six percent of it each year for your operating budget.
But now? Maybe your endowment has fallen thirty percent! So you take 30% less for your operating budget. That’s a major hit. One classical music institution I know of feels that it’s lucky, because its endowment fell less than the stock market did. But still it fell, so that’s an immediate hit for this year’s budget. Worse still, they’d planned future budgets on the assumption that their endowment would grow. So the hit for future budgets will be even more than the decline this year. For next year, they’d figured that their endowment would be larger than it used to be; now it very likely will be smaller. They have to revise their future plans.
Who will this affect? Every large institution, but those already in financial trouble, or in the midst of large expansions, may be hard hit. I’ll give two examples I know about, at least from the outside. First, the New York City Opera, which appears to be reeling financially (laid off 11 staff members; had to borrow recently to make its payroll, and even then had its staff work two days without pay; promised Mortier, its incoming director, a large budget increase, and now, reportedly, has decided it can’t go ahead with that). They could be facing a real disaster.
And also the Metropolitan Opera, which has a large endowment, and a generous board. But it’s no secret in the business that Peter Gelb’s stunning innovations have been expensive, and will continue to cost a lot. He can keep ahead of that, in the short to medium run, with larger than usual endowment draws, and generous contributions from his board. But when the endowment takes a hit, he’s got to run even faster just to stay where he is.
Everyone, I’m sure, is facing budget cuts. How bad will they be?Related