Thursday, June 15, 2006

Seeing red: Center for Cultural Exchange’s books out of balance

Published in the Portland Phoenix

The Center for Cultural Exchange is in more serious financial difficulty than anyone outside the organization may realize, and is likely to shift its focus away from its past efforts to bring relatively unknown, but culturally significant, performers to Portland for shows with low ticket prices. What will come instead is anybody’s guess, but it will be less expensive to put together.

The news that it would sell its building just four months after vowing to remain in its landmark Longfellow Square home is just the tip of the bad-news iceberg. Even more troubling is a look at the group’s tax returns, which are public records because of the group’s nonprofit status.

The returns show that since at least 2002, the center’s managers have been spending far beyond the center’s revenues. Board president Jay Young and center co-founder James “Bau” Graves say this was because grant money is hard to come by. Graves, who left in December 2005, says it got harder in more recent years as governments cut back on funding for social-service agencies, forcing them to seek donations from the same individuals and foundations that had long funded arts and cultural groups.

The tax records show, however, that revenues weren’t the problem: income was largely flat from 2002 to 2004, even as the center’s spending increased 12 percent during those years. By 2004, the most recent year for which tax records are available, the group’s operating deficit was $188,390.

Young says 2005 “wasn’t great, either,” and acknowledges that while “various substantial grants from national grant-making organizations came to an end ... even with that level of support we had trouble breaking even.”

Rather than cutting back on expenses, the group’s “budgets were optimistic,” Young says, based in part on the past success of co-founders Graves and Phyllis O’Neill at landing significant grants from national organizations. “Though ’04 and ’05 we continued to apply for similar grants,” but when, “for whatever reason, they just didn’t come in ... we just didn’t adjust our budget as quickly as we should have in hindsight,” Young says.

Grant-revenue plans were supplanted by “plans that assumed more success in local fundraising” than actually occurred, and when the losses kept mounting, the center kept covering its costs. “We’ve borrowed out the equity in the building” by taking money from the endowment in exchange for additional mortgages on the building, Young says.

“The idea of what an endowment can be used for has changed” over the years, says Michael Nilsen, public-affairs director for the Association of Fundraising Professionals, a national organization promoting responsible stewardship of money donated to charities. “Typically an endowment is for a particular purpose,” and using that money for another purpose might violate the goals the money’s original donors had in making the gift. But Nilsen says that if the board talked about the decision — which Young says they did — and agreed the risk of never getting back the money being taken from the endowment was acceptable given the circumstances (including, in this case, a mortgage to the endowment), it “might pass the test,” though he cautions, “I don’t think it’s necessarily a practice that charities should be doing all the time.”

How much the mortgages total, “I don’t want to say, since we’re trying to sell the building,” Young says. But once the building sells, there will be “liquid assets, in the tens of thousands of dollars,” and an endowment back at its full strength of $280,000, which Young notes is still small for an endowment.

The building, bought for a song in the mid-1980s — Graves recalls it being either $65,000 or $67,000 — had about $1 million in improvements done, he says, though it’s now on the market for $735,000.

Back in February, when the group announced it would keep its home, executive director Lisa DiFranza says, the prevailing wisdom was “that we could sort of blast through” and make it through the rough patch. Now, after a few months to look over the books, she believes selling is the right move.

The operation has always been supported primarily by grants and donations, with never more than 20 percent of its annual revenue coming from ticket sales, but in 2004 things were particularly bad: ticket sales were not enough to cover either the salaries of the permanent staff (co-founders Graves and Phyllis O’Neill and financial manager Bev Dacey) or the operating deficit, the amount spent above revenue. Young says ticket revenue, even though prices were cheap to ensure people could afford to come to shows, is “way low for an arts-presenting organization.”

Graves, who left the center a few weeks after the 2004 tax filing was completed, says the financial picture was not part of his decision to depart.

Young says the board is “moving in some new directions,” away from the “concert-oriented” approach of Graves and O’Neill, which he calls “pretty esoteric, unique programming” that brought largely unknown performers to the city, where “there isn’t a built-in audience.”

When “trying to build an audience,” and setting low prices, “we just need a heavier subsidy” from local and national sources, from whom “it’s really just impossible to raise that money.” Even if the place sells out, the center’s auditorium holds just shy of 200 people, which at $20 a ticket — which was high in the center’s heyday — only brought in $4000.

Former executive director Lisa DiFranza, whose transition to a consultant role comes as a result of the lack of money to pay her a full-time salary, also describes the center’s previous model as “not a viable option.”

Because the group was mostly self-contained, not operating as a vehicle for funding other arts or culture organizations in the area, the damage will be limited, but Portland will lose a venue that was home to performances as diverse as Celtic-music stars Altan, African-style dancers from Harlem in concert with Maine gospel singers, and fashion shows of international traditional dress. The group also organized performances and events at other venues, including the Festival of Cultural Exchange, bringing together local and international artists and performers along Congress Street in 2004 and 2005.

Young is direct in saying that the center “can’t afford to run promoter’s risks,” the term for what non-show-biz folks call “you book some act and you hope the tickets sell.”

So there will be fewer shows, if perhaps any at all, for the time being — DiFranza notes it is likely the center will be entirely without a space for some unknown length of time — but Young expects the center will work with other promoters and community organizations to “support local immigrant and ethnic communities.”

The building has generated some interest, with “a couple people” taking tours, but no formal offers yet, Young says. He also says the group has recommitted to spending within its means, whatever those may be. “We’ll come out of this in financially solid shape,” he says.

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