BROOKLYN COMMUNE PROJECT ECONOMICS & FINANCE RESEARCH TEAM FINAL REPORT

Prepared by Max Dana, Stormy Budwig, Hani Omar Khalil and Liz Maxwell What follows is the culmination of nine-months of study into certain aspects of the performing arts economy. This process of study took various forms and followed the particular winding contours of each team members areas of interest: for some of us the path was made up of conversations with our colleagues; for others it was books and reports; and for one it was late night problem sets for an online finance course. None of us was an expert in economics going into this project and none of us is an expert coming out, though we are more informed and more passionate. We may also be dead wrong. Any recommendations and statements made in the report below are driven by a combination of what we learned and what our imaginations suggest is possible. As artists, arts administrators and writers, our imagination, not our mastery of finance, is the strongest asset we bring to the table in this conversation. In a discussion of the creative economy, it is important to also be creative.

BEING HERE
MAKING AND SUSTAINING THE CULTURE ENGINE Place and people are the most essential ingredients of the performing arts, and any discussion of the performing arts economy must begin by looking at the complex relationship between artists and the places they inhabit. Artists are often seen as the shock troops of gentrification, and while that interpretation is still up for debate, it cant be denied that artists make significant investments of time, energy, and dollars in a place by living and working there, and that end result of this investment is an engine for not only the economy of the place but for culture itself. Many of New York Citys businesses, institutions, and politicians are beginning to recognize this value and reorient themselves to engage with and serve members of the artistic community. This is especially true, or at least most obvious, in neighborhoods that are in periods of growth and expansion. Within the span of a few blocks you might find cafe-galleries that feature local artists, bars that hold monthly reading series, bookstores with book clubs and talks, and collectives that provide space for artist experimentation and presentation. This heightened notion of the artist-as-resident raises the question of whether the economy of a place is responding to the presence of thriving artistic communities or whether the artistic community is growing in response to a places already perceptible commitment to supporting artistry. This question is at the heart of the notion of Creative Placemaking, a buzzy concept in the arts funding world that posits that

cities can seed artistic communities through creative initiatives that animate places and spark economic development.1 A successful creative place, however, is not created from a formula. It is a strong combination of both creative initiative applied from above and creative energy organically expressed from below. It does not really matter whether support for artists is provided as bait to entice artist or glue to keep them there; what matters is that the value of the creative place is recognized, and a system of support is provided to sustain it. In a global economy where success is increasingly defined by creativity2, creativity must be tended to wherever it springs up. Artists keep up their half of the social contract implicit in such creative places by investing time and energy in communities even in the absence of financial return. They seek out places in which to thrive, build connections, and share their work, and this cultural entrepreneurship has a palpable impact on the economics and nature of the city they inhabit. As Sheila Lewandowski of the Chocolate Factory recently put it, [artists] subsidize their own industry, and in doing so they subsidize every other industry in the city. Without its cultural identity, people would not choose to set up businesses in New York, and it would not attract tourists whose money fuels a large part of the economy.3 In light of this fact, the question remains as to what the city and the businesses that benefit from this subsidy are doing to ensure that this artistic investment remains solid. Some of the physical resources needed to be here in this particular creative place at this particular time are in part available already, because artists and the organizations that support them have catalyzed them into existence: places to show work, see performances, hear presentations and engage in conversations. These resources begin to develop organically wherever a group of artists resides because the artists themselves require them to create their work and build a community around that work. What is lacking, and what is of course not only an integral part of an artists life, but any persons life, is affordable, sustainable places to live. Without a system in place to empower them to permanently settle into a community, artists and other local residents are unable to experience any economic return on their early investment in a neighborhood. Instead they fall into the rent trap: the increasingly elevated rents demanded by landlords more concerned with short term profits than the long-term appreciation of the value of the property itself. The priced-out residents decamp for a new, more affordable neighborhood, their places are taken by new residents with deeper pockets, and the familiar cycle begins again elsewhere. The real risk for the city of New York is the potential for this dynamic of displacement and to leap from the micro level of neighborhoods to the macro level of the entire city. In the 2013 Brooklyn Commune Performing Arts Census over 60% of respondents to the question, How often do you considering leaving

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
1 2

National Endowment for the Arts. Creative Placemaking. UNESCO. Creative Economy Report, Special Edition. 3 Testimony to the New York City Council Committee on Cultural Affairs, Libraries and International Intergroup Relations. Hearing on Making New York City Affordable for Artists. October 21, 2013.

New York? answered either Sometimes or Often. This is not a thought that planners and elected officials want to have in the minds of their citys culture makers, but it is a fact. If life becomes unsustainable here, the exceptionally talented artists, technicians, and cultural bellwethers whose skill sets, cultural contributions, and innovations have forged New York Citys artistic brand will simply leave. And then the culture engine will stall.

WHATS IN YOUR WALLET?

THE BENEFITS OF DIVERSIFICATION As important as the economic impact of the culture engine is, support for the arts should not just be about economic impact. It should also be about creating economic and cultural stability. A strong creative culture helps to weave the social fabric by encouraging the development of neighborhood institutions and traditions, building bridges between cultural groups and generations, promoting the importance of the arts in youth education and youth lives, and expanding cultural enrichment programs into new corners of a diverse, deserving city. We often discuss diversity as it relates to society and culture, but we rarely connect diversity with its sibling in the world of finance: diversification. Diversification is a powerful tool that has been used by investors to reduce the risk of portfolios and stabilize returns ever since economist Harry Markowitz worked out (and won a Nobel Prize for) the math that explains how it works in 1952. In short, the risk of an entire portfolio taken together will always be lower than the average of the risks of each individual element in that portfolio because diversified elements dont always move together (i.e. react the same way to the same stimulus). This differs from a non-diversified approach of short-term investors, whose strategies are akin to well-informed bets that lead to either extreme gain or extreme loss. Diversification flattens out these extremes and leads to stability, and embracing a diversified portfolio approach to the arts and city planning in general could profoundly affect the sustainability of the arts economy and culture as a whole. Currently the distribution of funding in the arts is heavily skewed towards large institutions with largely white, elderly audiences who have access to large foundations and high-wealth individuals via heavyweight fundraising staff and consultants. The support that these funders give to large institutions is essentially a type of hedgean attempt to offset risk through a safe bet. However, when the bulk of funding gets hedged, there is little investment made in the myriad individual artists and small organizations that produce the risk-taking work that the safe bets of large funders are effectively hedges against. That is not to say there is anything wrong with large hedge investments per se, but funders and policy makers must realize that without a simultaneous investment in risky ventures, a hedge is a weak strategy.

Neither heavy investments in large projects or risky bets in small, innovative enterprises are investments that work well on their own; each works optimally in a strategy of diversification. As University of Wisconsin Community Development Economist Ron Shaffer explains: Elementary economic theory suggests that growth should be derived from economic specialization based on comparative advantage. Theory also suggests that stability is achieved by spreading risk over many activities (i.e., diversification). Theory, therefore, seems to suggest that regional policy makers are forced between two polar goals and the corresponding set of policy options. When policy makers attempt to pursue both goals simultaneously, contradictions seem to appear. In other words, to promote growth ones resources must be channeled to a small handful of high growth sectors, but to promote stability, one must spread their resources around. Can one do both at the same time without contradiction?...Diversification policies should be viewed as the long-run envelope of the region's short-run efforts. As stability and diversity increase, so should the potential for growth. Diversity is not the absence of specialization, but reflects the presence of multiple specializations. The apparent contradictory goals and policies can be pursued simultaneously and consistently.4 This view of the entire ecosystem as an envelope suggests that we move away from the institutional model of competitive silos and embrace a network model where all parts are connected in a multifaceted and complex whole. The New York City Department of Cultural Affairs and the borough arts councils recognize the deep level of diversity in the citys cultural sphere and have worked hard to diversify funding to match it, but there is much work to be done to even out the funding landscape. Foundations and donors would be wise to work more closely with city agencies to identify need and ensure that funding activates missions and does not simply underwrite institutional bloat. Artists and arts organizations should also embrace an ethos of diversification as a path to stability. There is a tendency among artists to fetishize European government funding models, and while it is true that writing one or two grants each year is easier than writing ten or fifteen grants, planning a gala, running a Kickstarter campaign, mailing donors, selling tickets, and teaching classes, it is also true that government funding cuts are extremely painful to artists when the government is the only thing in the funding portfolio and there is no culture of individual giving to make up the difference. As Americans, we do have a complicated and frustrating funding model, but this diversified approach allows us to be far more resilient when times are tough.

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
4

http://www.aae.wisc.edu/pubs/cenews/docs/ce245.txt

LETS TALK ABOUT TAX

DEMOCRATIZING INCENTIVES The diversification and democratization of arts support goes beyond funding and should be applied also to the tax incentives that the city provides to certain industries such as the film industry to keep them here. Artists, not arts institutions, are the heart of the arts economy, and New York City should provide a program of tax incentives to bring down the cost of living for working artists. According to recent testimony by Department of Cultural Affairs Commissioner Kate Levin, $400 million in salaries and fees were paid by nonprofit institutions to artists in the most recent fiscal year, which represents only 0.2% of the $241 billion earned by New Yorkers as a whole. And yet the activities of the nonprofit institutions hiring these artists generated over $5.8 billion in economic impact, only $800 million less than the economic impact of the highly incentivized film industry. While it is true that 501(c)(3) nonprofit institutions receive tax incentives in the form of sales tax exemptions, the legions of artists who actually create the work for these institutions are much more economically fragile but receive no tax incentives of any kind. A tax reduction or tax holiday on artistic income for working artistswho provide only $28 million in income tax revenue compared to the citys total income tax revenue of $38.8 billionwould cost the city very little and would provide a strong geographic glue for artists whose presence in the city has such an outsized impact in dollars spent in the local economy and the value of real estate. In addition to incentives directly to artists, programs to incentivize developers and landlords to provide affordable housing should be radically expanded to engage socially-minded real estate investors in smallscale affordable housing efforts. The current model for affordable housing, which is already overrun with demand and an impenetrable lottery system for vacant apartments, favors the creation of housing blocks for low-income tenants in large high-rise apartment buildings as a tit-for-tat exchange between the city and developers who want to do something with a property that is not currently authorized (build higher than allowed, rezone, etc.). This type of ghettoization and relocation of low-income residents is a milder version of the ghettoization created by Robert Moses large housing projects in the 1950s, but it is the same phenomenon. This type of policy has never been good for low-income New Yorkers and is especially difficult for artists, whose work is fueled by a connection to diverse and dynamic human communities. Rather than incentivizing affordable housing blocks in large buildings, the city should incentivize affordable housing where artists naturally live: neighborhoods among regular people. Small-scale social-impact investing in affordable housing could be spurred in a number of ways, the easiest of which would be a radical democratization of tax incentives such as New York Citys current 80/20 Program, which gives developers tax benefits if they rent 20% of their building to low-income families (those who earn 50% less than the median income of the area.). A more democratic version of this incentive with lower barriers to entry could be a property tax holiday for landlords who create breakin regular apartments in regular

even apartment buildings where the rent simply offsets mortgage payments and maintenance costs and profit derives from the buildings appreciation over time. By offering apartments to artists at a discount and favoring long-term value appreciation over short-term profit from rental income, a landlord could help their buildings value grow faster than it otherwise would by leveraging the economic impact that artists bring to communities. Obviously, this mythical notion of a socially-conscious landlord is quite rare in the current culture of quick turnaround, but more of this type of activity could be encouraged throug tax incentive programs that are easy to access and easy to understand. The tax code and the real estate market are incredibly complex and we know that there is no silver bullet solution to the high cost of living in New York. We do, however, feel strongly that using the economic lever of the tax code and democratized incentive programs would help the city maintain a more diverse and stable portfolio of landlords, buildings, and tenants.

UNLOCKING THE VALUE CHAIN

ESCAPING THE RENT TRAP THROUGH ACCESS TO FINANCE If New York City is going to continue to be a place where working people and working artists can live, it is critical that policy makers take the lead in breaking the standard high-octane model of gentrification in favor of a more balanced and holistic approach to economic development that allows a diverse group of stakeholders to benefit financially from the revitalization of neighborhoods where they live and work. Typically, the real estate value created by strong artistic communities flows primarily to landlords and developers; the artists and local residents who help subsidize the creation of this value have no claim on any financial return when properties are sold and the wave of real estate development moves through a neighborhood in full force. A more inclusive approach to development and property ownership would help to democratize investment and stabilize communities by bringing a diversified portfolio of small and large partners to the table together and allowing residents to establish permanent roots. At present, the large group of shadow investors who lay the critical groundwork for developersartists, fledgling entrepreneurs such as restaurateurs and others who tend to follow in the wake of artists, and local residentsare prevented from being true long term partners because they are caught in a rent trap defined by intense competition, adversarial landlords, substandard housing and a high rent burden. This rent burdendefined as the ratio of rent to incomeis actually significantly higher in outer boroughs (where many artists are relocating and low-income residents already live) than it is in the more expensive borough of Manhattan.5 Like all low-income New Yorkers, the typical artist spends so much of their annual income on rent that they will never have any realistic hope of saving enough make a down payment on a permanent place to

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
5

The Brooklyn Quarterly. The Rent is Too Damn High

live. Without that long-term investment stake, an artists decision to stay or go as real estate values rise hinges not on the present value of their investment but simply on their inability to pay rent rather than. Providing a way for artists to hustle to make mortgage instead of hustling to make rent would deepen their stake in a neighborhood and help keep them in place when confronted with a wave of real estate development that would normally price them out. New York City policy makers could help spark this new dynamic by creating or incentivizing the creation of niche mission-driven community banks, e.g. an Arts and Culture Bank of New York, to provide lowinterest or no-interest capital loans for the acquisition of real estate by individual artists, arts organizations, and other social cultural organizations in underserved or developing neighborhoods. The capitalization needed to start such a bank need not be provided by the city alone, but could be a strong public-private partnership between many stakeholders who are invested in the arts, such as the city, the state, real estate developers, foundations, and arts-oriented private philanthropists such as Michael Bloomberg. As such a bank grew, it could also provide basic banking services for New York Citys hundreds of arts organizations and thousands of artists, allowing artists and organizations to collectively make funds in their own deposit accounts available as financing to serve the field and the broader mission of creating a stronger arts economy in New York. LACK OF INTEREST It is of primary importance that a financial institution such as the one posited above be organized around social mission rather than immediate financial gain. Its financial backers must understand that the profit generated by such an institution is not direct monetary return on investment but the creation of culture itself, which is a well-documented engine for the citys economy and a primary reason why people move here. Taking the focus off of financial return will allow this bank to make loans at little or no interest and expand access to capital to artists and small organizations that can help spread the positive effects of the cultural engine into all five boroughs. No interest, however, does not necessarily mean no profits. Interest has been considered morally suspect if not outright sinful throughout most of human history, and it wasnt until the early 20th century that the maximum legal interest rate in the U.S. reached even the modest level of 10% (compared to 6% at the nations founding). However, many businesses and individuals, most notably in the Islamic world, have been able to generate profits even in the face of strict religious prohibitions on lending at interest. Islamic finance, which bans both the earning and paying of interest, is going through a boom outside of the U.S. and growing 50% faster than conventional banking6. This has prompted the UK Treasury to announce that it has plans to issue several million pounds in Islamic bonds or sukuk in addition to authorizing the London Stock Exchange to set up an Islamic index. Unlike traditional bonds, which are

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
6

Christian Science Monitor. "Will Britain's no-interest Islamic bond generate much interest?

essentially loans that guarantee a particular rate of return (interest) based on the level of risk an investor is willing to assume, sukuk are more like stocks in that they pay investors from income streams generated by an underlying asset (such as rental income). Some argue that these types of no-interest loans are actually just a shell game to repackage interest as something more palatable, but they could prove useful as a tool for artist-centered real estate development because they are based on real assets purchased by the loan rather than a nebulous and opaque system of risk analysis that emphasizes collateral over ideas and pursues interest rates that are based on whatever the market can bear. RISKY BUSINESS It is important to talk about risk when talking about finance for artists and small arts organizations. The conventional wisdom is that artists are bad with money and that small arts organizations dont have staying power, but that view is highly skewed. Take a look at any small arts organizations budget or a working artists personal finances and you will find a picture of efficiency and austerity. Artists have been surviving on a shoestring and hustling to make rent for centuries. Unlike large institutions, we dont have access to foundations, government funding, or high powered arts consultants to pull us out of crisis or fund mergers when times are bad. Instead, we plan our budgets carefully, live cheaply, and make work as inexpensively as we can. When the financial times get worse or the cost of living increases, we make changes to generate more income or reduce our budgets (to the detriment of our art), or we leave the city (to the detriment of the city). CAVE and the Collapsable Holevenues run by LEIMAY and Collapsable Giraffe/Radiohole respectivelyare great examples of this phenomenon among artist-run venues. Both were founded in Williamsburg in the 1990s and sustained themselves in the neighborhood in the face of accelerating gentrification through a combination of adaptive programming changes, creative fundraising, intelligent resource allocation, and sheer will. Unfortunately, neither venue has a permanent footprint in the neighborhood and the Collapsable Hole was recently forced to depart despite having paid an estimated $250,000 in rent to their landlord over the course of 13 years. LEIMAY has experienced a similar arc. They were offered the opportunity to purchase the entire building that houses CAVE for $175,000 in 1996, but there were no lenders at the time willing to take a chance on a fledgling company. 17 years later, they continue to provide low-cost housing and residency space to artists at CAVE, but due to lack of capital at a critical juncture they are also still hustling to make rent in a building that is currently assessed at a market value of $917,000. Despite artists and small arts organizations demonstrated ability to break even or even operate at a surplus, they are often treated as higher financial risks than large institutions that operate at deficits year

after year (or restaurants and startups, which have a 10-year failure rate of 70%7). Few working artists, particularly young artists or economically disadvantaged artists without access to collateral, would pass a loan review at a conventional bank because their income is too low and its source too erratic to satisfy the computer models used by large banks as a first pass in determining creditworthiness and risk. Small and mid-sized banks, on the other hand, tend to make much a larger percentage of loans to small businesses and individual entrepreneurs because they operate directly in the community and are better positioned to use qualitative data about a person or business to get a true picture of the actual level of risk8. Similarly, a small financial organization with a street-level view of artists in New York City would be better positioned to do an accurate cost-benefit analysis of the risk involved in lending to artists and small organizations compared to the cultural and financial return on investment brought about by stabilizing and empowering the citys diverse population of culture workers. This type of investment in the day-to-day lives of artists through access to low-interest finance could be a powerful strategy for providing for the long-term health of the cultural sector. Stable artists who feel that their feet are planted firmly will take more and better creative risks, keep the arts economy vibrant, create added value for real estate developers, attract visitors and new residents, and push the culture forward.

WORDS, WORDS, WORDS

ADJUSTING THE VALUE FRAME THROUGH LANGUAGE In addition to structural changes to funding and finance, it is also important to begin to restructuring the language used to talk about the economics of culture. Below are a few words and phrases that could be better articulated or redefined as a way to reframe the debate. ARTIST While there is power and beauty to Picassos notion that, everyone is an artist, it is important to distinguish the identity of artist from both the nebulous realm of the creative and the overly strict definition of professional, particularly when discussing tax codes, incentives, or any program or policy that might require a formal definition of what an artist is or does. Certainly every human being has creativity that is exercised to a greater or lesser degree, but there is a qualitative difference between a person who dusts off their guitar at family gatherings, a person who only writes jingles for commercials, and a person who lies awake at night thinking about twelve-tone composition. We may place ourselves at different places on this spectrum at different points in our lives, but where we place ourselves and the words we use to describe those points are important.

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
7 7 8

http://www.statisticbrain.com/startup-failure-by-industry/ http://researchnews.osu.edu/archive/restfail.htm http://www.ilsr.org/banks-and-small-business-lending/

DAY JOB As we begin to more strongly self-identify as artists, we should also reconsider the use of the phrase "day jobs" and push back on the definition of a professional artist as a one-dimensional economic animal who makes their entire living from their art or spends all of their time creating. An artist with a trust fund who can afford to spend all day every day engaged in their creative pursuits (even if it doesnt earn them a penny) is no more of a professional artist than the artist who works two restaurant jobs to pay the bills but has a few paid artistic gigs a year. Earning money from your art is not what makes you an artist; making art makes you an artist. Everything else you do feeds that work, teaches you about the human experience, and shapes your beliefs and aesthetics. Until we accept the fact that the professional-amateur hybrid is actually the true model of how most artists operate and that the work we do to get by in this city is part of the fabric of our lives, we will never be able to truly value ourselves as artists. And until we value ourselves, we cant expect anyone else to. RESEARCH & DEVELOPMENT In addition to artists themselves, the work that is being done in the experimental sector of the performing arts must be redefined and given value and research and development for the field at large. In every other industry, it is completely reasonable and expected for companies to spend large sums of money on research and development. The logic behind this R&D investment strategy is called the Pareto Principle, which states that 80% of the results come from 20% of the causes. The only way to get the 20%, however, is to invest in the other 80% as well and understand that even though those 80% are not generating the same return on investment as the bread-and-butter 20%, the research done is still advancing the field. And that's precisely what happens in the performing arts. The same is true for what is done in tiny Brooklyn lofts as is true for the products of Googles R&D labs that never make it out the doormost of the work will never make it to Broadway or even Off Broadway, but the risks that are being taken by small companies and independent artists outside of the mainstream are vital to the survival and innovation in the field. We must invest in these individuals and organizations that operate on the edge, not chide them for failing to produce conventional economic success. We must find metrics other than the much-vaunted Return on Investment to measure their success and celebrate their bravery when they fail. Their failures help us move forward. Drawing a comparison to science and research might be interpreted by some as simply a way to legitimize art for people who don't understand or dont want to acknowledge arts intrinsic value. But in many ways that is what we need to do. Anyone who defends the value of a thing must inevitably compare it to another thing that is of understood value, whether it be a competing product, a parallel model, or a piece of green paper. To insist that others evaluate art purely on its intrinsic value with no reference to what they already know is ungenerous at best and elitist at worst.

10

NON-PROFIT The "non-profit" system in America moribund, if not already dead, and we need to begin asking ourselves whether the benefits of this system outweigh the liabilities. Institutional culture may survive a bit longer, but a funding mechanism tied to a byzantine tax code and often paralyzing government and foundation oversight is not a recipe for a dynamic and risk-taking creative culture. Rather than spending our time trying to innovate our way to a healthier non-profit ecosystem, perhaps we should throw out the term entirely and look to what the arts can learn from the social enterprise scenean emerging subculture dedicated to working for good, for profit. It is abundantly clear to anyone who has ever worked in the live performing arts that very few people are out to make a huge profit; most simply want to earn a basic living doing something that they care about deeply. If profit were the true motive, we would leave the field. And yet we remain. Why? We remain because we are committed to our artistic mission or the mission of the organizations we work for, which is exactly where the term non-profit begins to break down. It is problematic to define ourselves as against profit rather than for a particular mission. To cast ourselves first as non-profits is to set our work in a negative framework that reeks of Puritanical guilt and shame. In reality, the term non-profit derives less from our profit motives (most of us are for-profit in our individual lives) and more from the simple fact that working toward good or art or other intangible things generates less income than expenses. This is the case largely because it is difficult to commodify and create a market for the ephemeral. A major struggle the arts have had is quantifying the value of something as nebulous as culture, but just as the service industry, religion, and even some visual artists have figured out ways to describe, market, and sell what cant be packaged, the performing arts can do the same. Why do Americans use the word non-profit where other countries use the terms non-governmental organization or charity? Why isnt it enough to simply call ourselves cultural organizations and culture makers? These questions are framed by the concept of public goods and the broader question of why culture itselfparticularly amidst the very vocal bemoaning of the state of our culture from elites and the far rightis not considered a public good. A public good is defined as something that is available to everyone in a society and that is not reduced in quantity when used by an individual. The classic examples of public goods are roads and national defense, both of which have spun off colossal for-profit industries. Unfortunately, unlike bridges and aircraft carriers, the government cannot simply open up bidding and buy a piece of culture from the best vendor. This is because it is much more difficult to agree on what constitutes quality and value in culture than it is with bridges and aircraft carriers (though the necessity of the latter is of course questionable). Culture is emotional and political, and the government has failed to stand behind culture as a public good largely out of fear of the emotional and political blowback. The arts and culture sector as we experience it exists to provide, via private funding, a public good that everyone agrees is necessary to a healthy, vibrant society, but that the government is not providing itself. For this act of generosity non-profit organizations receive four main things: 1.) sales tax

11

exemptions on purchases; 2.) exemption on taxes on profits which such organizations are apparently are not supposed to make in the first place 3.) and unwieldy, convoluted, and restrictive operating structure and 4.) a weak and negative framework that devalues artistic work and creates a culture of helplessness. We need to ask ourselves whether it is all worth it.

GROWING PAINS
THE NO-GROWTH ORGANIZATIONAL MODEL No discussion of organizations would be complete without talking about growth. The growth imperative is so embedded in the American psyche that it is now impossible for a business to simply bank a modest profit. Instead, the standard measure of the health of a for-profit organization is generally seen as growth. Its not enough for the business to be simply earning money every year; the amount it is earning must be growing and its operations must be expanding to support that growth. However, the reality is even more insidious: a truly successful company is thought to be one that is growing and whose rate of growth is also growing (up to certain point, at which the company becomes overloaded with debt). This triple decker of profit motive reflects an expansionist growth fetish that is particularly acute in the United States and has trickled down from the for-profit world into the nations mission-driven cultural organizations. Extracting ourselves from this dominant growth-oriented worldview is extremely difficult. The funding model has encouraged institutional thinking in arts organizations for over half a century and the 501(c)(3) nonprofit structure seems purpose-built to generate administrative overhead through a complex system of compliance requirements and filings (all for the aforementioned sales tax break and the ability to hand out tax-deductions to wealthy donors). In addition, since the death knell of funding for individual artists in the 1990s, funders have focused on providing funding for programs rather than missions or artistic careers, so organizations churn out new programs year after year to pursue new revenue streams from new funders and increase their already burgeoning waistline. In such a system, arts administrators thrive but artists do not. A healthier model, particularly for small arts-organizations, is the no growth model which Jim Findlay of Collapsable Giraffe has been developing in envisioning a potential future version of the recently closed Collapsable Hole in Williamsburg. As humans, we naturally arrive at a point in life where we stop growing and begin maturing; in this process of maturing the most important factor is the maintenance of basic needs. As mission-driven organizations, we should be no different. Rather than continually generating new and more exotic organs and appendages to justify the need to consume more food (i.e. funding), a no-growth organization declares the resources it needs to fulfill its missionthe creation of X amount of art by X number of artistsand once it achieves those goals it simply maintains its health and matures. This is obviously an oversimplification and glosses over the fact that simply reaching and maintaining a level of funding where all basic needs are met is extremely difficult, but the no-growth

12

approach is a useful frame of reference for rethinking the way that organizations operate. If the artist does not come first and we find ourselves creating programs in response to a growth imperative rather than actual artistic need, we are doing a disservice to the field and to art itself. Artists should grow; arts institutions should not. Implicit in the concept of growth and the underlying metaphor of life is the inevitability of death. The corollary of the growth fetish is the immortality assumption, which encourages organizations to believe that they deserve to go on forever and to operate as if they will go on forever. But immortality is an absurd goal. Even in the for-profit world, where organizations could potentially go on forever, financial planners rarely look past 25 years into the future and assume that 80% of businesses will fail. Perhaps arts organizations who are struggling should have honest conversations with themselves and gracefully end their lives if they find that they are unable to fulfill their mission on the resources available to them. Perhaps more arts institutions should, like 13P, state their exact life span and their end-of-life plans in their founding documents. And perhaps the artists who work with these organizations and the funders that support them should forgive them for dying.

LETS GET TOGETHER

COLLECTIVIZATION OF RESOURCES One interesting trend that may provide a pathway out of institutional mindset is the current movement toward resource pooling. Resource pooling provides an important way for external and internal stakeholders to hedge against the risk of a creative enterprise collapsing and destroying their investment. Many such resource pools rely on collectivization of physical resources, money, labor, or (perhaps most importantly) live/work spacealbeit to varying degrees of success. A comparison can be made between two collectivized art spaces in particular: Silent Barn in Bushwick, and The Art Monastery Project, which most recently attempted a pilot site in Italy. SILENT BARN The Silent Barn example is especially instructive as it emerged from a crisis, a 2011 break-in that resulted in $15,000 in stolen equipment and major damage to the building. In the wake of this event, the core members of Silent Barn devised a plan to search out a new location and build a safer and more sustainable live/work space for the artists in their community. In addition to providing a venue for music, arts, and events, the reincarnated Silent Barn is also a self-sustaining residency program run communally by its resident artists with its own governance structure and currency. More interesting, though, is how it obtained the seed money needed to open the space. After having raised $40,000 on Kickstarter, the organizers still faced a funding shortfall of $80,000, but through key loans from Brooklyn Cooperative Federal Credit Union and seven individuals they were able to cover significant costs attached to getting the space up to code. Both the lease payment structures and the renovation contracting payments were

13

negotiated to be due over the span of the start-up year, allowing Silent Barn to pursue these investors throughout the start-up phase and with the property already in action, as opposed to having the make the pitch cold. Their start-up year complete, the space now operates on a break-even basis, with 50% of operating revenue coming from rental of live/work spaces and 50% coming from bar sales. Other art spaces in Brooklyn function on a similar live/work risk-hedging model (Cloud City and Panoply Lab, in particular) but there is much more to explore about how the funding and operational models of these organizations differ, or perhaps overlap. A set of best practices from these types of artist-entrepreneurs on how to collapse costs could provide one avenue from which a less capital-reliant model can emerge. ART MONASTERY There are, of course, limits and risks to collective models, as the case of the the Art Monastery Project will demonstrate. Although a U.S.-based arts organization, the Art Monastery Project (AMP) launched a pilot location known as AM Italia in a restored Franciscan monastery 70 miles north of Rome. The mission of AMP (both as an organization and as a bricks and mortar location) was to create exactly the type of collectivized live/work model described above, albeit more in line with historical practices of monasticism. This approach includes not simply the provision and maintenance of space through shared living arrangements and divided responsibilities, but also a creative calendar and system of practices that emulate the schedules and offices of monasticism. As such, AMP suggests a much bigger and more ambitious approach than some of those already discussed, as well as a more involved, more substantive level of contribution among its participant members. The AMP model also hinged on the concept of non-monetary exchange, as the organization was incentivized through a partnership conceived of by the municipal government and executed by a small local business that owned the Franciscan monastery as a hotel. The management of the monastery/hotel offered living space for a certain number of artists each year in exchange for regular cultural events in the hotel. This is a potentially viable model for NYC, where artists could offer value to hosts through nonmonetary exchange (e.g., X performances per year in exchange for discounted rent), although caution must be taken as non-monetary credit often leads to non-monetary debt. Emotional and psychic liabilities can be quite significant and these agreements should not be entered into lightly. That said, with clear agreements and managed expectations on both sides, there is much potential for a model based on partnerships between artists and professionals in other sectors. AM Italia eventually closed in 2013 because the partnership arrangement fell through with the local village where it operated for three years, and it became too difficult to maintain housing security. It is believed that the attempt to launch such an ambitious model in a different culture (and language) was a significant part of the difficulty; if a similar partnership were to be undertaken where needs and assets

14

could be articulated and understood from all parties, there are feasible and mutually advantageous solutions to be had in the realm of both non-monetary exchange and collective resource sharing. THE GEOGRAPHY OF COLLECTIVES The above examples present a problem of scale as well as the existing value of the space being transformed. A Franciscan monastery high in the foothills of Umbria is going to involve a substantially different investment than a commercial leasehold in industrial Central Brooklyn. At the level of space, it almost seems that the first thing a successful arts collective needs, more than anything else, is a place nobody else wants. This has continued to be true throughout history. After the fall of the Berlin Wall a wave of artists flooded to East Berlin, squatted their, and ultimately transformed neighborhoods such as Mitte and Prenzlauer Berg into hip cultural hubs9. The same phenomenon is now happening in Detroit10 and will continue to happen wherever there is unused real estate, as it reflects the primary needs of artists: affordable, available space and the free time that can be invested in artistic practice when one does not have to struggle for basic survival. This is not to suggest that collectivized arts models can only work in the most blighted, least desirable corners of the urban real estate market, but it does suggest that real estate drives the discussion of sustainable funding models more than we realize, which also informs the larger discussion of space as a uniquely (or more accurately, acutely) New York City phenomenon. Ours is a veritable Golden Age of trend pieces on where Millennials might move, particularly those of a creative bent, and at the core of this reportage is the availability of space, usually post-industrial and postcommercial, in places as diverse as Buffalo, Memphis, and Omaha. Understood in this context, the challenge becomes how you raise the capital required to obtain such space within the constraints of the astronomical New York City real estate market as it currently exists (and will likely continue to be). As even successful examples like Silent Barn show, there are limits to the crowd-sourced Kickstarter model, as currently conceived, however there is a huge opportunity for partnerships with small banks and individual lenders. Moreover, in the absence of risk-pooling or profit margins, the need for an institution (or series of institutions) that can help facilitate funding by matching informal sources (be they angel investors or otherwise) with collectivized organizations becomes imperative. THE FUTURE OF RESOURCE SHARING Recent projects such as the OurGoods bartering network and A.R.T./New Yorks ArtsPool project to collectivize arts administration are encouraging, but much needs to be done to encourage the development of inventive collectivized support systems and inter-organizational cooperation. For example, organizations such as chashama and SpaceWorks that are working to reanimate unused real estate could partner to develop a registry of empty buildings whose owners are amenable to short-term use by artists

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
9 10

New York Times, Berlin: Once East Germany Gritty, Now Slick, But Still Artsy PBS.org, Is Detroit the New Brooklyn?

15

for residency or performance space. There are countless store fronts across the city that are transitioning from owner to owner, sustaining minor repairs, or searching for new renters, which sit unoccupied and unused. Making more of these spaces available to artists throughout more of the year would drive foot traffic, draw attention to the space, and ultimately create more value for landlords than letting the buildings lie empty. In addition, much more work needs to be done in supporting artist-entrepreneurs in the development of safe, affordable, live/work spaces for their peers. Many startup art spaces begin as live/work spaces because combining living space with work space eliminates an inefficiency of paying rent on two spaces when one space could serve both purposes for a group of artists. Educating artists in real estate law and finance and guiding them through the process of leasing or obtaining finance to purchase space and bring it up to code would help legitimize a phenomenon that is critical to artists who are just starting out in New York. New York Citys Loft Laws and the Loft Board have addressed many of the issues central to the formation of these types of space but the information is not well-communicated to artists in the field, and many artists live under a cloud of uncertainty as to the status of their space.

AND IN THE END

The first version of this report lacked a conclusion, not because we thought it didnt need one but because our nine-month voyage through economics, finance, and real estate left us with more questions than answers. They are complex fields that interact in complex ways with each other and with the arts, and nine months only allowed enough time to scratch the surface and peer through some speculative windows. In reading the reports of our colleagues in other research teams, however, themes emerged that seem worth underscoring. Key among these were democratization, sustainability, diversity/diversification, and solidarity with the small, the independent, the entrepreneurial and the outsider. These are themes that are important not just to artists and a healthy arts economy. They are values embedded in American culture, though sometimes so deeply embedded as to be buried. We should embrace them not just because of how they will make our economy or our art better, but because they will make us better.

16