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How we pay the piper

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How we pay the piper the impact of sources of government funding on arts and culture nonprofit organizations
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Gallagher, Bridget Kathleen ( author )
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Denver, CO
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University of Colorado Denver
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Art and state ( lcsh )
Nonprofit organizations -- Government policy -- United States ( lcsh )
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non-fiction ( marcgt )

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Nonprofit sustainability, or survival, has attracted increased scholarly attention. Government resources are shrinking, and the public sector is increasingly relying on the nonprofit sector to provide goods and services. Nonprofit arts organizations are not excluded from this trend. Historically, the arts have relied on private donations with limited direct government support. The majority of government support for arts and culture organizations derives from legislative appropriations, a system susceptible to sudden changes driven by economic and political changes. Recognizing the broader social and public good provided by arts and culture nonprofits, a number of states have created alternative methods for supporting their state arts agencies. Twenty-nine states have instituted at least one alternative mechanism as a supplement or alternative to legislative appropriations. As governments leverage arts and culture for a variety of policy agenda, it is an appropriate time to evaluate the sustainability of arts and culture nonprofits and investigate the relationship between systems of funding the arts and organizational population patterns in order to determine if the mechanisms by which government funds are generated have an impact on the entry of exit of nonprofit arts and culture organizations. This dissertation is undertaken to assess whether the presence of alternative mechanisms funding state arts agencies (SAAs) improves the sustainability and survival of arts and culture organizations.
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Thesis (Ph.D.)--University of Colorado Denver.
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Includes bibliographic references.
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School of Public Affairs
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by Bridget Kathleen Gallagher.

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Full Text
HOW WE PAY THE PIPER:
THE IMPACT OF SOURCES OF GOVERNMENT FUNDING ON ARTS AND
CULTURE NONPROFIT ORGANIZATIONS
By
BRIDGET KATHLEEN GALLAGHER
A. B., College of the Holy Cross, 1995
M.B.A., University of Illinois, 1999
M. A., Christies Education, 2003
A thesis submitted to the
Faculty of the Graduate School of the
University of Colorado in partial fulfillment
of the requirements for the degree of
Doctor of Philosophy
School of Public Affairs
2014


11
2014
BRIDGET KATHLEEN GALLAGEHR
ALL RIGHTS RESERVED


This thesis for the Doctor of Philosophy degree by
Bridget Kathleen Gallagher
has been approved for the
School of Public Affairs
by
Jessica E. Sowa, Dissertation Chair
Mary Guy, Examination Chair
Peter deLeon
Todd Ely
Mark Rosentraub


IV
Gallagher, Bridget Kathleen (Ph. D., Public Affairs)
How We Pay the Piper: The Impact of Sources of Government Funding on Arts and
Culture Nonprofit Organizations
Thesis directed by Associate Professor Jessica E. Sowa
ABSTRACT
Nonprofit sustainability, or survival, has attracted increased scholarly attention.
Government resources are shrinking, and the public sector is increasingly relying on the
nonprofit sector to provide goods and services. Nonprofit arts organizations are not
excluded from this trend. Historically, the arts have relied on private donations with
limited direct government support. The majority of government support for arts and
culture organizations derives from legislative appropriations, a system susceptible to
sudden changes driven by economic and political changes. Recognizing the broader
social and public good provided by arts and culture nonprofits, a number of states have
created alternative methods for supporting their state arts agencies. Twenty-nine states
have instituted at least one alternative mechanism as a supplement or alternative to
legislative appropriations. As governments leverage arts and culture for a variety of
policy agenda, it is an appropriate time to evaluate the sustainability of arts and culture
nonprofits and investigate the relationship between systems of funding the arts and
organizational population patterns in order to determine if the mechanisms by which
government funds are generated have an impact on the entry or exit of nonprofit arts and
culture organizations. This dissertation is undertaken to assess whether the presence of
alternative mechanisms funding state arts agencies (SAAs) improves the sustainability
and survival of arts and culture organizations.


V
The form and content of this abstract are approved. I recommend its publication.
Approved: Jessica E. Sowa


VI
To my family


ACKNOWLEDGMENTS
I would like to begin by thanking Jessica Sowa, Peter deLeon, Todd Ely, Mary
Guy, and Mark Rosentraub for serving on my dissertation committee and advising me
throughout the development and execution of this dissertation. First, I wish to express
my thanks to my chair, Jessica Sowa, who provided guidance and encouragement
throughout my time in the School of Public Affairs and during the development and
completion of this study. Peter deLeon, who started me on this journey by extending to
me an offer to study at SPA that I could not turn down, continued to shepherd me with
comments on my manuscript and insights on the process. Todd Ely generously granted
me access to the NCCS data and counseled me on ways to improve my methods and
analyses. I benefitted from Mary Guys example as a scholar and a teacher through my
semester as her teaching assistant as well as her review of this dissertation. Special
thanks to Mark Rosentraub, my external reader, for sharing his expertise on the
quantitative scholarship of sports and cultural amenities. I have benefitted immensely
from the mentoring each of you generously gave.
I also wish to thank all of the staff members who make the School of Public
Affairs at the University of Colorado Denver such a wonderful place to study and work.
Gabrielle Sawusch, Jeannie Paradeis, Rose Segawa, Sarah Kirchner, Dawn Savage, and
Antoinette Sandoval, in addition to performing the work that keeps students registered
and learning and providing alerts regarding obligations and opportunities, you have
offered encouragement when it is needed. It wouldnt have been the same experience
without you.


Vlll
There are, of course, other faculty who were not part of my dissertation
committee who played some role in bringing me to this point. Joanna Ziegler (College of
the Holy Cross), Kent Monroe (University of Illinois, Urbana-Champaign), and
Veronique Chagnon-Burke (Christies Education) each helped me as I advanced my
knowledge of art and its many roles in society. I thank you for believing in and
supporting me.
I also must thank my student (some now faculty) mentors who generously shared
their knowledge, experience, and resources. Thank you to my fellow students at the
School of Public Affairs. Specifically, thanks are due to the members of my cohort: Teri
Bolinger, Mark Davis, Maureen Ediger, Kelly Harp, Lucy Kinsella Mermagen, Ashley
Tunstall, and Laura Valcore. After sitting shoulder to shoulder through seminars, I cant
imagine the experience without you all! Carrie Chapman, Kate Cope, and Allison Tung
proved Mary Poppins correct: a spoonful of sugar, an essential ingredient in pie, makes
the medicine go down. While in different programs, I am grateful to have shared the
experience with Sarah Nathan. Jasmine McGinnis Johnson was unbelievably generous
sharing her experience and countless resources since we met. Thank you for being a
mentor and friend.
I am grateful for the financial support from the School of Public Affairs. The
research assistantship and teaching opportunities provided much needed experience and
resources. The travel grants from the School of Public Affairs and the Graduate School
afforded the opportunity to attend annual meetings of ARNOVA and meetings and
doctoral consortiums at the Academy of Management, the Association for Cultural
Economics International, and the International Society for Third Sector Research. These


IX
were tremendous opportunities to see the emerging research in the field and garner
insights into the academic job market and the profession.
My thanks go to staff members at state arts councils and agencies, the National
Assembly of State Arts Agencies, and the Scientific and Cultural Facilities District
(SCFD) for responding to requests for information. Special thanks to Jim Bob McMillan
at the Texas Commission on the Arts who responded to a request for data with the
recommendation that I contact Ryan Stubbs and the National Assembly of States Arts
Agencies. I am indebted to Mr. Stubbs and Kelly Liu, his associate, who provided the
data that made it possible to answer the third research question in this dissertation. And
to Sheila Mieger, at the SCFD, who provided me with access to the annual reports
unavailable at the Denver Public Library, thank you.
Finally, I am blessed with the support of amazing family and friends. I am
grateful to each of you for the support, counsel, and assurance you have given. Thank
you for believing in me and understanding when letters, emails, and calls were not sent or
made with the frequency I would have liked over the past five years. Tom, Sarah, and
Thomas, this has been a journey we have shared. You made it possible for me to pursue
my Ph. D. with sacrifices of your own and your willingness to adapt as needed. I hope
you will always have the same unquestioning support you have given to me.


X
TABLE OF CONTENTS
CHAPTER
I INTRODUCTION.............................................................1
Overview..................................................................4
Impetus for Research.....................................................8
Structure................................................................11
II THE ECOLOGY OF ORGANIZATIONS............................................13
Introduction.............................................................13
Ecology of Organizations................................................14
Cultural Economics......................................................16
Organization Ecology....................................................23
Age, Inertia, and Selection.............................................30
Density, Competition, Resource Partitioning, and Niches.................35
Analytic Methods of Organizational Ecology..............................40
Organizational Ecology of Nonprofits....................................41
Assumptions and Limitations of Organizational Ecology...................44
Institutional Demographics of the Arts..................................45
Conclusion...............................................................47
III THE ECOLOGY OF ARTS AND CULTURE NONPROFITS.............................50
Introduction.............................................................50
History of Funding for Arts and Culture Nonprofits in the United States.53
Early History
54


xi
Advances in the Twentieth Century..........................................55
Formation of the NEA.......................................................58
Culture Wars...............................................................60
Sources of Funding for U.S. Arts and Culture Nonprofits.......................61
Indirect Subsidies.........................................................62
Direct Subsidies...........................................................64
Earned Income..............................................................66
Alternative Funding Sources................................................67
The United States Model of Arts Funding and Economic Threats...............71
IV DESIGN OF STUDY.............................................................76
Introduction.................................................................76
Research Questions and Hypotheses.............................................76
Population...................................................................80
Unit of Analysis..............................................................82
Description of Data...........................................................84
Measures.....................................................................93
Empirical Model...............................................................94
Limitations..................................................................97
Alternative Mechanisms, Direct Subsidies, and Organizational Ecology.........100
V FINDINGS...................................................................101
Introduction................................................................101
Entry and Alternative Mechanisms for Funding State Arts Agencies.............102
Exit and Alternative Mechanisms for Funding State Arts Agencies..............107


xii
Comparing Entries and Exits..................................................112
Exit and Direct Grants from State Arts Agencies..............................113
Rates of Entry and Exit and MSA-level Alternative Mechanisms.................115
Comparing State and MSA Entries and Exits....................................120
VI POPULATION PATTERNS........................................................123
Introduction.................................................................123
Entry, Exit, and Population Strength.........................................124
Entries...................................................................125
Exits.....................................................................135
An Example................................................................142
Niches....................................................................144
Direct Beneficiaries.........................................................149
Levels of Analysis: State and Local Interactions.............................151
The Contributions of Alternative Funding Mechanisms to Sustainability........152
Organizational Theory and Arts and Culture Nonprofits........................158
Limitations..................................................................160
Implications.................................................................163
Conclusion...................................................................165
VII CULTURAL POLICIES BOON OR BUST..........................................166
Introduction.................................................................166
Policy Influences on Populations.............................................168
Vulnerability Revisited......................................................171
Arts and Culture Sustainability..............................................175


Xlll
What Does Sustainability Mean for the Arts?.................................176
State Arts Agency Support and Sustainability.................................179
Research Opportunities.......................................................182
Conclusion...................................................................185
REFERENCES...................................................................188


XIV
LIST OF TABLES
TABLE
3.1 Mechanisms for funding state arts agencies................................73
4.1 NTEE Classification of arts, culture, and humanities....................81-82
4.2 Descriptive Statistics for Variables Used in Analysis of Arts and Culture Nonprofit
Entries and Exits (Research Questions 1 and 2)................................88
4.3 Descriptive Statistics for Variables Used in Analysis of Exits by Grant Recipients
Compared to the General Population 1995-2004..................................91
4.4 Descriptive Statistics for Analysis of Entries & Exits in the SCFD and Rest of the
State...........................................................................92
4.5 Variables ...............................................................88
5.1 Annual number of arts and culture organization entrants and rate on entry.103
5.2 State low and high rates of entry......................................104-05
5.3 Negative Binomial Regression Model of Nonprofit Entries and Alternative
Mechanisms.....................................................................106
5.4 Annual number of arts and culture organization exits and rate of exit.....108
5.5 Annual number of arts and culture organization exits and rate of exit.....109
5.6 Rates of exit among sub-populations of arts and culture nonprofits........110
5.7 Negative Binomial Regression Model of Nonprofit Arts and Culture Exits and
Alternative Mechanisms........................................................Ill
5.8 Annual number of arts and culture organization exits and rate of exit.....114
5.9 Negative Binomial Regression Model of Nonprofit Exits and Grants..........115
5.10 Negative Binomial Regression Model of Nonprofit Entries with an MSA Alternative
Mechanism......................................................................116
5.11 Annual number of Colorado and SCFD arts and culture organization entrants and
rate of entry..................................................................117


XV
Table 5.12 Annual number of Colorado and SCFD arts and culture organization exits and
exit rates.......................................................................119
Table 5.13 Negative Binomial Regression Model of Nonprofit Exits with an MSA
Alternative Mechanism............................................................120
Table 5.14 Hypotheses and Findings...............................................122
6.1 Rates of exit among sub-populations of arts and culture nonprofits.........144


XVI
LIST OF FIGURES
FIGURE
3.1 NEA annual appropriations.................................................61
5.1 Annual number of entrants............................................. 103
5.2 Annual number of exits................................................108
5.3 Composite growth of annual number of entries and exits................113
5.4 Annual number of exits................................................114
5.5 Colorado and SCFD entries.............................................117
5.6 Colorado and SCFD exits..................................................119
5.7 Composite graph of the number of Colorado and SCFD entries and exits.....121
6.1 Number of arts and culture nonprofits entering the US market ............126
6.2 Comparing select state exits to national averages........................131
6.3 Number of arts and culture nonprofits exiting the US market..............136
6.4 Comparing select state exits to national averages........................137
6.5 Number of arts and culture nonprofits entering/exiting Nevada............143
6.6 Number of arts and culture nonprofits entering and exiting the US market.147
6.7 Twenty years of government support for the arts: Federal, state, and local (1994 to
2013).....................................................................148


XVII
LIST OF ABBREVIATIONS
EIN..........................................Employer Identification Number
GDP.................................................Gross Domestic Product
IRR...................................................Incidence Rate Ratio
IRS.................................................Internal Revenue Service
NASAA...............................National Assembly of States Arts Agencies
NCCS...................................National Center for Charitable Statistics
NEA..........................................National Endowment for the Arts
NPO.................................................Nonprofit Organizations
NTEE......................................National Taxonomy Exempt Entities
OLS...................................................Ordinary Least Squares
SAA........................................................State Arts Agency
SCFD...................................Scientific and Cultural Facilities District
WPA............................................Works Progress Administration


CHAPTER I
INTRODUCTION
Sustainability, or organizational survival, is an imperative concern for all
organizations, be they private, public, or nonprofit (Kaufman, 1991). Increasingly, the
survival of organizations in the nonprofit sector is also important to policy makers, as
these organizations are being used to address public problems and deliver publicly funded
services and programs to the population (Gazely & Brudney, 3 September 2007; Milward
& Provan, 2000). However, at a time of growing reliance on the nonprofit sector,
government resources to support their work have been shrinking. The number of
nonprofit organizations increased by 24 percent between 2000 and 2010 (Urban Institute,
2012). Budget deficits and sequestration are resulting in reduced government
distributions (Donovan, 2013; Ginsburg, 2012). Growth in the sector and shrinking
government resources have increased competition, raising questions on how this dynamic
impacts the delivery of services and programs (Saxton & Benson, 2005).
This phenomenon is no less true in the arts and culture subsector, specifically those
organizations identified by the National Taxonomy of Exempt Entities as group A arts,
culture, and humanities. The classic mission of arts and culture organizations is to
provide access to and deliver education on arts and cultural material (Garber, 2008;
Larson, 1983). More recently, they have been used to advance goals in other areas, such
as education, urban revitalization, and economic development (Belfiore, 2002, 2004;
Colorado Department of Education & Colorado Council on the Arts, 2008; Rosentraub,
2009). The instrumental attachment of arts and culture to broader social issues raises the
question of whether the existing, limited government financial support for arts and


2
culture organizations is sufficient and whether increased support is needed. Historically,
the arts have relied on private donations (Cowen, 2006). Direct government support has
been limited and subject to major fluctuations as a result of changes in the economy and
political trends (Cowen, 2006; Martell, 2004). The majority of government support for
arts and culture organizations comes in the form of legislative appropriations, distributed
by government agencies as grants to artists, arts and culture organizations, and art or
cultural programs (National Assembly of State Arts Agencies, 2012b). This approach to
funding has been criticized for susceptibility to rapid, drastic changes (Martell, 2004;
National Assembly of State Arts Agencies, 2012b; Wallis, Weems, & Yenawine, 1999).
Kaufman (1991) speculated that the most probable cause of organizational failure is
inadequate access to resources. Resource challenges have been demonstrated to be a
critical challenge in the arts and culture sub-sector of the nonprofit sector. Cultural
economists have explained many of the economic conditions that threaten the survival of
arts and culture organizations. They held that the expenses of arts and culture
organizations are rising at rates faster than ticket prices and that the increased need has
not been matched by private donations (H. Baumol & Baumol, 1985; A. C. Brooks,
2000a; Heilbrun & Gray, 2001b). Private donations may be influenced by government
subsidies, but it is not clear whether they do so positively or negatively (Abrams & Schitz,
1978; Abrams & Schmitz, 1978, 1984; Andreoni, 1993; Andreoni & Payne, 2003, 2011;
Borgonovi, 2006; Borgonovi & OHare, 2004; A. C. Brooks, 2000c, 2003; Dokko, 2009;
P. N. Hughes & Lukestich, 1999).
Financial management research in nonprofit studies provides additional measures
by which to assess risk and vulnerability (Hager, 2001; Tuckman & Chang, 1991).


3
Economic methods have been applied to measure the contributions of arts and culture and
quantify their impact (Americans for the Arts, 2007; AmericansfortheArts, 2007; Cohen,
Schaffer, & Davidson, 2003; Florida, 2004; Markusen & Gadwa, 2010a; Markusen &
King, 2003; Rushton, 2008; Vlasic, 2010). To serve the organizational mission and
multiple policy goals, arts and culture nonprofits must acquire and sustain the resources
needed to remain operational. To this end, arts and culture nonprofits have, as a group,
diversified their revenue streams, adopted entrepreneurial practices, and resorted to
modifying the types and frequency of programs offered (J. Lowell & Ondaatje, 2006; J. F.
Lowell, 2008). In spite of these alterations, many arts and culture organizations continue
to struggle for survival. For example, as governments leverage arts and culture for a
variety of policy agenda, it is an appropriate time to evaluate the sustainability of arts and
culture nonprofits and investigate the relationship between systems of funding the arts
and organizational population patterns to determine if the mechanisms by which
government funds are generated have an impact on the entry or exit of nonprofit arts and
culture organizations.
Recognizing the broader social and public good provided by arts and culture
nonprofits, a number of states have created alternative methods to support their states
arts agencies (National Assembly of State Arts Agencies, 2012b). These methods derive
from five standard sources: special taxes and fees; lotteries and gaming; specialty license
plates; income tax check-offs; and public cultural trusts (National Assembly of State Arts
Agencies, 2012b). Twenty-nine states have instituted at least one of these mechanisms as
a supplement to legislative appropriations (National Assembly of State Arts Agencies,
2012b). These alternatives produced at least half of the funding of ten state arts agencies


4
in fiscal year 2012 (National Assembly of State Arts Agencies, 2012b). This dissertation
is undertaken to assess whether the presence of alternative mechanisms funding state arts
agencies (SAAs) improves the sustainability and survival of arts and culture
organizations.
The significance of government-created alternative mechanisms as a means of
earmarking support for arts and culture nonprofits is not understood. This thesis poses
the research question, Do alternative mechanisms for funding the state arts agency
impact the rate at which nonprofit arts and culture organizations form and/or fail? Are
all arts and culture organizations within the state affected by these alternative
mechanisms, or are there different implications for those receiving grants and for those
that do not receive grants from the state arts agency? This introduction summarizes the
rationale for this study, addresses the expected contributions of this dissertation, and
stipulates research questions, hypotheses, assumptions, key variables, and the method
used to explore the questions.
Overview
Arts and culture organizations are being used to achieve policy goals in other
substantive areas other than the arts. For example, it has been demonstrated that students
who have taken an arts class are more likely to graduate from high school (Colorado
Department of Education & Colorado Council on the Arts, 2008). The arts have been
used successfully to propel the economy (Florida, 2004; Markusen & Gadwa, 2010a;
Markusen & King, 2003) and to revitalize economically depressed urban areas
(Rosentraub, 2009). Arts and cultural programs have also been used to cultivate social
cohesion by providing access to arts and culture regardless of socio-economic status


5
(Belfiore, 2002). To consistently serve these broader social and economic goals over a
sustained period, the arts and culture sector needs to be a dependable source of support.
Bowen et al. (1994b) produced a study of nonprofit institutional demographics,
including the rates at which organizations enter and exit the market. Their analysis of the
nonprofit ecology identified influential variables that contribute to an organizations life
expectancy. Studies of institutional demographics, including the rates at which
organizations enter and exit the market, provide insight into the dynamics of
organizational survival and the overall structure of nonprofit ecology (Archibald, 2007;
Bowen, Nygren, Turner, & Duffy, 1994a; Bowen et al., 1994b; Potter & Crawford, 2008).
While these studies have highlighted many factors, they have not explored the relevance
of revenue and expenditures. Revenue and expenditure patterns are important predictors
of organizational survival, as access to necessary resources is essential for organizational
endurance. Larger revenues typically create a cushion if financial shock occurs, allowing
the organization to continue (Greenlee & Trussel, 2000; Hager, 2001; Trussel, 2003;
Tuckman & Chang, 1991). Similarly, organizations with larger expenditures have greater
opportunity to find places in which they can make reductions and where smaller
organizations may already be surviving with the least possible spending (Greenlee &
Trussel, 2000; Hager, 2001; Trussel, 2003; Tuckman & Chang, 1991). Both revenue and
spending are typically linked to an organizations size, so it is not surprising that size is
related to survival (Freeman, Carroll, & Hannan, 1983; Hannan, 1998). Vital statistics
vary with field and sub-populations (Bowen et al., 1994a; Carroll & Delacroix, 1982;
Carroll & Hannan, 2000; Carroll & Huo, 1986; Delacroix & Carroll, 1983; Hannan,
Carroll, Dobrev, & Han, 1998; Hannan & Freeman, 1977, 1984, 1989; Swaminathan,


6
1995; Swaminathan & Wiedenmayer, 1991). The behavior of arts and culture nonprofit
organizations, as a group, differs from that of other categories of nonprofits. In addition,
within the group, additional distinctions are visible between large and small organizations
as well as between museums and ballets, for instance.
The study of organizational ecology reports the size of populations and the rates at
which events occur in an effort to explain the appearance, survival, and demise of
organizational forms. Analyses by this approach identify variables that improve
sustainability or raise vulnerability. Bowen et al. (1994) applied this theory to the
population of nonprofits. Their study revealed increased incidence of exit among
nonprofits in general and among arts and culture organizations in particular. In the
interim, the practice of using arts and culture to benefit diverse social issues has become
common (Belfiore, 2002, 2004), while little attention has been dedicated to potential
threats of this approach. In the interest of a synergistic relationship and the achievement
of goals, a sustainable population is needed. The vulnerability of arts and culture
nonprofits has been linked to economic and financial challenges (H. Baumol & Baumol,
1985; A. C. Brooks, 2000a; Hager, 2001). As such, cultural economists, arts advocates,
and policy makers are searching for improved funding models (J. Lowell & Ondaatje,
2006; J. F. Lowell, 2008; National Assembly of State Arts Agencies, 2012b). Evaluating
how different funding models contribute to the ecology and impact rates of entry and exit
of nonprofit arts and culture organizations increases our understanding and improves the
sustainability of the field.
Arts organizations in the United States at present survive by a composite of
revenues that include private gifts and donations, indirect government subsidies (such as


7
tax-deductions for donors and tax-exempt status for the nonprofit organizations), and
direct government subsidies (Cowen, 2007). On average, direct subsidies from all levels
of government contribute 14 percent of arts and culture revenue (Cowen, 2007). Much of
this money is channeled through the National Endowment for the Arts (NEA) and state
arts agencies (SAA), which then distribute the money as grants to nonprofit arts and
culture organizations.
Public arts agencies are commonly funded via legislative appropriations.
Government appropriations currently contribute a median of 86.4percent of all state
funding for state arts agencies (National Assembly of State Arts Agencies, 2012b).
Appropriations to the arts are considered at risk, however, due to changing political
support (Martell, 2004). In instances where funding has been drastically cut and even
eliminated in a single year, arts agencies and their beneficiaries are exposed to high levels
of uncertainty (National Assembly of State Arts Agencies, 2012a, 2012b). This is a
problem for long-term survival and requires an examination of the impact of this
uncertainty.
The Culture Wars of the 1980s and 1990s, as they are now known, epitomize the
ways in which political support can significantly alter government appropriations. The
National Endowment for the Arts (NEA) made a number of grants in the 1980s and
1990s to artists many viewed as controversial, including Robert Mapplethorpe, Andres
Serrano, and Annie Sprinkle (Wallis et al., 1999). In an era of political conservatism,
these grants fueled debates over decency, the role of the government as patron to the arts,
and the very legitimacy of the NEA itself (Wallis et al., 1999). The NEA budget was cut
from the high, in 1992, of $175,954,680 to $97,966,000 in 2000 (National Endowment


8
for the Arts, 2012b). Political contests over arts funding occur at all levels of government.
As such, arts and culture organizations need to do more to secure stable sources of
funding.
Alternative sources of revenue may produce greater stability in public funding
with less susceptibility to the influence of political rhetoric. Alternative mechanisms to
generate funding, described earlier in this chapter, have been created to support the arts
and have been instituted at the state and local levels (National Assembly of State Arts
Agencies, 2012b). How these systems for diversifying funding influence the entry and
exit of arts organizations has been largely untested. Their potential to dedicate resources
without fear of political contests may control one of the threats faced by arts and culture
organizations. An evaluation of the influence of alternative funding mechanisms on the
arts and culture nonprofit can help assess the potential of alternative mechanisms to
increase sustainability.
Impetus for Research
As stated, arts and culture organizations serve multiple roles in modem society. The
arts were once considered a luxury that, according to Enlightenment philosophy, elevated
civilization. John Adams wrote to his wife Abigail in 1780:
I must study politics and war, that my sons may have the liberty to study mathematics
and philosophy, geography, natural history, naval architecture, navigation, commerce,
and agriculture, in order to give their children a right to study painting, poetry, music,
architecture, statuary, tapestry, and porcelain. (National Endowment for the Arts,
1965, p.3)
Familiarity with the arts was a badge of social and intellectual status (Blair, 1994; K. D.
McCarthy, 1991; L. B. Miller, 1974). Similarly, Florida (2004) asserts that the presence
of a ballet, a symphony, and an art museum served to demonstrate civic status. Arts and


9
culture organizations were once tasked with preserving the accomplishments of the past
and providing access, interpretation, and education to the public. The arts have been
proven to serve in a larger capacity, contributing to education, the economy, and quality
of life. With this expanded role and potential benefits, it is necessary to build a more
comprehensive knowledge of the arts and culture sector.
An extensive literature exists on cultural economics, but evaluating how sources of
government funding relate to an organizations survival has received little attention. In
this dissertation, I bridge two areas of research by incorporating organizational ecology
with cultural economics. Both contribute to the development of the quantitative models
and the interpretation of the findings.
Organizational ecology uses statistical analyses to understand environmental factors
that contribute to the birth, transformation, and death of organizational forms (Carroll,
1984; Carroll & Hannan, 2000; G. R. Carroll & O. Khessina, 2005; Hannan & Freeman,
1989; Potter & Crawford, 2008; Singh & Lumsden, 1990). The major influences on the
vital statistics of organizations have been identified as inertia, density, competition, and
niche (Carroll, 1984; Carroll & Hannan, 2000; G. R. Carroll & O. Khessina, 2005;
Hannan & Freeman, 1989; Hannan, Polos, & Carroll, 2007). To date, organizational
ecology has been predominantly applied to cases from the private sector, but it is not
necessarily limited to these organizations. Survival is of equal importance to all
organizations, regardless of their sector (Archibald, 2007; Potter & Crawford, 2008; D. H.
Smith, 2000). As the size and scope of the nonprofit sector expands, understanding their
population and environmental influence is important.
Arts and culture organizations are not self-sustaining. The instrumental attachment


10
of arts and culture to multiple areas assumes a reliable and sustainable sector. Economic
threats and potential challenges pose multiple tests for this supposition. The application
of organizational ecology affords an ideal means by which to analyze environmental
influences on the sustainability of the sector. This dissertation explores the relationship
between sources of government funds (legislative appropriations, taxes and fees, license
plate fees, revenue from lotteries and gaming, tax check-offs, and special trust funds) and
the vital rates of the population of arts and culture nonprofits. Understanding the
influence of funding policies on the ecology of arts and culture nonprofits provides for
the evaluation of what is successful and where improvements can be made, enhancing the
sustainability of the sector.
The sustainability of arts and culture nonprofits has been explored most frequently
with economic approaches. These have included motivation and crowding, cost disease,
and financial ratios identifying financial vulnerability. Empirical studies addressing
changes in the number and types of arts and culture nonprofits, however, are limited
(Bowen et al., 1994a). Arts and culture have achieved renewed enthusiasm through their
links to other policy goals. As arts and culture are used to spur innovation (Florida,
2004), drive the economy (Florida, 2004; Markusen & Gadwa, 2010a; Markusen & King,
2003), revitalize urban areas (Rosentraub, 2009; Ryzik, 2010), and improve education
(Colorado Department of Education & Colorado Council on the Arts, 2008) and quality
of life (Belfiore, 2002; Florida, 2004), the vital statistics for the population have likely
changed. What is the impact of particular sources of government funds on the population
of arts and culture nonprofit organizations in the United States? The following questions
are the central focus of this dissertation. Do the sources of revenue for state arts agencies


11
(SAA) affect the entry rate of arts and culture nonprofit organizations? Do the sources of
revenue for state arts agencies (SAA) affect the number of state-level exits of arts and
culture nonprofit organizations? Do nonprofit arts and culture organizations that receive
grants from a state arts agency experience a different rate of exit than those that do not?
Is the number of entries and exits of nonprofit arts and culture organizations in a
metropolitan statistical area (MSA) with a special funding district significantly different
than that for the state? This dissertation advances our understanding of the basic
demographics of arts and culture organizations in the United States and tests the
relationship between vital statistics and sources of government funding.
Structure
In this dissertation, I examine whether the mechanisms generating government
funding for state arts agencies influence the vital statistics of the population of arts and
culture nonprofit organizations. Furthermore, I explore whether all organizations within
this population are equally affected or if differences occur between groups receiving state
arts agency grants and those that do not. The thesis hypothesizes that government units
using alternative mechanisms to fund their state arts agency will have higher rates of
entry, or formation, and lower rates of exit, or closure, than those in states that rely on
legislative appropriations. Furthermore, I propose that nonprofit arts and culture
organizations receiving grants from state arts agencies will be less likely to exit than
those not receiving state funds. Finally, this approach examines how the vital counts of
arts and culture organizations in a city with an alternative mechanism for funding the arts
compare to those of the state. An organizational ecological framework is used to study
this population to describe the life cycle. The dependent variables are the rates of entry


12
and exit. The key independent variables are the presence or absence of alternative
mechanisms funding the state arts agencies, including special taxes and fees, specialty
license plate fees, revenue from lotteries and gaming, tax return check-offs, and publicly
funded trusts benefiting arts, culture, and humanities organizations.


13
CHAPTER II
THE ECOLOGY OF ORGANIZATIONS
Introduction
Arts and culture organizations are symbiotic with public benefit in multiple
dimensions. They are historically used in tandem to benefit education, but more recently,
they have addressed the revitalization of urban areas and how to drive the economy
(Belfiore, 2002; Colorado Department of Education & Colorado Council on the Arts,
2008; Florida, 2004; Markusen & Gadwa, 2010a; Markusen & King, 2003; Rosentraub,
2009). As the arts have demonstrated their contributions to these social problems and
others, they have been increasingly attached to policy areas such as education, economic
development, and social unity in diverse communities (Belfiore, 2002, 2004). Instituting
public policies that use arts and culture in these areas should be done after ensuring the
reliability and sustainability of the sector (K. F. McCarthy, Ondaatje, & Novak, 2007;
Ragsdale, 2009). Among nonprofits, sustainability is defined as the ability to survive and
continue to serve the organizations stakeholders in accordance with its mission (Bell,
Masaoka, & Zimmerman, 2010; Weerawardena, McDonald, & Mort, 2009).
Vulnerabilities, or weaknesses, that inhibit these efforts need to be included in policy
development and evaluations.
Threats to the survival of arts and culture nonprofits stem from economics and
public perceptions of value. Rising production costs, decreasing participation rates, and
changes in sources and reliability of funding have forced these organizations to alter their
operations and scholars to investigate causes and consequences. Cultural economists
have addressed questions about the sustainability of arts and culture nonprofits. The
earnings gap, when the costs of certain industries rise faster than revenue (H. Baumol &


14
Baumol, 1985; A. C. Brooks, 2000a; Heilbrun & Gray, 2001b), the motivation crowding
effect of public subsidies on private donations (Andreoni & Payne, 2011; Borgonovi,
2006; Borgonovi & OHare, 2004; A. C. Brooks, 1999, 2000b, 2000c, 2003; Dokko,
2009), contingency valuation and willingness to pay (Bille-Hansen, 1997; Schwer &
Daneshvary, 1995; Throsby, 2003), and indicators of financial vulnerability (Hager,
2001) are threats to the sustainability of arts and culture nonprofits that scholars have
explored.
Cultural economics provides a rich understanding of the conditions and risks
faced by arts and culture nonprofits in the contemporary world. Cultural economics have,
since the publication of Performing arts: The economic dilemma by Baumol and Bowen
(1966), addressed the economic concerns of arts and cultural organizations (Heilbrun &
Gray, 2001b). These conditions have not, however, been connected to population
dynamics or to the rates at which nonprofit arts and culture organizations are formed or
exit. Cultural economics has proven the threat and risks to individual arts organizations.
Connecting this to population size and life-cycle can facilitate the creation of better
cultural policies.
Ecology of Organizations
Organizations are posited to be the engines of civilization (Hannan & Freeman,
1989). Through organizations, people cooperate to attain goals (Hannan & Freeman,
1989). Organizations establish the rules and norms by which people behave (Hannan &
Freeman, 1989; North, 1990; Scott, 2008), making it virtually impossible to overstate
their significance. Early theories of organizations assumed that systems were closed. In
this construction, theorists presume that the external environment is stable and does not


15
influence an organizations function (Fry & Raadschelders, 2008; Shafritz & Hyde, 2009;
Taylor, 1919). This was challenged in the 1960s when open systems theory argued for
inclusion of environmental variables (Scott, 2008). The assumption of a stable system
was dismissed by Thompson (1967), who wrote: Uncertainty appears as the fundamental
problem of complex organizations, and coping with uncertainty, as the essence of the
administrative process (p. 159). Proponents of an open system advanced the importance
of including the environment in the study of organizations (Scott, 2008). Organizations
do not operate in isolation, immune to forces such as the economy, policies, and
competition. Organizational theorists integrated the role of the environment as an
influence on organizations.
By the 1970s, Hannan and Freemans (1977) seminal work on organizational
ecology noted that the influence of the environment on organizations had reached a
central place in research and scholarship. In their influential article, Hannan and
Freeman (1977) argued that ecological approaches rely on the process of understanding
environmental influence on the distribution of organizations and the limitations on
organizational structures over time. Competition for organizational resources results in a
process similar to natural selection. These dynamics are measured with vital statistics,
the rates at which organizations enter and exit the environment, capturing such dynamics
as growth, population density, niche development, and resource partitioning.
Organizational ecologists conduct their analyses on populations. The population
of organizations, bound by industry and geography, serves as the unit of analysis
(Hannan and Freeman, 1977). Past applications of this comprehensive approach have
underscored the significance of environmental variables on the formation, growth, and


16
decline of populations. This chapter briefly summarizes cultural economics as it pertains
to the study of sustainability. The concept of populations, their boundaries, and the vital
statistics used to measure change are presented. The significance of age, inertia, and
selection to populations of organizations is reviewed, and density, competition, niche,
and resource partitioning as important environmental factors are identified. The research
methods used in organizational ecology are summarized. Organizational ecology has
been applied to populations within the nonprofit sector. Attention is given here to these
studies, and the concept is then related to the population of arts and culture nonprofits.
This demonstrates the appropriateness of organizational ecology as a research approach
while detailing how this dissertation advances the theory of organizational ecology.
Cultural Economics
Economics is an important environmental variable for organizations and arts, and
culture organizations are no exception. Cultural economics, the relation of culture to
economic results, has been used to better understand the cross-sector population of
organizations that produce, protect, curate, and foster heritage; the creative arts; the
performing arts; and associated industries and the transactions between relevant parties in
this field (Association for Cultural Economics, n/d). While many research questions have
been posed (e.g., the extent of the earnings gap of arts and culture organizations, how
private philanthropy is influenced by government funds, to what extent the public is
willing to pay for arts and culture, and the ability of arts and culture to revitalize urban
areas and contribute to the economy) and a variety of methods and approaches have been
used to explain the transactions related to this industry, the one enduring theme has been
the role and influence of government support of the arts. Contingent valuation,


17
motivation and crowding, and economic impact studies have made substantial
contributions to the discussion.
Contingent Valuation
Contingent valuation surveys ask the public to identify preferences and a
willingness to pay (WTP) for amenities or benefits. It assumes an economy of rational,
individual, utility-maximizing decision-makers (Throsby, 2003). Noonan (2003) notes
the prevalence and problems posed by poor definition and question development in the
surveys used. This may be compounded by the innate challenges of conceptualizing and
operationalizing cultural goods (Frey, 2000). Throsby (2003) articulates how the role of
information in decision-making presents a critical problem.
It is well-known that the amount of information provided to respondents in CVM
has a critical effect on their WTP judgments, with the general assumption being
that better-informed judgments are more useful than ill-informed ones. .. .But it
has long been asserted that a distinguishing feature of cultural goods is that
acquiring a taste for them takes time, i.e. they are classed as experiential or
addictive goods, where demand is cumulative, and hence dynamically unstable. If
these demand conditions do indeed obtain, it can be suggested that CVM will not
be able to provide fully-informed WTP estimates for cultural goods.
Limited or a lack of experience with the arts is likely to result in an undervaluation by
those surveyed and produce a distorted willingness to pay. While problematic, demands
for economic evaluation and the non-market values of cultural goods drive the
application of such approaches.
The frequency with which CVM is used to evaluate cultural goods underscores
the importance of valuation and economics in contemporary cultural policy. There are
over 5,000 published CVM studies with more than 139 reports dealing specifically with
cultural resources, of which more than sixty-one were published after 2000 (Noonan,
2003). These empirical studies have measured the value of a broad array of cultural


18
goods in context public broadcasting in Las Vegas (Kling, Revier, & Sable, 2004;
Schwer & Daneshvary, 1995), an historic hotel in Colorado (Kling et al., 2004),
congestion costs at the British Museum (Madison & Foster, 2003), the Royal Theater in
Copenhagen (Bille-Hansen, 1997), and, more broadly, arts and culture in Sydney,
Australia (Throsby, 2003). Findings from these studies have produced important
information for the understanding of public perception and consumer behavior.
Contingency valuations serve a necessary function in evaluating arts and culture
policies and programs from the perspective of taxpayers. They produce economic values
that make it possible to compare arts and culture goods with other publicly provided
goods. However, differences in experience with arts and culture may yield disparate
values for arts and culture. The populace is an influential environmental force.
Contingency valuation and WTP studies highlight the significance of arts experience in
perceiving the value of arts and culture as a public good, also suggesting utilizing a local
level of analysis to account for national variations.
Motivation Crowding Theory
Application of motivation crowding theory addresses the effect of government
funding on private contributions. It is an important consideration when exploring the role
of government funding of the arts. Motivation crowding theory contends that nonprofit
streams of revenue are not independent (Andreoni & Payne, 2003; Borgonovi & OHare,
2004; A. C. Brooks, 1999, 2000a, 2001; Garrett & Rhine, 2009; Hersey, 2009; Horne,
van Slyke, & Johnson, 2006). Scholars have asked if government funding displaces, or
crowds-out (i.e., reduces), charitable donations or if government support crowds-in
(encourages) private charitable giving. The crowd-out effect is supported by the


19
argument that government support leads to public perception of a quasi-public
organization (Hersey, 2009). People are less inclined to make donations to public
organizations (Brooks, 2000b). Crowding-in arguments state that government funds
bring prestige and credibility and attract private donations (Schiff, 1985, 1990; Connolly,
1997)(Borgonovi, 2006; A. C. Brooks, 2003). If government support crowds out private
support, the use of public funding of arts and culture is not production maximizing and is
therefore inefficient in terms of stability of the cultural arts sector.
Motivation crowding studies began to appear in the 1970s. Initially, these studies
tested for complete crowding-out, where government funding was matched dollar for
dollar in diminished private donations (Hersey, 2009). Abrams and Schiff (1978)
discovered that crowding-out does not occur in parity, and models evolved to test at what
rate crowding-out occurs and if variations occur as the result of the level of origin of the
government funding (Schiff, 1985), the subsector (Brooks, 2000a), the knowledge of
funding sources possessed by donors (Horne, Johnson, and Van Slyke, 2005), or altered
fundraising strategies (Andreoni and Payne, 2008). Hersey (2009) conducted a cross-
sector, multi-city examination of motivation crowding theory with a lens of regionalism,
reporting that region/city may influence the way in which funding influences private
giving. Support for crowding-in is extremely limited (Schiff, 1985, 1990 Connolly,
1997; Hughes and Luksetich, 1999). Motivation and crowding studies continue to
advance models whereby the efficiency of public funding of nonprofit organizations is
evaluated.
Motivation crowding studies provide an important technique for assessing the
connection between government patronage and sectorial sustainability. Furthermore, the


20
identification and clarification of influential variables offer the opportunity to remedy
faults and to improve efficiency. Motivation-crowding studies have demonstrated that
education and income are significant variables predicting participation in and support of
arts and culture nonprofits (A. C. Brooks, 2004b; Rushton, 2005). In deconstructing the
environment of arts and culture organizations, educational attainment and economic
security are essential variables to be included.
Economic Impact & Revitalization
Stokes (1985) posited that the global marketplace escalated competition between
cities as they vie for industry, business, and economic advantages. Cities must provide
economic opportunity, community features, attractive attributes, and benefits to induce
and retain residents (Burnell & Galster, 1992). It is commonly held that cities with larger
populations are able to proffer superior amenities, including professional sports and
cultural institutions (Burnell and Galster, 1992, p. 727). Rising demands have prompted
research assessing the best return on public investment generated by different amenities.
These evaluations have focused on the economic impact and contribution to urban
revitalization projects (Americans for the Arts, 2007; Florida, 2004; Markusen & Gadwa,
2010a, 2010b; Markusen & King, 2003).
Amenities are central to the notion of the creative economy and the creative class.
Richard Florida (2004) notably and popularly laid out the argument that amenities attract
the creative class composed of people in science, engineering, architecture, and design
- who power innovation and propel the economy. Companies, following the creative
class assumptions, will settle in creative centers and fuel the local economy. This
argument prompted many cities to pursue the creative class by designating cultural


21
districts, increasing cultural amenities, and creating funding mechanisms to publicly
support arts and culture amenities (Markusen & Gadwa, 2010a).
Early literature on the prospects of the creative economy emphasize three sets of
goals: economic impact, regenerative impact, and cultural impact (Garcia, 2004). Work
focused on the United States emphasized the ability of arts and culture to contribute to
the economy through jobs, output, and revenue, and evaluation studies that have been
performed tend to report on the economic impact of the cultural sector (Markusen &
Gadwa, 2010a).
Studies in this genre have been conducted at the national, state, and local level. In
June 2000, Americans for the Arts, a nonprofit formed in 1960 for the purpose of
advancing the arts, published a call for communities willing to participate in a study of
arts and economic prosperity (Cohen et al., 2003). Relying on the survey responses from
nonprofit arts organizations and arts audiences in ninety-one communities, the
researchers developed six community classifications based on population and applied
these to the 19,372 cities in the United States to estimate the economic impact of the arts
(Cohen et al., 2003). This resulted in economic impact of $134 billion in spending
annually ($53.2 billion from arts organization spending and $80.8 billion in event-related
spending), $24 billion in government revenue to the local, state, and federal government,
and 4.9 million full-time jobs (Cohen et al., 2003). The study was repeated in 2005 with
156 participating regions leading to an estimated $166.2 billion in economic activity and
5.7 million fulltime jobs (AmericansfortheArts, 2007). Updated in 2012, findings of
$135.2 billion in economic activity and 4.13 million full-time jobs were based on data
from 182 regions (Americans for the Arts, 2012). These studies are frequently cited and


22
form the basis of many state and local impact studies and are used as the U.S. standard
(AmericansfortheArts, 2007, p. 1). They are not, however, without criticism.
Markusen & Gadwa (2010) identify significant flaws in these studies. They may,
for example, overstate the impact by failing to subtract spending that would have taken
place elsewhere in the economy (Markusen & Gadwa, 2010). They commonly ignore
implications of the numerous nonprofit entities in the sector direct subsidization from
government funds and lost tax revenue as a result of tax-exempt status (Markusen &
Gadwa, 2010a, p. 381). Economic impact studies are a critical measure in evaluating the
contributions of arts and culture and aid in justifying government support of the sector,
but the rigor of the metrics must be increased.
Arts and culture have also become a common ingredient in urban revitalization
programs. These amenities present the opportunity, it has been argued, to repopulate
downtown areas that are suffering the consequences of suburban migration with those
seeking leisurely diversions offered by sports arenas, auditoriums, theaters, museums,
and galleries (Rich, 2012; Rosentraub, 2009; Strom, 1999). Strom (1999), Rosentraub
(2009), and Rich (2012) highlight the importance of the local environment by presenting
cases highlighting the successful integration of arts and culture in specific urban
revitalization programs in Newark, NJ, Scranton, PA, and Reading, PA, respectively.
Geographic and demographic contexts are important variables in the vitality of
industries. Scholars have explored the significance of geography as it influences political
climate, philanthropy, and participation in the arts. Elazar (1972) developed a framework
of political culture tied to the evolution of the United States that includes three
typologies: individualistic, moralistic, and traditionalist. These manifest differently in


23
different states and regions. Wolpert (1997) observed that urban lifecycles contribute to
city-levels of giving. Gronbjerg & Paarlberg (2001) address the geographic variations in
nonprofit densities in different counties within one state. Card, Hallock, & Moretti
(2008) identified the dividend to nonprofits of executive and upper management
philanthropy in cities with medium and large companies. To classify communities into
six categories based solely on population size, as has been done in some economic impact
studies, and project economic impact misses important variables and may yield
misleading conclusions.
Cultural economists have applied multiple approaches to better understand
transactions between arts and culture organizations and different stakeholders. The
importance and influence of educational attainment and income on participation and
support for arts and culture has been demonstrated by contingency valuation and
motivation-crowding studies. These population attributes vary locally and influence the
development of policies to use the arts instrumentally to serve economic development
and urban revitalization. Economic studies in these areas have explored the interaction
between local environment and arts and culture organizations but have not looked at the
ecology that results nor how it relates to the vitality and sustainability of the population
of arts and culture nonprofits. Organizational ecology, conversely, integrates economics
to better understand and interpret the ecology in which organizations operate.
Organization Ecology
The world is populated by organizations. However, basic demographic figures
have received limited attention and scholarship (Carroll & Hannan, 2000).
Organizational theorists have criticized organizational demography as being a process of


24
counting and dismiss it in favor of theoretical approaches (G. R. Carroll & O. Khessina,
2005; Lawrence, 1997; Perrow, 1986). Lawrence (1997) argues that organizational
demography requires only demographic predictors and outcomes, leaving additional
theoretical concepts .loosely defined and unmeasured, creating a black box filled
with vague, untested theories (p. 2). However, scholars specializing within fields are
commonly unable to identify average lifespans, stability of the field, and changes over
time (Carroll & Hannan, 2000). Kaufman (1991) goes even further when he argues that
organizational trouble and failure or survival are attributable to simple chance.
I anticipate ... that comparison between organizations that survive and those that
expire will in the vast majority of instances disclose no significant differences in
their respective levels of ability, intelligence, or leadership talents. (Kaufman,
1991, p. 69)
The driving assumption of organizational ecologists rejects the thesis that chance drives
success or failure, arguing, rather, that the interaction of internal and external conditions
produce threats to which organizations must respond in order to survive (Carroll &
Hannan, 1989c; Freeman et al., 1983; Hannan, 1998; Hannan et al., 1998; Hannan &
Freeman, 1977, 1984, 1989). Organizational ecology, an emphasis of study within
organizational theory, was developed to answer the question of which forms of
organizations survive and which become extinct and why (Carroll & Hannan, 2000; G. R.
Carroll & O. Khessina, 2005; Hannan & Freeman, 1977). This approach relies on the
examination of how factors in the environment contribute to the formation, growth,
transformation, and demise of populations of organizations (Carroll & Hannan, 2000; G.
R. Carroll & O. Khessina, 2005; Hannan & Freeman, 1977). These vital components and
rates of a population are central to understanding the ecology of organizational forms.


25
They also address the demographic composition of organizations, making it possible to
better manage organizations, objectives, and policy development.
Ecologists use vital rates to study populations of species. Birth rates, growth of
the population, and mortality rates are indicative of changes in the environment.
Organizational ecologists use the history of vital rates of populations of organizations to
the same ends. Birth rates, growth of the population, and mortality rates are indicative of
available resources, including wealth, labor, and technology (Aldrich & Pfeffer, 1976;
Stinchcombe, 1965). Identifying the conditions under which populations of organizations
form, operate, fail, and exit the environment makes it possible to explain the number and
distribution of organizations, explaining why organizations take many forms (Hannan &
Freeman, 1977).
Applying ecological concepts, such as birth and death, to organizations requires
some refinement of definitions. Instead of being born, organizations are typically formed,
founded, or enter the market (Bowen et al., 1994a; Hager, 2001). The formation of an
organization is a conscious decision of a person or group in response to a perceived
opportunity or need in a particular manner. Ecological conditions at the national level
have been proven to influence approaches to organizational structure (Wholey & Brittain,
1986). After the Civil War, the United States society underwent changes to political,
technological, and social conditions and the expansion of national markets (Aldrich &
Mueller, 1982). This environment contributed to the emergence and growth of two
particular forms (a) large, functionally organized industrial firms that relied on
technical controls and (b) parent-subsidiary organizations that utilized bureaucracy to


26
maintain control (Aldrich & Mueller, 1982). Organizations were created in these forms
as a response to the environment of the times.
How scholars define the moment of formation or market entry varies. Hannan
and Freeman (1989) used the presence of a functioning organization (p. 149). Bowen
et al. (1994a) used the date of recognition of tax exempt status in their study of the
nonprofit population. This dissertation relies on the identification used by Bowen et al.
(1994a) and Hager (2001) that an organization enters the market in the year of the IRS
rule date. It is evident that organizations attract resources and begin to serve their
mission in advance of this date, but locating comprehensive, reliable evidence of these
moments for the population is virtually impossible (Bowen et al., 1994a). The ruling date
is the year in which a registered nonprofit was recognized by the IRS as tax-exempt.
This is accepted as a proxy for when an organization was created (Bowen et al., 1994a;
Hager, 2001; National Center for Charitable Statistics, n/d-a)1.
Organizational deaths, like births, are responses to changes in environmental
conditions. As environments alter, organizations may adapt, if they have the necessary
resources. Internal pressures such as capital investments, information asymmetries,
political constraints, and organizational histories and external constraints such as
legal and fiscal barriers to entry and exit, information limits, legitimacy, and collective
rationality produce inertia and limit an organizations ability to change (Carroll, 1984;
Carroll & Hannan, 2000; G. R. Carroll & O. M. Khessina, 2005; Freeman et al., 1983;
Hannan & Freeman, 1977, 1984, 1989). Nonprofit organizations are not immune to the
forces of organizational inertia. Often operating with narrow, if any, financial reserves
1 Organizations form, acquire voluntary and monetary resources, and may even operate as
associations for a while before seeking recognition as a tax-exempt entity. For the purposes of
this study, the IRS ruling date was selected for availability and consistency of the data.


27
and frequently under pressure to serve the founders mission and traditions of the
organization, nonprofits may lack the resources to adapt to changes in regulations and
markets. The significance of mortality rates goes beyond the number of organizations that
are unable or fail to adapt. Rather, observations of deaths reveal patterns of longevity
and population diversity (Hannan & Freeman, 1989) and contribute to answering the
central question of why so many organizational forms exist.
Death or failure of organizations has been defined multiple ways. Organizational
death has been defined by failure to carry out sustaining routines (Hannan & Freeman,
1989), the move from the active to inactive part of the IRS Business Master File (Bowen
et al., 1994a), and the failure to file required documents with the Internal Revenue
Service for more than three successive years (Hager, 2001). This research relies on
Hagers (2001) definition of organizational exit. An organization is considered to have
exited when it fails to file the IRS form 990 for three or more consecutive years. This is
consistent with current IRS policy that revokes a nonprofits tax-exempt status for failure
to file the appropriate 990 for three consecutive years (Internal Revenue Service, 2013).
These concepts of birth and death are operationalized and produce quantitative reports
about the size and scope of populations of organizations. The value of organizational
ecology rests in the ability to understand dynamics of groups of organizations over time.
Is an organizational form expanding or contracting? Has the number of organizations in
a geographic area grown or declined? Are organizations serving a particular mission
disappearing? Has a new form emerged? The nuanced meaning of organizational
ecology comes not from looking at all organizations but from studying sub-populations of
organizations, and this necessitates the act of bounding the study in some way.


28
Studying a population clearly requires bounding it in a well-defined way. Hannan
and Freeman (1977) stipulated that populations are aggregates of organizations that share
some common feature or features, including history, politics, social structure, geography,
and vulnerability. Furthermore, professionalization and other normative claims may be
used to define a population (Hannan & Freeman, 1977). Studies conducted on
newspapers (Carroll & Delacroix, 1982; Delacroix & Carroll, 1983; Hannan et al., 1998),
the automobile industry (Hannan et al., 1998), and beer and wine production
(Swaminathan, 1995; Swaminathan & Wiedenmayer, 1991) define populations by the
product. Differentiations have also been made on an organizations size (J. C. Baum &
Mezias, 1992; Swaminathan, 1995, 2001) and sector (J. A. C. Baum & Oliver, 1996;
Bowen et al., 1994a; Potter & Crawford, 2008).
Aldrich and Stem (1983) and McKelvey and Aldrich (1983) urge deliberate,
careful construction of boundaries and taxonomies. These may derive from policy
interest, public access, or sources of funding (McKelvey & Aldrich, 1983). Furthermore,
scholars should define the degree of similarity among organizations under study, on a
scale from extremely similar to dissimilar (McKelvey & Aldrich, 1983). They advocate
that developing taxonomies will lead to more homogenous groups for study and increase
generalizability. An explicit taxonomy, however, is not evident in more recent studies
utilizing organizational ecology.
A population must be bound geographically. Spatial aggregation, or the
geographic level of analysis, drives the selection of the national, regional, state, or local
level. This choice should reflect the level at which competition for resources occurs (J. C.
Baum & Mezias, 1992; Carroll & Huo, 1986; Delacroix & Carroll, 1983; Pennings, 1982;


29
Swaminathan, 1995; Swaminathan & Wiedenmayer, 1991). Newspapers published in
Ireland and Argentina in the nineteenth- and early twentieth-centuries competed for
readers and advertisers at a national level (Carroll & Delacroix, 1982; Delacroix &
Carroll, 1983). Carroll and Huo (1986) studied newspapers at the metropolitan level
because in San Francisco between 1870 and 1910, the competition for readers and
advertisers was among local newspapers. Similarly, Baum and Oliver (1996) analyzed
issues related to population density of day-care organizations at the metropolitan level
because customers come from within the MSA.
Resources also vary with geography. Urban areas present a diversity of resources
that escalate with the size of the city (Lincoln, 1979a). The associated specialization this
fosters in organizations warrants identification (Lincoln, 1979a). Lincoln (1979) found
that larger financial institutions competed with other similarly sized organizations, while
smaller organizations limited their focus to local markets. This issue of magnitude
should be considered when selecting the appropriate level for analysis.
Populations of nonprofit organizations have been defined in previous studies.
Bowen et al. (1994a) and Potter and Crawford (2008) used an organizations status as a
recognized nonprofit to define the populations of their studies. Bowen et al. (1994),
Hager (2001), and Archibald (2007) further narrowed their populations within the
nonprofit sector by classifying the organizations purpose. Arts and culture nonprofits
are a generally recognized population. While they may differ in size, age, and the arts
and culture they make available for public consumption, the authoritative National
Taxonomy of Exempt Entities (NTEE) classifies them, according to nonprofit status and


30
purpose, as group A. This definition of population has been used in other research
(Bowen et al., 1994a; Hager, 2001).
The United States population of arts and culture nonprofit organizations in the
twentieth- and twenty-first century numbers in the tens of thousands. They share status
as tax-exempt entities, a mission to deliver arts and culture programming or education,
and the general funding system of direct and indirect subsidies, private donations, and
earned income. Many studies of arts and culture use a national lens (A. C. Brooks, 2000b,
2000c, 2004b, 2007; Cowen, 2006, 2007; P. N. Hughes & Lukestich, 1999; P. N. Hughes
& Lukestich, 2004; Schuster, 1991, 1998; T. M. Smith, 2007). However, state and local
studies capture important variations in the environment. Schuster (2002) identified the
rich potential of studying sub-national arts policies. The ecology of states varies. Using
organizational ecology to study the population of arts and culture organizations at the
state level furthers knowledge of the conditions under which forms emerge, persist, and
cease to exist.
Age, Inertia, and Selection
An organizations traits also interact with the environment and contribute to the
likelihood of survival. Age, inertia, and selection have been identified for their influence
on a firms ability to survive (Freeman et al., 1983; Hannan, 1998; Hannan et al., 1998;
Hannan & Freeman, 1984). Organizational responses to the environment are heavily
affected by age and inertia. Propositions that organizational change derives from
adaptation are challenged by internal and external pressures that limit an organizations
capacity to change (Freeman et al., 1983; Hannan, 1998; Hannan et al., 1998; Hannan &
Freeman, 1977, 1984, 1989). As organizations mature and age, they develop systems that


31
produce reliability and stability but simultaneously generate inertia, a force that inhibits
the organizations ability to adjust and modify systems and behaviors (Carroll, 1984;
Carroll & Delacroix, 1982; G. R. Carroll & O. Khessina, 2005; Delacroix & Carroll,
1983; Freeman et al., 1983; Hannan, 1998; Hannan et al., 1998; Hannan & Freeman,
1977, 1984, 1989; Marple, 1982; Stinchcombe, 1965; Wholey & Brittain, 1986). Hannan
and Freeman (1977) argued that organizational change occurs, as a result, through
selection or the replacement of outdated organizations with new forms. The influences of
age, inertia, and selection are critical concepts to analyzing population dynamics.
Age dependence in organizational ecology models identifies how developmental
stage influences the probability of organizational death or exit. When organizations are
new, they suffer from the liability of newness and are challenged to build cooperative
networks, establish and create legitimacy, and effectively compete with established
organizations (Stinchcombe, 1965; (Carroll & Hannan, 2000; G. R. Carroll & O.
Khessina, 2005; Freeman et al., 1983; Hannan & Freeman, 1984). Those that do succeed
are able to stabilize their environments (Freeman et al., 1983). Maintaining systems and
routines is less demanding than creating new ones (Hannan & Freeman, 1984). As firms
age, they are able to rely on existing systems. As age increases, the probability of exit or
merger decreases (Carroll, 1983; Carroll & Delacroix, 1982; Freeman et al., 1983;
Marple, 1982).
Alternatively, organizations that survive the liability of newness are confronted
with a second risk that results from age inertia. Inertia is any limitation to an
organizations ability to adapt (G. R. Carroll & O. Khessina, 2005; Freeman et al., 1983;
Hannan & Freeman, 1977). It results from internal and external conditions that constrain


32
organizations. As new organizations build systems to obtain necessary resources, they
develop human capital, experience the development of coalitions, establish precedents for
decisions, and build histories and traditions (G. R. Carroll & O. Khessina, 2005; Freeman
et al., 1983). Organizations also acquire physical capital, including equipment,
technology, and real property, that drives what is produced, how work is performed, and
where (Hannan, 1998). Marples (1982) examination of American railroads illustrated
how delays in adopting new technologies, such as steel rails, increased the probability of
mergers. Inertia is a double-edged sword. It comes as a result of resources that may
provide the means to survive unanticipated shocks to the organization or environment.
However, it typically comes with a reduction in flexibility and adaptability. An
organizations ability to change is influenced by these conditions.
Change may be driven from internal or external motivations. External pressures
for change include regulation and law, economic instability, and changes in technology
(Amburgey & Rao, 1996; Archibald, 2007). These may lead to changes in product-
market strategy, organizational structure, and mergers with other organizations (Carroll,
1984). Change within individual organizations may prove difficult to document (Singh
& Lumsden, 1990). As an alternative, change can be measured at the population level by
formation and exit (Amburgey & Rao, 1996; Potter & Crawford, 2008). Imbalances
between the environment and organizations is the chronic source of change (Hawley,
1950; Marple, 1982). Change is difficult and arguably unlikely for most organizations (G.
R. Carroll & O. Khessina, 2005), but organizations can and do change (Kearney, 2003;
Marple, 1982). Change comes from selection, that is, the replacement of outdated


33
organizations unable to meet the pace of environmental change (Hannan & Freeman,
1977).
Organizations best match their environments at the time of formation, according
to the imprinting hypothesis (Hannan, 1998). Systems developed to secure resources in
the early phase of development provide stability that, in turn, produces inertia (Hannan,
1998; Hannan & Freeman, 1977). Structural inertia limits an organizations capacity to
change at the pace of the environment (Hannan et al., 1998; Hannan & Freeman, 1977).
Efforts to change structures in small organizations increase the threat of mortality
(Hannan & Freeman, 1984). Inert, small organizations are less capable of adapting to
environmental changes and face an increased threat of obsolescence (Hannan, 1998).
Large organizations are able to draw on endowments of financial and social capital in
order to facilitate and support adaptation (Hannan, 1998, Hannan et al., 1998).
The process of adaptation argues that organizations will change in response to
alterations in the environment (G. R. Carroll & O. Khessina, 2005; Hannan & Freeman,
1977, 1989). Inertia intensifies the challenges of adaptation (Hannan & Freeman, 1984).
When a significant shock or change to the environment occurs, inertia prevents
organizations from adjusting quickly enough (Carroll & Khessina, 2005(Hannan &
Freeman, 1984). This leads to an increased risk of exit or death.
The potential implications of inertia and selection for arts and culture
organizations are, indeed, significant. The arts achieved a position of legitimacy in the
community as a beneficial entertainment for the public (Blair, 1994; Larson, 1983).
Furthermore, it became a symbol of civic attainment to have a museum, symphony, and
ballet (Florida, 2004). These organizations relied on the support of traditional, private


34
philanthropy (Binkiewicz, 2004; Cowen, 2006; Larson, 1983; Netzer, 1980). The
National Endowment for the Arts and the system of state arts agencies have become
resources for support, both in advocacy and grants, as well as presenting an additional
layer of rules and constraints (Baurelein & Grantham, 2009; Cowen, 2007; Moen, 1997b;
National Endowment for the Arts, 1966; S. Saunders, 2005). The formation of public
agencies institutionalized legitimacy for public patronage of the arts in the United States.
It also introduced networks, systems, and rules. Arts and culture nonprofits that adapted
to these changes increased their structural inertia, dedicating resources to doing things in
a prescribed way. Hannan and Freeman (1984) state that existing organizations face
significant challenges and threats from new organizations that form to take advantage of
changes in the environment. Established organizations may find it impossible to change
quickly enough to take advantage of these.
Arts and culture nonprofits are operating in a changing and unstable environment.
Changes in the economy, patterns of philanthropy, and audience attendance have been
evident for some time (Andreoni & Payne, 2003; H. Baumol & Baumol, 1985;
Blackwood, Roeger, & Pettijohn, 2012; A. C. Brooks, 1999; Markusen & Gadwa, 2010a;
K. F. McCarthy & Jinnett, 2001; National Endowment for the Arts, 1997, 2009; Ostrower,
2002; Schuster, 2000; Wolpert, 1997). How organizations respond to these alterations
will be influenced by inertia producing internal and external constraints and may reduce
the speed with which organizations can respond to environmental changes. The threat
posed by inertia increases with population density and competition and raises important
questions about the division of resources and the development of niches within the
population.


35
Density, Competition, Resource Partitioning, and Niches
Density is a measure of occurrence of an organizational form and a proxy for
legitimacy and competition (Carroll & Hannan, 1989c; Lincoln, 1979b). Hannan and
Freemans (1977) conception of density dependence was derived from the work of Amos
Hawley. Hawley (1950) presented a four-stage model of competition and selection in
which demand for resources exceeds supply, competition prompts similar responses and
competitors increase in likeness, and selection eliminates the weakest competitors,
leaving them to differentiate by geography or function. The survivors then seek ways to
expand on their strengths (Hawley, 1950).
Organizational forms commonly lack legitimacy when they begin to emerge
(Freeman et al., 1983; Hannan, 1998; Hannan & Freeman, 1977, 1984). As the
population grows, so does legitimacy and competition (Hannan & Freeman, 1977, 1984,
1989). Resources, such as financial means, human capital, and market/members, are
finite, and organizations compete for these (Lincoln, 1979b). Legitimation and
competition operate in opposition (Hannan, 1986). According to Hawleys (1986) theory
of organizational ecology, at low density, as the population of organizations grows, the
form gains legitimacy (Hannan, 1986). As density rises, competition dominates (Hannan,
1986). As density rises, the number of new entries will decrease, and several large,
generalist firms will gain control of the market (Carroll & Hannan, 1989b; G. R. Carroll
& O. M. Khessina, 2005; Hannan & Freeman, 1977, 1989). This produces an
environment with opportunities for niche and specialty organizations to form (G. R.
Carroll & O. Khessina, 2005; Hannan & Freeman, 1977, 1989). The dynamics of this
produce a U-shaped pattern (G. R. Carroll & O. Khessina, 2005). Conversely, the


36
number of exits will be graphed as an inverted U, rising with density before declining (G.
R. Carroll & O. Khessina, 2005).
Competition is driven by resource needs (J. A. C. Baum & Oliver, 1996).
Heightened similarity raises competition (J. A. C. Baum & Oliver, 1996) and decreases
the impulse to cooperate (Aldrich & Stem, 1983). Among organizations, as a form gains
acceptance, the density, or number of organizations, rises and elevates competition for
resources (G. R. Carroll & O. Khessina, 2005)2. Hannan and Freeman (1977) proposed
that organizations compete with those of similar size, driving the need for differentiation
and the manifestation of specializations and different forms.
Density and competition shape the distribution of resources and the rates of
formation, or entry, and mortality, or exit (Hannan & Freeman, 1989). Density, in
organizational ecology, is measured as the total number of active organizations less any
that have ceased operation (Carroll & Hannan, 1989c, 2000; Hannan & Freeman, 1977,
1984, 1989). This operationalization has been challenged for failing to recognize that
organization size can be influential in attracting resources (Barnett & Amburgey, 1990).
Other scholars have unbundled density to more accurately capture competition between
organizations (Baum & Singh, 1994; Baum and Mesias, 1992). Hannan and Freeman
(1989) and Hannan and Carroll (1995) advocated the continued use of census as a
measure of density because it is generalizable across forms.
Density dependence theory is supported by a substantial body of research on a
variety of organizational populations. These have included labor unions (Hannan &
Freeman, 1989); telephone companies (Barnett & Carroll, 1987); newspapers (Carroll &
2 This may be less applicable among nonprofits that, according to Baum and Oliver (1996), are more likely
to eschew competition and seek cooperation.


37
Hannan, 1989b); banks (Ranger-Moore, Banazak-Holl, & Hannan, 1991); life insurance
companies (Ranger-Moore et al., 1991); and business interest associates (Aldrich, Staber,
Suimmer, & Beggs, 1990). Other studies have not supported the theory of density
dependence (Carroll & Hannan, 1989b; Delacroix, Swaminathan, & Solt, 1989; Tucker,
Meinhard, & House, 1988). Carroll and Wade (1991) identified truncated histories in
Delacroix (1989) and Tucker et al. (1988) and the level of analysis Carroll and Hannan
(1989b) as possible causes for divergence from the theory.
Studies in organizational ecology have reported similar population developments
across a diverse set of fields. These are characterized by a small number of organizations
in the early period, a period of rapid increase in population size, and then stabilization or
decline of the population (Carroll, 1984; Klepper & Graddy, 1990). This is in keeping
with Hannans theory of density dependence that asserts organizational forms emerge,
seek and attain legitimacy and become subject to increased density (Hannan & Freeman,
1977, 1989). As density rises, the population approaches the environmental carrying
capacity and competition intensifies, decelerating growth and producing a declining rate
of founding and rising rate of mortality or exit (Carroll & Hannan, 1989c; Hannan et al.,
1998; Hannan & Freeman, 1989).
Competition generated by population density prompts organizations to become
generalists or specialists in their production. Unstable environments will produce
generalist organizations, and stable environments will generate specialty organizations
and (Hannan & Freeman, 1977). Generalist firms will allocate resources that can be used
to respond to changes in the environment (Carroll & Hannan, 1989c). Rising density
escalates the rate of failure and results in market domination by several large firms


38
(Carroll & Hannan, 1989a, 1989b; Carroll & Wade, 1991; Delacroix et al., 1989; Hannan
& Freeman, 1989; Swaminathan, 1995; Swaminathan & Wiedenmayer, 1991). Large
surviving firms seek to maintain central positions in the market as a generalist or
monoolist (Carroll & Hannan, 1989a, 1989b; Carroll & Wade, 1991; Delacroix et al.,
1989; Hannan & Freeman, 1989; Swaminathan, 1995; Swaminathan & Wiedenmayer,
1991). Resource partitioning stipulates that this condition creates resources at the
margins where specialty firms can thrive (Carroll & Hannan, 1989a, 1989b; G. R. Carroll
& O. Khessina, 2005; Carroll & Wade, 1991; Hannan & Freeman, 1989; Swaminathan,
1995; Swaminathan & Wiedenmayer, 1991). Specialist firms will derive efficiencies
from a more narrow mission (Carroll & Hannan, 1989c). Diversity of forms reveals
alternative solutions to satisfying conditions or demands and has significant value when
the future is uncertain (Hannan & Freeman, 1989). A diverse population is more likely to
possess or produce a satisfactory response to unanticipated environmental shocks (Carroll
& Hannan, 2000).
Research on the American wine-making field validates resource partitioning and
niche development. In the post-Prohibition era, the industry was characterized by the
consolidation of producers and increased sales, trends consistent with maturity of an
industry (Swaminathan, 1995). Between 1940 and 1990, the ratio of industry capacity
held by the largest four firms increased from 23 percent to 52.4 percent (Swaminathan,
1995). By the late 1960s, the growth rate was slowing, and the industry was dominated
by a few large, generalist producers (Swaminathan, 1995). Farm wineries produce
premium varietals (Swaminathan, 1995). Between 1969 and 1990, the number of farm


39
wineries grew from 30 to 1,099. These specialty firms produce a wide variety of quality
products in limited quantities (Swaminathan, 1995).
The significance of niche development is further illustrated by the hotel industry.
Baum and Mezias (1992) contended that all organizations may not compete for the same
limited resources. They investigated the importance of localized competition among
New York hotels from 1898 to 1990. Size, price, and location drive local competition
among hotels (Baum and Mezias, 1992). The more similar these organizations are in size,
the greater the intensity of competition experienced. Location and price also increased
competition when modeled with competitive window restrictions. According to Baum
and Mezias (1992), organizations that specialize and develop niches tend to out-compete
generalists located in the middle.
Arts and culture organizations appear to support the theory fragment of density,
competition, and niche development. Arts and culture nonprofits are diverse in size and
mission. The quest for a civic museum, ballet, and orchestra (Blair, 1994; Florida, 2004)
testify to the early legitimacy earned by several forms of arts and culture organizations.
In many communities, these organizations continue to dominate the landscape, attracting
elite trustees and major donors (Ostrower, 2003). Similarly, the low barriers to entry for
some specialty arts organizations foster niche development (Bowen et al., 1994a). The
civic museum, ballet, and orchestra are no longer the only venues to access arts and
culture within a community.
Tepper and Ivey (2007) point to changing patterns of participation and
engagement with the arts. Following changes in population demographics, work and
lifestyle changes, and advances in technology, the US public, in particular, is


40
experiencing arts and culture that are not provided by or part of the established, and
formerly privileged, categories of high arts. From cultural festivals showcasing
traditional arts from around the world to digital access, the traditional nonprofit arts
organizations are facing heavy competition for audience.
Analytic Methods of Organizational Ecology
Organizational ecologists have used a variety of data and methods to evaluate
changes in populations and organizations. These have included counts and vital rates,
case study, and regression analyses. These different methods reflect the variety of
applications, data, and purposes of research.
Identifying changes in populations is one reason to apply organizational ecology.
Population counts and vital rates calculated on changes over time are among approaches
employed. This technique has been used to observe the impact of technological
innovation on mergers among railroads (Marple, 1982), resource mobilization among
producer cooperatives (Aldrich & Stem, 1983), influences on the formation of womens
medical societies (Marrett, 1980), and the size and breadth of the nonprofit sector
(Bowen et al., 1994b). Counts and vital rates reveal growth or decline in populations of
organizations.
Organizational form is another central interest of organizational ecologists.
Langton (1984) used a case study to explore bureaucracy. Wedgewood was selected to
illustrate how Josiah Wedgewoods leadership contributed to the bureaucratization of the
British porcelain industry. As Yin (2008, p. 4) has noted, case studies are appropriate for
a holistic approach to understanding complex social phenomena. In-depth case studies
offer another means by which to explore an organization, a form, or a population.


41
Organizational ecology has used multiple methods to assess the environmental
influences on populations of organizations. The approach relies on data representing
entire populations. Variations in the size, scope, and depth of data influence the selection
of an appropriate methodological approach.
Organizational Ecology of Nonprofits
Organizational ecology has been dominated by the study of private sector
populations of organizations (Archibald, 2007). Perrow (1986), a critic of organizational
ecology, posited that it is limited to market-based industries because government
agencies and nonprofits are not allowed to fail or exit the population. This is a false
claim, as evidenced by studies documenting the mortality of organizations outside the
private sector (Archibald, 2007; J. A. C. Baum & Oliver, 1996; Carroll, 1984; Kearney,
2003; Ko9ak & Carroll, 2008; Marrett, 1980; Potter & Crawford, 2008).
The relevance of using organizational ecology to better understand nonprofit
populations was defended by Potter and Crawford (2008). They reasoned the following:
However, as governments increasingly turn to nonprofit organizations to help
implement policies (Kerst et al., 2004; Milward, 1996; Osborne & Gabler, 1993),
the presence of nonprofit organizations becomes even more important to state and
local governments in urban areas. This change calls for deeper analysis of shifts
in those urban landscapes over time with attention to the interrelationships among
nonprofit organizational factors, demographic patterns, and government policies.
(Potter & Crawford, 2008, p. 92)
An increasing role of nonprofit organizations in the development of public services
underscores the need to study population changes and the ecological conditions
associated with these changes.
The application of organizational ecology to populations of nonprofit
organizations has resulted in an improved understanding of the sectorial dynamics and


42
distinctions between subpopulations. Nonprofits enter and exit at rates that differ from
those of private sector organizations (Bowen et al., 1994a). These rates vary between and
within populations differentiated by the purpose (Bowen et al., 1994a). Archibald (2007)
reiterated the need for frameworks specific to nonprofit organizations. It is important to
recognize that variables in the ecology have different degrees of influence on private,
government, and nonprofit organizations.
Newness and smallness present two significant liabilities to organizations in the
private sector (Freeman et al., 1983). Similarly, youth and small size hinder the ability of
nonprofits to survive (Galaskiewicz & Bielefeld, 1998; Twombly, 2003). Overcoming
newness and smallness present additional advantages. Among self-help/mutual-aid
organizations, those that dominated at the beginning remained dominant in spite of the
entry of specialty organizations and emergence of subpopulations (Archibald, 2007).
An important condition for sustainability is the ability to attract needed resources,
including financial ones. Organizational ecology studies of private sector organizations
typically do not include financial variables for the population of study. Inclusion of this
information in studies concerned with nonprofit populations is important due to the
amalgam of funds on which organizations rely. It is facilitated by data sets, such as
NCCS, which extract information from forms filed with the IRS.
Private giving has traditionally been an important and substantial part of nonprofit
revenue in the United States. As one might expect, regional variations in philanthropy
were identified as influential to the rates of entry and exit of nonprofit organizations
(Twombly, 2003). Similarly, reliance on private donations increases the likelihood of
exit (Galaskiewicz & Bielefeld, 1998).


43
Government policies and funding have played an increasingly influential role in
the operation of nonprofit organizations. Scholars have reached different conclusions
about their influence. Twombly (2003) found that public funding and resource
concentrations did not influence the rates of entry of nonprofit human service
organizations and only weakly predicted their exit. Potter and Crawford (2008)
examined the breadth of nonprofit organizations in one MSA and found that government
funding does matter. Government funding remained influential to survival among urban
nonprofits relying on any government grants, even when contributing only a small
percentage to total revenue (Potter and Crawford, 2008). Twombly (2003) and Potter and
Crawford (2008) identified the need for additional research on the ecological influence of
government funding. Twombly (2003) cautioned that environments that support the
formation of nonprofits may prove to be unsustainable. Potter and Crawford (2008)
called for data sets that incorporate policy variables, allowing for direct testing of the
relationship between government policies and populations of organizations.
Organizational ecology literature is rich with examples of private sector industries
and populations. While early criticism posited that organizational ecology was limited to
these (Perrow, 1986), subsequent research has invalidated the claim. Studies applying
organizational ecology have demonstrated that age and size are influential conditions
regardless of sector (Archibald, 2007; Galaskiewicz & Bielefeld, 1998; Twombly, 2003).
These have also incorporated additional variables, such as regional philanthropy
(Twombly, 2003), sources of revenue (Galaskiewicz & Bielefeld, 1998; Twombly, 2003),
and policy conditions (Potter and Crawford, 2008), as essential elements of the ecology
for these organizations/populations. Hager (2001) used organizational ecology to


44
empirically test the predictive value of Tuckman and Changs ratios of financial
vulnerability and found that the ratios did predict exit in some types of nonprofit arts and
culture organizations. Organizational ecology has proven to be an appropriate approach
to the study of nonprofit arts and culture organizations.
Assumptions and Limitations of Organizational Ecology
Organizational ecology emphasizes the importance of the entire population. This
presents two limitations to the application of arts and culture organizations. Available
data for the national population of arts and culture organizations do not extend to their
first appearance in America. This does not preclude application of organizational
ecology to the field to understand the impact of different mechanisms for supporting
direct subsidies. Direct subsidies administered by the NEA and state arts agencies are
modern systems. Prior to 1965, there was no national system for administering the arts,
and few state arts agencies administered grants. Bowen et al. (1994) document changes
in the national population after the formation of the NEA. The consequences of funding
cuts that stemmed from political backlash against the NEA in 1996 also produced a
significant shock to the arts and culture ecology. Scholarship has addressed implications
on artists, exhibitions, and the nature and character of art produced (Bradford, Gary, &
Wallach, 2000; J. E. Cuno, 2006; Dubin, 1999; Rothfield, 2001; Wallis et al., 1999).
Attention needs to be directed to the vitality of the sector in the succeeding years.
Documentation of the population is further truncated. Organizations with
revenues less than $5,000 are not required to register with the IRS. Prior to 2011,
organizations with revenue less than $25,000 were not required to file annually. This
results in a loss of smaller organizations from the data. This has prompted criticism of


45
past studies (D. H. Smith, 1997). The absence of such data limit the findings of this work
to organizations large enough to be required to file with the IRS (Hager, 2001).
Institutional Demographics of the Arts
Cultural economists have reported numerous vulnerabilities faced by arts and
culture nonprofits. Cost disease, the publics willingness to pay for arts and culture
amenities, and the interaction and crowding of revenue sources are threats to the
sustainability of these organizations. The risks to sustainability/survival of arts and
culture organizations are important to enthusiasts and traditional supporters but are also
important to a broader audience. The arts have demonstrated the ability to enhance
education, contribute to urban revitalization, and impact the economy (Colorado
Department of Education & Colorado Council on the Arts, 2008; Markusen & Gadwa,
2010a; Rich, 2012; Rosentraub, 2009; Strom, 1999). These ties have led to the
attachment of the arts to other policy areas (Belfiore, 2004). This institutional attachment
of the arts to other policy areas warrants a better understanding of the sustainability and
reliability of arts and culture nonprofits and the dynamics of the population.
Organizational ecology was developed and has advanced to explain why forms of
organizations emerge and fail. Analyses have proven the influence of age, size, and
density on the survival of organizations. Applications to nonprofit populations have
indicated that public policies and the philanthropic characteristics of the environment are
also influential on population dynamics (Galaskiewicz & Bielefeld, 1998; Potter &
Crawford, 2008; Twombly, 2003). This is particularly pertinent due to government
collaboration with and reliance on nonprofits (Potter & Crawford, 2008).


46
There are limited accounts of the institutional demographics of arts and culture
organizations. The work of Bowen and his colleagues (1994) is an exception. They
prepared and published a survey of the nonprofit sector using a count approach. Their
study provides a broad overview of patterns of entry and exit of charitable nonprofits as
well as detailed examination of fields within this group, including the arts. Their work
systematically measured the size and expansion and contraction of the nonprofit
population. It produced baseline vital rates of nonprofits and of certain subpopulations
within the sector.
The examination of arts and culture nonprofits by Bowen and his coauthors
(1994) began with the establishment of the National Endowment for the Arts in 1965
(Bowen et al., 1994). Using a national lens, it was reported that arts and culture
organizations grew at a rate of 11.2 percent between 1965 and 1975, but only by 4.1
percent between 1975 and 1988 (Bowen et al., 1994a). The variation in the rates of exit
among arts and culture subfields was large. These ranged from 6.9 percent (among
historical societies) to 25.1 percent (for ballets) for the period, or 0.8 percent to 3.0
percent per year (Bowen et al., 1994a). Compared to rates for the entire, nonprofit sector,
the arts had an increased risk of mortality, or exit (Bowen, et al., 1994). In the
interceding years, the nonprofit sector has continued to expand, and the population of arts
and culture organizations has expanded with it. The re-calculation of the populations
vital rates has not been undertaken. This dissertation will deliver the vital rates of
nonprofit arts and culture organizations in the United States from 1989 to the present.


47
Conclusion
Organizational ecology offers rich opportunities for deeper understanding of the
dynamics of arts and culture nonprofits. Plagued with ongoing economic vulnerabilities
(A. C. Brooks, 2000a, 2003; Greenlee & Trussel, 2000; Hager, 2001) and high mortality
rates (Bowen et al., 1994a; Hager, 2001), the threats to sustainability of arts and culture
nonprofits need to be addressed. Using organizational ecology allows for testing how
ecological conditions contribute to population size and dynamics and offers the prospect
of identifying key variables that contribute to sustainability of the population.
The examination of arts and culture nonprofits via organizational ecology offers
benefits beyond the immediate application.
The [cultural] sector cannot continue to compete with other increasing demands
for expenditure on education, health, law, etc. without the essential ammunition
that performance measurements offer. The greater the impact, the greater the
chance that the role and fundamental potential of the sector will be fully
recognized across government and by the public. (Quality Efficiency and
Standards Team, 2000)
The increased density of arts and culture organizations and, by extension, the increased
competition for resources mirrors that in the nonprofit sector. As governments reduce
spending and allocate larger percentages to nondiscretionary spending, all nonprofits face
the threat of limited government spending. Nonprofit arts and culture organizations have
survived for the majority of United States history with limited direct, government funding,
as will be detailed in the following chapter, and provide an ideal case for examining the
role of funding policies on sustainability of an industry. Furthermore, the examination of
alternative means of obtaining financial resources is relevant to other categories within
the nonprofit sector. Recently, the governor of Tennessee announced plans to fund two
years of community college for all high school graduates funded by an endowment


48
created from lottery funds (Wilson, 2014). Competition in the nonprofit sector and
increased use of alternative means of generating public funds make this relevant to more
types of organizations than arts and culture.
Organizational ecology literature has been dominated by private sector cases.
Additional application to nonprofit populations further demonstrates the appropriateness.
Application to nonprofits also creates additional opportunity. To date, there has been
limited exploration of financial resources as an environmental variable. Gathering this
historical data on private sector organizations presents numerous challenges. Twombly
(2003) introduced financials as a variable in the organizational ecology of nonprofit
health and human services with independent variables and a proxy for geographic
variations in philanthropic patterns and another for government support. Potter and
Crawford (2008) called for models that incorporate policy. The research in this thesis
advances from Twombly by identifying the sources of government funding legislative
appropriations, alternative mechanisms, and combinations thereof. These combined
changes seek to improve the ecological model.
A national orientation to observation of populations provides useful information
as to whether the total number of organizations is growing or contracting. However,
organizational ecologists have identified the importance of selecting an appropriate level
of analysis (J. A. C. Baum & Oliver, 1996; J. C. Baum & Mezias, 1992; Delacroix &
Carroll, 1983; Swaminathan, 1995; Swaminathan & Wiedenmayer, 1991). States present
different policies affecting arts and culture nonprofits, different patterns of philanthropy
(Twombly, 2003; Wolpert, 1997), and different patterns of arts and culture participation
(Baurelein & Grantham, 2009; Moen, 1997a; Putnam, 2000). As State Art Agencies


49
(SAAs) increase their spending and influence (National Assembly of State Arts Agencies,
2012b), Schusters (2002) call to investigate sub-national arts policies has increased in
relevance.
Arts and culture organizations have attained a more prominent role in the policy
field. As arts and culture are used to serve a variety of goals, understanding how the
population of organizations has changed since the 1994 publication of The charitable
nonprofits provides a benefit to scholars, administrators, and policy makers who support
or seek to leverage the benefits of the arts. Furthermore, the connection between
government funding of the arts and organizational demographics has been under-
researched. Understanding the implications of variations in public support for arts and
culture nonprofits on sustainability of the field should be undertaken. The next chapter
addresses the history and systems for funding the arts in the United States.


50
CHAPTER III
THE ECOLOGY OF ARTS AND CULTURE NONPROFITS
Introduction
Organizational ecologists consider the history and environment in which a
population exists as critical to understanding why forms emerge, transform, and either
continue or fail. The survival of any organization is linked with its ability to attract and
retain the resources necessary to operate. Arts and culture organizations have been
documented by cultural economists as particularly vulnerable to changes in fortunes that
result from tradition, policy, and the economy. To understand the organizational ecology
of arts and culture nonprofits, it is necessary to appreciate the United States system for
funding these organizations, the benefits conveyed by different choices in the system, and
the threats posed.
Arts and culture were not accepted as an area for government involvement in the
United States until the twentieth century. Debates commonly constructed the support of
the arts as the domain of aristocrats (Binkiewicz, 2004; Larson, 1983; L. B. Miller, 1974).
Support of the arts was thought to lack practical utility and was contrasted to projects that
built infrastructure (Binkiewicz, 2004; Larson, 1983; L. B. Miller, 1974). Arts received
direct support from the federal government when they were linked to work relief during
the Depression (e.g., the W.P.A.) and international relations during the Cold War
(Binkiewicz, 2004; Larson, 1983; L. B. Miller, 1974). Post-World War II, policy
entrepreneurs advocated for support of the arts as an antidote to the escalating influence
of popular culture and as beneficial to public welfare, education, and international policy
(Larson, 1983; Binkiewicz, 2004). Support for a federal arts program grew during the
1960s, from the establishment of a Special Subcommittee on the Arts, under the Senate


51
Committee on Labor and Public Welfare, to the appointment of Arthur Hekscher as the
first Special Consultant on the Arts to the President, and to, finally, the act that created
the National Endowment for the Arts in 1965 (Baurelein & Grantham, 2009; Binkiewicz,
2004; Urice, 2003). Legitimized by establishment of the National Endowment for the
Arts, government support was symbolic but remained a modest portion of arts revenue
(Larson, 1983)(Binkiewicz, 2004).
Arts and culture nonprofits draw support from a wide variety of sources and
programs. The public sector has encouraged private support of arts and culture
organizations through Federal tax benefits to nonprofit organizations and private donors
(A. C. Brooks, 1999, 2003, 2007; Cowen, 2006, 2007). All levels of government have
provided land, buildings, and financial support to art and culture institutions (Cowen,
2006, 2007). Individuals and corporations have contributed to nonprofit arts and culture
organizations through donations of money, works of art, artifacts, documents, and the like.
The delivery of arts and culture programs, or goods, comes through cooperation among
the public, private, and nonprofit sectors.
Despite a diversified approach to funding, cultural economists have identified a
number of threats to arts and culture organizations. Cultural economists use economic
analysis to study arts and culture (Association for Cultural Economics International, n/a).
They have produced a wealth of insight on the publics willingness to pay for arts and
culture amenities (Bille-Hansen, 1997; Feld, 2008; Rushton, 2008; Schwer & Daneshvary,
1995), issues of motivation crowding when public funding and private donations
comingle (Abrams & Schitz, 1978; Andreoni, 1993; Andreoni & Payne, 2003, 2011;
Borgonovi, 2006; Borgonovi & OHare, 2004; A. C. Brooks, 1999, 2000b, 2000c, 2003;


52
Connolly, 1997; Dokko, 2009; Kingma, 1989; Lindsey & Steinberg, 1990; Schiff, 1985;
T. M. Smith, 2007), and analyses of financial vulnerability and stability (Hager, 2001).
The potential benefits, including economic impact and urban revitalization (Cohen et al.,
2003; Florida, 2004; Markusen & Gadwa, 2010a; Markusen & King, 2003; Rosentraub,
2009), have been measured to demonstrate the return on government spending. What has
not been studied is if systems for funding state arts agencies, which in turn make grants to
arts and culture nonprofits, influences entry and exits within the nonprofit arts and culture
population.
Arts and culture organizations exit, or cease operation, at rates higher than private
firms or the average for the nonprofit sector. Bowen and his colleagues (1994a) reported
patterns of institutional entries and exits for the nonprofit sector as a whole while also
detailing the sub-sectors, including the arts. Private entities exited the market at a rate just
over 1 percent between 1984 and 1990, while the overall rate for 501(c)(3)s was more
than double, at 2.3 percent per year between 1984 and 1992 (Bowen et al., 1994a).
Among nonprofits, arts organizations were found to exit at a rate of 0.8 to 3 percent
(Bowen et al., 1994a). These findings raise questions about the risk exposure and
sustainability of the members of the nonprofit arts sector. Arguments have been made
that financial conditions are the reason for the exit of an arts and culture organization
(Bowen et al., 1994a; Hager, 2001). This calls for an examination of current rates of
entry and exit and the factors contributing to the sustainability of the sector.
The use of arts and culture by government to benefit diverse public problems
requires reliable partners and a sustainable sector. Traditional objections to direct
government support are still presented. Cultural economists and organizational


53
ecologists have identified elevated sectoral risks. Review of history and systems provide
a necessary background to ecological evaluation.
This chapter details the United States system for funding the arts because of its
significance in the ecology of arts and culture nonprofit organizations in the United States.
A brief history of funding for arts and culture nonprofits in the United States, a
description of the United States model of funding arts and culture organizations, and a
summary of economic threats and implications resulting from this approach are reviewed.
History of Funding for Arts and Culture Nonprofits in the United States
The United States system of funding arts and culture institutions has been
considered unique when juxtaposed with the systems of other countries. However, the
policies that resulted from political evolution form an important legacy that cannot be
overlooked. The European tradition of supporting artists and the arts was built on
patronage from the aristocracy and the Roman Catholic Church (L. B. Miller, 1974). The
United States intentionally broke with this tradition and maintained limited direct
financial support for the majority of its history (Binkiewicz, 2004; L. B. Miller, 1974).
Lloyd Goodrich, curator and director of the Whitney Museum of American Art and chair
of the Committee of Government Arts in the 1950s, reported that the three greatest
obstacles to federal patronage were a puritan tradition, a decentralized federal system,
and the growth of private wealth (Larson, 1983). These circumstances resulted in the
limited government involvement for the majority of United States history. This position
changed in 1965 with the formation of the National Endowment for the Arts. While the
NEA formalized a role for government involvement at the national level and incentivized
development at the state level, funding levels remained limited and modest (Cowen,


54
2007; National Endowment for the Arts, 2012b). Debates over government funding of
arts and culture organizations have continued to position the arts as subsidies for the
wealthy and of less utility than other social programs.
Early History
The American Founding Fathers debated the role of the state as patron of the arts.
Some expressed concern over the association of arts patronage with monarchs and
aristocrats (L. B. Miller, 1974). Counter to this is the notion that art and culture have the
ability to educate and elevate the individual, tracing to Enlightenment philosophy (J.
Cuno, 2006). John Adams, Thomas Jefferson, James Madison, James Monroe, and John
Quincy Adams supported the establishment of national cultural institutions for the
benefits they would supposedly foster in the citizens (L. B. Miller, 1974). Even with such
influential advocates and merits, arts and culture were considered less essential than
projects aimed at economic development (L. B. Miller, 1974). The perceived value of
arts and culture organizations has been repeatedly contrasted to the projected benefits of
other projects demanding public support. The arts have continually been judged to be
nonessential luxuries to be acquired and supported by individuals.
The arts in the United States were historically supported by private patronage.
Artistic knowledge and accomplishment was cultivated at home to enhance education and
the personal lives of the American populace (K. D. McCarthy, 1991). The formation of
womens service clubs, after the Civil War and before World War I, fostered womens
roles as municipal housekeepers and expanded the application of this function from home
to community (Blair, 1994). Community arts initiatives were part of reform movements
of the Progressive Era of the late nineteenth century, bringing musical performances,


55
literary readings, and exhibitions to communities around the nation (Gibans, 2006).
Greater access to arts and culture was advocated, driven by the desire for equity and to
democratize arts and culture by making them available to all Americans (Gibans, 2006).
While movements in the Progressive Era championed the benefits of arts and culture for
society, programs continue to be the product of private efforts and funding (Blair, 1994;
Gibans, 2006; Larson, 1983). Arts and culture were thought by many to contribute to a
good (or at least an enlightened) society. Those with resources continued to support
access to arts and culture for a wider population and with broad benefits.
Advances in the Twentieth Century
The arts finally gained public support in the United States through attachment to
other public policies. Under the guise of a social welfare program, the Works Progress
Administration (W.P.A.) of the 1930s was the first federal attempt at arts programming
(Larson, 1983). These programs directed at theater, music, arts, and literature produced
relief of white-collar unemployment, as well as funding the production of works of art
that would be consumed by and broadly benefit the public (Larson, 1983). However,
some argued that the government did not have the power to utilize tax revenues to
support the arts (Binkiewicz, 2004). The entry of the United States into World War II
raised, again, the argument that federal patronage of arts and culture was a luxury that
could not be afforded in the face of greater demands on limited resources. Americans
were still uncomfortable with the role of the government as patron, and federal support of
arts and culture diminished to almost nothing (Binkiewicz, 2004; Larson, 1983). Early
traditions left a continuing legacy of limited support for arts and culture at all levels of
government.


56
The prelude to and aftermath of World War II prompted the American federal
government of the United States to identify the utility of art as visual rhetoric on the
value of democracy (Geduld, 2010; Grincheva, 2010; Kushner, 2002; Larson, 1983;
Mulcahy, 1999). The United States government began to engage in arts diplomacy with
the Pan American Conference for the Maintenance of Peace in 1936 (Mulcahy, 1999).
Cultural exchanges continued with the International Exchange Program and The
American National Arts, Sports, and Recreation Act (Larson, 1983). The government
maintained, however, that private agencies and funding would be sought to support the
activities (Larson, 1983). There was, however, a growing opinion that art had a national
purpose and should be used as a tool in the Cold War (Geduld, 2010; Grincheva, 2010;
Kushner, 2002; Larson, 1983; Mulcahy, 1999; F. S. Saunders, 1995). Thus, the purpose
of government involvement with the arts served a Cold War function to facilitate cultural
exchange, demonstrate American strength and cultural richness, and spread the power of
democracy at home and abroad.
The election of President John F. Kennedy was a significant advance in the
establishment of a United States national arts policy (Urice, 2003).
Kennedy promised to reinvigorate America, and he selected the arts as one means
to raise the level of American civilization. His remarks to [Musical America]
went on to explain the purposes art could serve in both domestic and foreign
arenas to elevate Americas image and culture. (Binkiewicz, 2004, p. 34)
Kennedys administration aligned with the opinions of cultural critics who recognized the
paradox of the opportunity to freely express in artistic form and the uniformity emerging
with prosperity and suburban migration (Baurelein & Grantham, 2009; Binkiewicz, 2004;
Urice, 2003). To counter this trend, the arts, cultural critics believed, should become a


57
regular recreational activity for the populace, stimulating intellectual development and
advancement (Binkiewicz, 2004).
Public funding of the arts was not without other supporters in government.
Senators Jacob Javits (R-NY), Hubert Humphrey (D-MN), and Claiborne Pell (D-RI) and
Representatives Frank Thompson (D-NJ) and John Brademas (D-IN) actively advanced
the cause of the arts as important to international and domestic policy (Baurelein &
Grantham, 2009; Binkiewicz, 2004). Popular culture was becoming increasingly
accessible and prominent. Fearing the ramifications of mass culture left unchecked,
intellectuals stressed the need to elevate American culture and called for the formation of
a national arts foundation (Binkiewicz, 2004).
The cause of a Federal arts agenda advanced significantly in 1962. Sen. Lister
Hill (D-AL), chair of the Committee on Labor and Public Welfare, created a Special
Subcommittee on the Arts (Binkiewicz, 2004). The provision for a federal role in
supporting the arts was provided for, it was argued, in the Preamble of the Constitution
(iCongressional Record, 88th Congress, 1st Session, 25263-64). The links between the arts
and public welfare, education, and international policy were becoming solidified.
The case for government support for the arts was advanced under the Kennedy
administration. Arthur Hekscher was appointed as the first Special Consultant on the Arts
to the President in March 1962 (Baurelein & Grantham, 2009; Binkiewicz, 2004; Urice,
2003). In May 1963, he issued his Report to the President on the Arts and the National
Government (Baurelein & Grantham, 2009; Binkiewicz, 2004; Urice, 2003).
Heckschers report concluded that it was time for a domestic arts policy (Baurelein &
Grantham, 2009; Binkiewicz, 2004). The report identified the need for a permanent


58
special consultant on the arts, the appointment of an advisory council, and the
establishment of a foundation (Baurelein & Grantham, 2009; Binkiewicz, 2004). When
Congress failed to enact a bill that had already been reported out of subcommittee,
Kennedy signed Executive Order 11112 establishing the Presidents Advisory Council on
the Arts in June 1963 (Binkiewicz, 2004). Kennedy chose not to pursue, however, the
establishment of an arts foundation without Congressional support, and it was not
achieved before his 1963 assassination (Binkiewicz, 2004).
Formation of the NEA
The National Endowment for the Arts (NEA) was formed during the Johnson
Administration. President Johnson built his own panel of advisors who supported an
expedient advancement of cultural policy (Baurelein & Grantham, 2009; Binkiewicz,
2004). With support from an overwhelming majority in the presidential election, Johnson
was confident in pursuing his agenda and vision of the Great Society (Binkiewicz, 2004).
Johnson leveraged his Congressional experience to directly lobby for support of a
national arts policy (Binkiewicz, 2004). Furthermore, the arts had attained broader
acceptance among the American public (S. Saunders, 2005). Johnsons strategy, buoyed
by positive economic indicators and the presentation of the links between arts and
humanities and their benefit to improved education, for the formation of an arts
endowment attracted increased support, and President Jonson signed the bill establishing
the National Endowment for the Arts (NEA) on June 29, 1965 (Binkiewicz, 2004; S.
Saunders, 2005). Formation of the NEA would drive the development of arts policies at
all levels of government in the United States.


59
The first annual report on the NEA articulated the organizations purpose to foster
the arts in the United States and identified a program to build cooperation among federal,
state, and local governments (National Endowment for the Arts, 1966). At the time of
formation, the Chairman of the National Endowment for the Arts and Humanities (NEA),
advised by the National Council on the Arts, offered an incentive to states that did not yet
have an arts council (National Endowment for the Arts, 1966). States were offered
$25,000 as a one-time study grant and $25,000 in matching funds to begin programs and
projects at the state arts council level (Larson, 1983)3. Between the formation of the
NEA in 1965 and the end of 1967, the number of state art agencies increased from 18 to
53 to include all 50 states and three special jurisdictions (Larson, 1983). The federal
government not only adopted an official role as patron to the arts but also encouraged
every state to follow suit and collaborate or partner with the NEA to promote arts and
culture in the United States.
The next twenty years was a period of growth and consolidation for the NEA and
state arts agencies (SAAs). Concerns over what forms of art were funded and regulation
of the agency persisted (Baurelein & Grantham, 2009). However, funding for both the
NEA and SAAs increased (J. Lowell & Ondaatje, 2006). The NEA budget reached its
pinnacle in real dollars and purchasing power in 1979 (DiMaggio, 1991). Adjusted for
inflation, the NEA declined by 40 percent between 1979 and 1987 (DiMaggio, 1991). By
1985, aggregate total spending of SAAs exceeded that of the NEA (J. Lowell & Ondaatje,
2006). By 1989, the aggregate of SAAs budgets totaled approximately 60 percent more
than the NEA budget (DiMaggio, 1991). Importantly, the spending power and influence
of state arts agencies has continued to increase, relative to NEA appropriations. By 1994,
3 Adjusting for inflation, $25,000 from 1965 is equivalent to more than $184,877 today.


60
state legislatures in 35 states were the dominant providers of revenues (J. Lowell &
Ondaatje, 2006). Controversy in the late 1980s and the 1990s would shift the power
between SAAs and the NEA.
Culture Wars
Federal and state programs were established in the mid-twentieth century, but
public patronage was not without question. The issue of legitimacy exploded in what is
commonly known as the Culture Wars, an era of conflict between conservative and
liberal orientation in which arts and culture featured prominently. The NEA funded a
number of controversial projects such as Andres Serranos Piss Christ and exhibitions of
work by Robert Mapplethorpe and Annie Sprinkle (Wallis et al., 1999). These funding
decisions contributed fuel to the debate between accountability to public sensibilities and
the freedom of speech of the artist or curator (Wallis et al., 1999).
Controversies have proven to increase the risk of volatility and political
retribution made via cuts to funding. NEA funding grew from $2,898,308 in 1966 to
$158,795,000 in 1981, equivalent to $20, 838,924 and $40,651,200 when adjusted for
inflation to 2013 (National Endowment for the Arts, 2012a). Appropriations dipped in
1982 and 1983 and then fluctuated mildly between 1984 and 1995. Funding dropped
nearly 40 percent between 1995 and 1996. The annual appropriations remained in this
range until 2001, when it once again exceeded $100 million.
The so-called Culture Wars of the 1990s resulted in substantial cuts to NEA
appropriations. Funding was reduced from $162,311,000 in 1995 to $99,470,000 in 1996,
illustrated in Figure 3.2 (National Endowment for the Arts, 2012b). Cuts continued
annually until 2000 when only $97,627,600 was appropriated. Funding did not return to


1995-levels until 2010. The Culture Wars clearly demonstrated the risks involved in an
arts community relying largely on legislative appropriations.
61
^)COOn^^COOM^^)OOOM^^)COOM^
^)\ON[sNNNCDCOCOCOCOOWJ'OM3W^OOO
On 0's O' o C*' C*' C*' C'' O*' O*' O*' O*' O*' O O O
HHHHHrlHHHHHHHHHHHMMM
Total Legislative
Appropriations
Inflation Adjusted
Figure 3.1 NEA annual appropriations
State level appropriations ranged from $0 in several states in the early 1970s to
over $68,000,000 in California in 2001 (National Assembly of State Arts Agencies,
2012a). In contrast to the seismic decline in NEA appropriations between 1995 and 1996,
total state appropriations for 1996 declined less than two percent from 1995 and
continued to increase until 2002 (National Assembly of State Arts Agencies, 2012a;
National Endowment for the Arts, 2012a).
Sources of Funding for U.S. Arts and Culture Nonprofits
Organizational ecology seeks to understand the impact of environmental
conditions on the population. The population of arts and culture organizations is
approximated by those arts and culture organizations that file the IRS 990. There were
39, 536 reporting public charities identified as arts and culture organizations in 2010


62
(Blackwood et al., 2012). These represented 10.8 percent of the nonprofit sector
population (Blackwood et al., 2012). This is an under-representation in that
organizations with revenue under $25,000 were not required to file annually and
organizations with less than $5,000 in revenue are not required to register with the IRS.
However, it is the best approximation we have and is routinely used by scholars. Other
ways to contextualize the population include analyzing revenues, expenses, and assets.
The subsector reported $29.3 billion in revenues, $27.8 billion in expenses, and 98.9
billion in assets (Blackwood et al., 2012). These amounts represent 1.9 percent, 1.9
percent, and 3.7 percent of the sector totals, respectively (Blackwood et al., 2012).
Contemporary funding of arts and culture organizations in the United States relies on
several common forms. Gifts and grants from the private sector, direct and indirect
subsidies from the public sector, and earned income are the primary sources of revenue
for arts and culture nonprofits.
Indirect Subsidies
The government provides indirect subsidies to nonprofit organizations by means
of tax expenditures. Tax expenditures are the income the government forgoes to
encourage certain behavior from individuals and corporations (Howard, 2002). They are
favored by a breadth of policymakers because they encourage the desired behavior
without demanding it (Howard, 2002). Tax deductions encourage charitable giving by
reducing tax obligations and allow individuals to choose which charities to support rather
than making that a decision of the government (Howard, 2002).
Indirect subsidies are the original form of public support in the United States for
arts and culture organizations. They are incentives offered by a government policy to


63
encourage the production of art (Cowen, 2006, p. 30). A common indirect subsidy to the
arts is the income tax deduction offered to individuals who make charitable contributions
to nonprofit arts and culture organizations. Supporters of indirect subsidies prefer a
system that allows individuals and corporations to make direct gifts to nonprofit
organizations (Cowen, 2006, 2007; Howard, 2002). The government provides indirect
subsidies by permitting these donors to deduct these gifts, up to 15 percent of their
income (Cowen, 2006, 2007). Additional indirect subsidies provided by the government
include the exemption from paying taxes on earned income and gifts and on property
taxes (Cowen, 2006, 2007). Indirect subsidies are unmeasured (Cowen, 2007), although
Brooks (2004b) estimated current indirect subsidies to arts and culture as equal to $16 for
every $1 of direct aid. A 2006 Boston Globe editorial spoke to the benefit of indirect aid,
arguing that private support for arts and culture nonprofits was more reliable than
government funds that reflect political partisanship and government budgets (Garber,
2008). Individuals, corporations, and foundations contribute 31 percent of arts and
culture nonprofit revenues (Americans for the Arts, 2012a), or $14.44 billion (Boehm,
2013).
Indirect subsidies benefit from broad support of politicians but are not without
criticism. It has been argued that they produce windfall benefits by rewarding behavior
that would have been occurred with or without the incentive (Howard, 2002). They
produce greater benefits for wealthy donors. Wealthy donors are more likely to claim
charitable deductions (Howard, 2002). While 62 percent of those with income in excess
of $100,000 claimed tax deductions, only 29.7 percent of those earning $50,000 to
$100,000 and 8.4 percent of those earning less than $50,000 did so (Howard, 2002).


64
Furthermore, tax expenditures are opaque, lacking the visibility of direct expenditures
(Howard, 2002). As a result of the federal budget deficit and these issues, indirect
subsidies have been targeted for reform (National Council of Nonprofits, 2013;
Whitehead, 2013). Opinions on the impact of changes to charitable tax deductions differ
(Clolery, 2013; Donovan & Perry, 2013).
Direct Subsidies
Direct subsidies derive from federal, state, regional, and local agencies (Cowen,
2007, p. 3). Direct subsidies occur when government agencies provide funds directly to
artists or an arts institution (Cowen, 2006). These may be offered by the federal, state, or
local levels of government. Grants are a common form of these direct public subsidies.
They are payments from a donor (in the case of direct subsidies, a government) to an
organization or an individual with the intent of supporting some of the service or activity
of the recipient (Beam & Conlan, 2002).
Direct subsidies to arts and culture first emerged with the WPA but truly arrived
in the funding landscape with the creation of the National Endowment for the Arts (NEA)
and Humanities in 1965. Supporters of direct subsidies assert that government patronage
is provided for by the Preamble of the United States Constitution, tasking the government
with providing for the general welfare of the United States (Larson, 1983). Direct
subsidies from the all levels of government provide only 9 percent of arts budgets, on
average (Americans for the Arts, 2012a).4 This amounted to approximately
$1,230,000,000 in 2009 (Americans for the Arts, 2009).
This is composed of 3% from the federal level, 2% from the state level, and 4% from local government.


65
Government subsidies for the arts have been justified as a method of economic
development, as they contribute to developing tourism, attracting businesses, and
increasing public access to the arts (Heilbrun & Gray, 2008; Martell, 2004; Mulcahy,
1992; Schuster, 1998; Tepper, 2002). Furthermore, it is argued that government
patronage inspires and encourages private patronage of the arts by endorsing their value
to the public (Connolly, 1997; Garber, 2008; P. N. Hughes & Lukestich, 1999). Those in
favor of government support argue that the arts are not economically sustainable without
the support of the government (Larson, 1983). Dissenters often counter that arts and
culture organizations are luxuries benefitting a small portion of the population and should
not take scarce resources away from more widely dispersed public goods.
Direct subsidies are typically made possible by legislative appropriations or
allocations from the general fund. Legislative appropriations are authorizations from a
specific fund to a specific agency or program to make expenditures/incur obligations for
a specified purpose and a period of time (California Department of Finance, 2012;
National Assembly of State Arts Agencies, 2012b). These resources are given by state
and city governments and are justified, in part, by efforts to attract the creative class,
draw businesses, and increase tourism (Cowen, 2006). In 2009, state funding totaled
$343 million and local support was $832 million (Americans for the Arts, 2009).
Direct subsidies are, of course, highly susceptible to changes in political
leadership and the putative economic health. It is reported that state appropriations are
less consistent and predictable than federal funding. In describing state-level funding,
Cowen (2006) wrote the following:


66
State art budgets exhibit more year-to-year volatility than does the NEA, largely
because of the volatility of local state economics. In many cases, cultural
nonprofits receive a direct, line-item appropriation from the state, (pp. 88-89)
The role of state and local appropriations in the sustainability of nonprofit arts and culture
organizations warrants evaluation and careful consideration.
City-level expenditures are no different and fluctuate with the state of the
economy (Cowen, 2006). These fluctuations are particularly significant when
considering the power of state and local appropriations. The NEA budget peaked in
dollars in 1979 and declined, when adjusted for inflation, by approximately 40 percent
between 1979 and 1989 (DiMaggio, 1991). By 1989, state legislative appropriations for
the arts totaled approximately 60 percent more than the NEA budget (DiMaggio, 1991).
In 2009, NEA appropriations were $155 million, total state appropriations were $343
million, and local appropriations totaled $832 million (Americans for the Arts, 2009).
Earned Income
Earned income is derived from services provided for a fee, including but not
necessarily limited to admissions, education programs, gift shop sales, and licensing. A
shift in purpose from repository of cultural artifacts and relics to educational facility and
changing patterns of philanthropy prompted elite cultural organizations, such as New
Yorks Metropolitan Museum, to venture into new methods of generating revenue
(Toepler, 2006). Earned income accounts for an average 60 percent of nonprofit arts and
culture revenues (Americans for the Arts, 2012a). Earned income produces the largest
stream of revenue, on average, to arts and culture organizations.


67
Alternative Funding Sources
Legislative appropriations are the most common form of state level arts funding.
Forty-eight states and four jurisdictions use legislative appropriations to fund, in part or
in whole, the state or jurisdictional arts agency, with Arizona and South Dakota as the
exceptions that use alternatives for 100 percent of their state arts agency funding
(National Assembly of State Arts Agencies, 2010). These general funds contribute a
median of 86.4 percent of all state funding received by these agencies (National
Assembly of State Arts Agencies, 2012b). Legislative appropriations are highly
vulnerable to political and economic tides, leaving arts organizations exposed to a high
level of risk, and the adoption of alternative mechanisms has increased to insulate against
threats. The number of states using alternative mechanisms to fund the state arts agency
has grown from 15 in 2003 to 29 in 2013 (National Assembly of State Arts Agencies,
2012b). Furthermore, ten states using alternative mechanisms generated at least 50
percent of state funding by alternative mechanisms. As states consider and adopt these
mechanisms, it is important to build a deeper understanding.
Appropriations are not the exclusive mechanism for funding the arts. There are
alternative sources of revenue documented in 29 states (National Assembly of State Arts
Agencies, 2012b). These include special taxes and fees, lotteries and gaming, specialty
license plates, income tax check-offs, bond issues, and cultural trusts. In ten states, these
alternatives contribute at least half of funding to the state arts agencies (National
Assembly of State Arts Agencies, 2012b).
Specialty taxes and fees take a variety of forms and may be imposed at the state
and local levels. Hotel/motel fees, a percentage of sales tax, conservation taxes,


68
corporate filing taxes, special income taxes, and admissions tax programs have been used
to generate and earmark funds for the arts (National Assembly of State Arts Agencies,
2012b). For example, Missouri authorized the collection of an income tax from visiting
performers and athletes in 1993 (St. Louis Volunteer Lawyers and Accountants for the
Arts, 2010). Proceeds were divided between the Missouri Arts Council Trust Fund and
cultural partners (St. Louis Volunteer Lawyers and Accountants for the Arts, 2010).
Only ten state art agencies receive income from dedicated taxes or fees. These are more
common at the local level and include special districts.
Special districts are defined as independent, limited-purpose local governments
that exist as separate legal entities with substantial administrative and fiscal independence
from general-purpose government (Marlow, 1995, p. 569). They may be created to
levy taxes and provide services typically not provided by the local government (U. S.
Census Bureau, 2011). Since 1972, special cultural districts to support arts and culture
organizations have formed in eight communities in the U. S. (Hansberry, 2000).
Variations exist between them, including sources of funds, geographic area included,
types and number of organizations supported, and distribution of funds.
Cultural districts is a term that is broadly used and may imply a variety of
things. Frost-Kumpf (1998) defined a cultural district as a well-recognized, labeled,
mixed-use area of a city in which a high concentration of cultural facilities serves as the
anchor of attraction (p. 10). However, there are many variations within this, from types
of art and culture anchors, point of genesis, and sources of funds (Frost-Kumpf, 1998;
Galligan, 2008). For the purposes of this dissertation, a definition is drawn from
Denvers Scientific and Cultural Facilities District (SCFD) because the district is well


69
documented in scholarly research (Hansberry, 2000; Martell, 2004; Moon, 2001), it is
one of eight nationally that includes an alternative to general funds to support the arts,
and it is used as a case in this dissertation. Cultural district is used to connote
collaboration among rural, suburban, and urban counties established by law and approved
by voters to levy and collect a specific tax to distribute to arts and culture organizations in
the community (Hansberry, 2000). This mechanism protects funds, removing them from
shifting political tides (Martell, 2004). For instance, in 2011, Denvers SCFD collected
the 1/10th of 1 percent sales tax and distributed $41,517,605.34 to 300 nonprofit arts and
culture organizations in the metro-area (Scientific and Cultural Facilities District, 2011).
The use of special districts as mechanisms for funding the arts is also an example of
cultural governance an institutional and financial arrangement to support local and
regional cultural resources (Moon, 2001). Districts dedicate locally collected public
resources to arts and culture for the benefit of the district.
Lotteries and gaming have been used to raise state revenues for a variety of causes.
Many states claim that public programs have benefitted from the revenue generated by
lotteries and gaming (Stanley & French, 2003). Miller and Pierce (1997) found that
states using lotteries to increase education funding did at first experience a funding
increase, but the benefits declined over time. Four states have dedicated income from
lotteries and gaming to help fund state arts agencies (National Assembly of State Arts
Agencies, 2012b). In Colorado, Iowa, and West Virginia, revenue from lotteries and
gaming are a significant stream of income (National Assembly of State Arts Agencies,
2012b). Since 1992, Iowa has earned $1.4 billion from lottery revenue, with $72.75
million in 2012 (Iowa Lottery, 2013). West Virginia reported $663 million in state


70
revenue from the lottery (West Virginia Lottery, 2012). In Massachusetts, the state
general fund is reimbursed from the lottery account for the general funds granted to the
state arts agency (National Assembly of State Arts Agencies, 2012b). In Colorado, 50
percent of gaming revenue is dedicated to the state general fund to be distributed among
nine groups, including the State Council on the Arts/Creative Industries, for their cash
fund. In 2010, this was $1,121,726 (Colorado, 2014).
Specialty license plates provide consumers with the option to visibly display their
support for a particular cause or organization. Motorists can order these for an additional
fee, a portion of which goes to the cause supported. Choices vary by state. New
Hampshire offers only one plate, while Maryland offers more than 800 (Eyler, Dodson,
S., & Brownson, 2011). Seventeen states use specialty license plates to generate revenue
for the state arts agency, but only California and Tennessee identify it as a primary source
of funding (National Assembly of State Arts Agencies, 2012b).
Income tax check-offs are another source of funds. State residents are allowed to
designate dollars from their state income tax return to specific causes, including the arts
(National Assembly of State Arts Agencies, 2012b). This is actively used in Alabama
and Virginia. California has this revenue system, but the state is holding these revenues
because they failed for two consecutive years to reach the threshold for disbursal. This
approach was used in other states but has been discontinued due to low funding returns.
Bond issues have also been passed to support the arts. These are typically
associated with capital improvements for cultural facilities (National Assembly of State
Arts Agencies, 2012b). These are usually limited in time and scope (National Assembly
of State Arts Agencies, 2012b).


71
Trust funds have been established at the state level to benefit the arts.
Endowments are built by using public funds to attract private donations or by establishing
special tax mechanisms (National Assembly of State Arts Agencies, 2012b). The money
is held in trust and generates interest that may then be distributed without reducing the
principle. Cultural trusts exist in 15 states but are generating current support in only
seven Connecticut, Indiana, Montana, Nebraska, Oregon, Texas, and Utah (National
Assembly of State Arts Agencies, 2012b).
Donations, earned income, indirect subsidies, and direct subsidies are the
principled means by which arts and culture organizations are funded in the United States.
The rate of contribution of each varies with influence from state and local approaches and
responses to individual organizations. In an effort to stabilize direct funding for the arts,
a number of state and local governments have adopted alternatives to legislative
appropriations. As governments, globally, have been forced to cut funding, arts scholars
and advocates have looked to the American model to fund the arts (Ginsburg, 2012).
The United States Model of Arts Funding and Economic Threats
Arts and culture nonprofit organizations in the United States rely on a variety of
sources of revenue. Federal patronage is based on a hybrid form that uses both direct and
indirect subsidies. Economists who favor the United States system for arts support
praise the combination of direct and indirect subsidies (Cowen, 2006; Heilbrun & Gray,
2008). First, they argue that a blended approach of support diversifies sources and
insulates organizations from erratic swings of the political pendulum. Second, indirect
tax subsidies benefit all nonprofit organizations, and individual tax deductions for
charitable donations keeps the government from favoring certain types of organizations


72
and from acting as art critics forced to judge the good, the bad, and the indecent (Cowen,
2006). Finally, 66 to 75 percent of Americans favor some form of government support,
but they prefer direct support to be distributed at a local level (DiMaggio & Pettit, 1999).
This is an important point that is overlooked by studies focusing on the NEA, federal
funding, and national, aggregate studies that fail to consider the local context of arts
funding. The local context plays an important role in determining how to support arts
and culture organizations. According to Stubbs (2013), NEA fiscal year 2013
appropriations declined 5 percent to $139 million, while aggregate state appropriations
increased more than 7 percent to $279 million, and direct expenditures on the arts by
local governments increased nearly 3 percent to $727 million. Twenty-nine state arts
agencies received state funds through some mechanism other than appropriations
(National Assembly of State Arts Agencies, 2012b). How these alternative mechanisms
relate to vulnerability and sustainability of the sector has not yet been tested.


73
Table 3.1 Mechanisms for funding state arts agencies (National Assembly of State Arts
Agencies, 2012b)
(* indicates at least 50 percent of state funding from alternative mechanism(s); Years are noted for those
instituted before 2004)
Mechanism Description States using
Legislative appropriations Competition, budget shortages, and politics are threats to this method of funding, but it is believed important for the arts to be part of the state budgeting process, raising consideration of states cultural needs. All except AZ.
Taxes and fees May come from hotel/motel fees, a percentage of state sales tax, conservation tax, corporate filing fees, income tax on out-of-state entertainers and athletes, and admissions tax programs. AR (1998), AZ*, DE, MN*, MO (1994/1998)*, MS, NJ*, NV*, SD*, WA
Lotteries & Gaming Revenue from lotteries and gaming have been used to boost state revenues and in several states, and the arts have been the beneficiaries. CO*, IA (1992), MA, WI, WV (1989)*
License Plates States offer specialty license plates for which users pay an additional fee that benefits the state arts agency or the cultural trust. AL (1996), CA (1994)*, NC, NH (2001), NV (1997)*, SC, TN (1996)*, TX
Tax Check-offs State residents are given the opportunity to direct money to the state arts agency on their state income tax return. AL (1982-2005), CA (2011, suspended 2012)*, VA (2004)
Public Trusts Active in 15 states, trusts are currently generating funds for state arts agencies in 7 states. Trusts have been funded with special taxes and state tax credits. The interest from the trusts is used to benefit endowments of local arts groups or fund special grants or education programs through the state arts agency. CT (1993), DE (1992), IN (1997), MT (1975), NE, OR (2001), TX (1995), UT (1990)
More than one Several states have implemented two of these AL (License plates 1996; Tax
alternative mechanism mechanisms. check-off 1982-2005), CA (License plates 1994; Tax check-off 2011, suspended 2012)*, NV (License plates 1997; Taxes and fees 1955)*, TX (License plates 2003, Public Trust 1995)
Financial vulnerability of arts and culture organizations is a growing concern.
Cultural economists have studied cost disease, or the income gap, among arts and
culture nonprofits. Cost disease argues that arts and culture organizations see their
labor costs escalate while productivity remains the same (A. C. Brooks, 2000a;
Heilbrun & Gray, 2001b). Admissions prices rise more slowly, causing a gap between
revenues and expenditures. Furthermore, Bowen, et al. (1994) found the average


74
annual exit rate of nonprofits, or the percent of nonprofits that ceased to operate each
year, from 1984 to 1992 to be 2.3 percent.5 The implied that annual failure rate among
nonprofit arts and culture organizations was substantially higher: 1.1 percent among
museums, 2.4 percent among theaters, 2.7 percent among dance organizations, 2.7
percent among opera companies, and 3.0 percent among ballets6. More recently,
Harrison and Laincz (2008) reported nonprofit exit rates for the period 1989 to 2000.
The United States nonprofit sector experienced an average exit rate of 2.14 percent.
Arts, culture, and humanities were treated as a single group, with an exit rate of 2.29
percent.
Scholars have operationalized vulnerability differently. Tuckman and Chang
(1991) identified a vulnerable organization as one that reduces services immediately
upon experiencing a financial shock. Greenlee and Trussel (2000) reported
organizational vulnerability when an organization reduced program expenditures in
each of three consecutive years. Hager (2001) used an organizations inability to
survive financial shock as the operationalization of vulnerability. Hager (2001)
applied the financial ratios offered by Tuckman and Chang (1991) to arts and culture
nonprofit organizations to evaluate their value in predicting the well-being of
organizations. Using data from IRS 990 tax returns, Hager (2001) calculated financial
ratios for equity balance, revenue concentration, administrative costs, and operating
5 Bowen, Turner, Nygren, and Duffy (1994) contrast this to 1.2 percent (1984-1987) and
0.8 percent (1989-1990) among for-profit organizations.
6 Bowen, Turner, Nygren, and Duffy (1994) report exit rates for 1981-1991 and then
offer an implied annual rate. Their method of calculating was to establish the average
annual rate of increase in the total number of new entrants (gross entrants) between 1981
and 1991. We then calculate the average annual rate of increase in the number of still
active organizations (surviving entrants). The average annual exit rate is the difference
between these measures (p. 101).


75
margin. Hager (2001) cautioned about broad application of his finding, noting that
even among arts and culture nonprofits, there were variations in the strength of these
ratios in predicting exit or failure. However, low equity balance predicts failure of art
museums, theaters, and music organizations. High revenue concentration is associated
with the closure of visual arts organizations, theaters, music organizations, and generic
performing arts organizations. Low administrative costs were associated with the
failure of theater and music organizations. Low operating margins were predictive of
the collapse of theaters and generic performing arts organizations.
Organizational ecology studies the environment to ascertain how the environment
influences a population of organizations. The ability to attract resources and heightened
financial vulnerability are two important issues confronting arts administrators. A deeper
understanding of how alternatives to legislative appropriations to fund state arts agencies
contribute to the ecology of nonprofit arts and culture organizations may bring better
methods for attracting necessary resources and controlling financial vulnerability.


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CHAPTER IV
DESIGN OF STUDY
Introduction
This dissertation represents an application of organizational ecology to the
population of arts and culture nonprofits for a quantitative study of the vital counts of arts
and culture nonprofits. It also investigates if state-level funding mechanisms supporting
state arts agencies impact the sustainability of the sector. Arts and culture nonprofit
organizations are an important component of contemporary life. In addition to preserving,
providing access to, and educating about art, culture, history, and science, these
organizations support initiatives and programs that benefit education, the economy, and
society. Applying organizational ecology to this population provides an evaluation of the
strength and sustainability of these organizations and identifies potential hazards to the
sector.
This section details the methodology for this study and reviews research questions
and hypotheses. It describes how organizational ecology is operationalized, the
construction of the data set, and the empirical models used for testing.
Research Questions and Hypotheses
The hazards to which arts and culture organizations are exposed have been
identified by cultural economists, organizational ecologists, arts administrators, and
advocates. Cultural economists have observed that costs are rising faster than revenues
(H. Baumol & Baumol, 1985; A. C. Brooks, 2000a; Heilbrun & Gray, 2001a) and that
revenue from private donations is shrinking (Cowen, 2006, 2007). The majority of states
use legislative appropriations to support the state arts agency. Arts advocates argue for


77
greater public support to face economic and financial challenges. Earned income has
been leveraged as a source of revenue and now produces 60 percent of revenue
(Americans for the Arts, 2012a). Alternative mechanisms have been identified as another
mechanism to insulate arts funding from sudden changes (National Assembly of State
Arts Agencies, 2012b). They have been instituted as a supplement in many states and as
a substitute for legislative appropriations in only one (National Assembly of State Arts
Agencies, 2012b). Legislative appropriations have been the prevalent form of support for
state arts agencies for the majority of their history. Just 15 states used alternative funding
mechanisms to benefit the SAA in 2003 (National Assembly of State Arts Agencies,
2012b). By 2013, that number had almost doubled, reaching 29. Therefore, entry and
exit patterns among states that use only legislative appropriations when the number of
states using alternative mechanisms was limited should resemble national averages.
Exit and turnover are natural in a population of organizations. Organizations exit
for a variety of reasons. However, when exit patterns are noticeably different than those
for other organizations, as well as for organizations within the same sector, additional
scholarship is warranted. Too much turnover reduces market efficiencies. A
sustainable population of organizations is necessary to function and contribute to shared
policy goals. These conditions prompted the formulation of four research questions and
seven hypotheses.
Research Question 1 Do the sources of revenue for state arts agencies (SAA) affect the
entry rate of arts and culture nonprofit organizations?
Hypothesis 1 The number of entries of arts and culture nonprofits
in states where alternative funding mechanisms are
in place will be higher than in states relying on
legislative appropriations.


78
Subsidy advocates, in the words of Cowen (2006), have argued that government support
of the arts is essential for survival of the sector. Beginning largely with the creation of the
NEA, this has been done via legislative appropriations (Cowen, 2006; National Assembly
of State Arts Agencies, 2012b). Most states, 48 of the 50, rely on these for part or all of
the funds allocated to the state arts agency (SAA), which in turn provides grants to arts
and culture organizations and programs (National Assembly of State Arts Agencies,
2012b). States that follow this norm should resemble the national average in terms of
entries. Alternative mechanisms, such as special taxes or fees, revenue from license
plates, lotteries and gaming, tax check-offs, and public trusts for the arts, promise more
stable revenue streams that are not subjected to political changes in the legislature and
changes in the economy (Martell, 2004). This underscores the legitimacy of the
organizations and should spur additional entries according to organizational ecologists
(Hawley, 1950).
Research Question 2 Do the sources of revenue for state arts agencies (SAA) affect the
number of state-level exits of arts and culture nonprofit
organizations?
Hypothesis 2 Exits of arts and culture nonprofits in states
in which alternative mechanisms are in place will be
lower than in states that do not.
The majority of states use legislative appropriations to support the state arts agency, as
previously stated. Therefore, exit patterns among states that rely exclusively on
legislative appropriations should resemble the national average. Alternative mechanisms
should reduce financial risks and reduce the number of exits in states where they are
present.


79
Research Question 3 Do nonprofit arts and culture organizations that receive grants
from a state arts agency experience a different rate of exit than
those that do not?
Hypothesis 3 Nonprofit arts and culture organizations receiving
grants from state arts agencies will experience fewer exits
than nonprofit arts and culture organizations not receiving
these grants.
Grants from the National Endowment for the Arts have been purported to serve as an
endorsement, or a seal of approval, and have been claimed to attract private donations
(Hershenson, 1995; Larson, 1983; National Endowment for the Arts, 2005)7. This
argument has been extended to the benefit from state arts agencies (National Assembly of
State Arts Agencies, 2010). According to claims that have been in circulation for almost
50 years, recipients of grants should have greater success in attracting private donations.
Research Question 4 Are the numbers of entries and exits of nonprofit arts and culture
organizations in a metropolitan statistical area (MSA) with a
special funding district significantly different than those for the
state?
Hypothesis 4a The number of entries of nonprofit arts and culture
organizations in an MSA will be higher than state
counts.
Hypothesis 4b The number of exits of nonprofit arts and culture
organizations in the Denver MSA will be lower than
state counts.
7 That grants from the National Endowment for the Arts serve as a Good Housekeeping
Seal of Approval has been often repeated. A review of events on the occasion of the
Endowments 40th anniversary included the grant made to the Watts Writers Group.
Founder Budd Schulberg is quoted as saying, in 1966, "The NEA provided
tremendous assistance, no question about it," says Schulberg. "It was like the
Good Housekeeping seal of approval, and it helped us gain additional private
support and also obtain help from the film industry" (National Endowment for the
Arts, 2005).


80
Alternative mechanisms to fund the arts have been created at different levels of
government (Frost-Kumpf, 1998; Hansberry, 2000; Martell, 2004; Moon, 2001; National
Assembly of State Arts Agencies, 2012b). Metropolitan statistical areas (MSAs) have
created mechanisms to support local arts and culture organizations. The stability of these
funds should encourage the formation, or entry, of arts and culture organizations and
reduce the incidence of exit among arts and culture organizations at the city-level.
The position of arts and culture nonprofits as utilitarian for the advancement of
other policy goals warrants an improved understanding of the population and ecology.
One of the most pressing and influential issues facing arts and culture nonprofits is the
ability to secure adequate, predictable, financial resources to survive. It has been
postulated that alternative mechanisms of funding will be more stable than legislative
appropriations and that this stability will benefit arts and culture organizations
(Hansberry, 2000; Martell, 2004; National Assembly of State Arts Agencies, 2012b). A
study to test these claims has not, until now, been undertaken. As an increasing number
of states and MSAs adopt alternative mechanisms to supplement or replace legislative
appropriations, these will have an increasing role in the ecology of arts and culture
nonprofits. This dissertation seeks to advance understanding of how different means of
government support contribute to sustainability.
Population
Organizational ecology empirically studies populations of organizations. These
are defined by shared organizational features, such as structures, behaviors, and members
(Hannan & Freeman, 1989). This thesis examines the population of arts and culture
nonprofits in the United States. These are defined as organizations that are identified in


81
the National Taxonomy of Exempt Entities Core Codes (NTEE-CC) as A organizations,
arts, culture, and humanities. These are further classified by decile and centile codes that
identify the organizations activity area. These codes appear in Table 4.1. The NTEE
codes are used, including the decile and centile codes, to look at the research questions
broadly (arts and culture) as well as more narrowly (museums versus performing arts),
and even more narrowly (being able to distinguish within performing arts between ballet
and symphonies, for example). This is in keeping with scholarship of organizational
ecology and arts and culture organizations (Bowen et al., 1994a; Hager, 2001).
Table 4.1 NTEE Classification of arts, culture, and humanities
A ARTS, CULTURE & HUMANITIES
A01 Alliances & Advocacy
A02 Management & Technical Assistance
A03 Professional Societies & Associations
A05 Research Institutes & Public Policy Analysis
Al 1 Single Organization Support
A12 Fund Raising & Fund Distribution
A19 Support NEC
A20 Arts & Culture
A23 Cultural & Ethnic Awareness
A24 Folk Arts
A25 Arts Education
A26 Arts & Humanities Councils & Agencies
A27 Community Celebrations
A30 Media & Communications
A31 Film & Video
A3 2 Television
A33 Printing & Publishing
A3 4 Radio
A40 Visual Arts
A50 Museums
A51 Art Museums
A52 Childrens Museums
A54 History Museums
A56 Natural History & Natural Science Museums
A57 Science & Technology Museums
A60 Performing Arts


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Table 4.1 contd
A61 Performing Arts Centers
A62 Dance
A63 Ballet
A65 Theater
A68 Music
A69 Symphony Orchestras
A6A Opera
A6B Singing & Choral Groups
A6C Bands & Ensembles
A6E Performing Arts Schools
A70 Humanities
A80 Historical Organizations
A82 Historical Societies & Historic Preservation
A84 Commemorative Events
A90 Arts Services
A99 Arts, Culture & Humanities NEC
Unit of Analysis
Organizational ecology utilizes three levels of analysis: organizational
demography, population ecology, and community ecology (Carroll, 1984).
Organizational demography attends to the life-cycle events of individual organizations,
such as birth, the liabilities of newness and smallness, status as a generalist or specialist
firm, and death (Carroll, 1984; Wholey & Brittain, 1986). Population ecology examines
the vital counts and rates of the population of organizations (Carroll, 1984). Community
ecology studies the interaction among multiple populations within a geographic area
(Carroll, 1984). This dissertation takes the approach of population ecology by studying
the entry and exit of arts and culture organizations in the United States. Many
organizational ecology studies examine populations at the national level (Bowen et al.,
1994a; Carroll & Delacroix, 1982; Delacroix & Carroll, 1983; Hannan et al., 1998;
Hannan & Freeman, 1989). However, Delacroix and Carroll (1983) argue that the
environmental unit should be established in accordance with exchange boundaries related


83
to the task environment. State and local geographic boundaries are also commonly used
to reflect the appropriate level of competition for resources (J. A. C. Baum & Oliver,
1996; Carroll & Huo, 1986; Lincoln, 1979a; Swaminathan, 1995; Swaminathan &
Wiedenmayer, 1991).
U. S. arts and culture nonprofits draw resources from the national, state, and local
levels (Cowen, 2006, 2007; Howard, 2002). National studies provide a baseline and
allow for comparison to other countries but fail to capture the variation resulting from the
state environments (Schuster, 2002). The NEA sought to and succeeded in fostering the
development of an arts agency in every state. Until 1986, the NEA appropriations were
more than the aggregate of state arts agency revenues with two exceptions (National
Assembly of State Arts Agencies, 2012a; National Endowment for the Arts, 2012b).8
After 1985, aggregate state arts agency revenues exceeded NEA appropriations every
year, indicating the growing importance of state arts agency funding. The National
Assembly of State Arts Agencies has collected and maintained data on state arts agency
revenue and state arts agency grants that enhance comparison between states (National
Assembly of State Arts Agencies, 2012b, 2013). State level analysis provides for testing
the influence of state alternative mechanisms on population dynamics of arts and culture
nonprofits. The unit of analysis for research questions one, two, and three is, therefore,
the state.
Funding alternatives have also been adopted at the local level (Hansberry, 2000;
Howard, 2002; Martell, 2004; Moon, 2001; Rushton, 2005). Currently, data at this level
8 There are two exceptions, 1971 and 1977, in which the aggregate appropriations to state
arts agencies exceeded NEA appropriations. State arts agency appropriations were equal
to an average of 78% of NEA appropriations for the period 1970 to 1985.


Full Text

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HOW WE PAY THE PIPER: THE IMPACT OF SOURCES OF GOVERNMENT FUNDING ON ARTS AND CULTURE NONPROFIT ORGANIZATIONS By BRIDGET KATHLEEN GALLAGHER A. B., College of the Holy Cross, 1995 M.B.A., University of Illinois, 1999 M. A., Christie's Education, 2003 A thesis submitted to the Faculty of the Graduate School of the University of Colorado in partial fulfillment of the requirements for the degree of Doctor of Philosophy School of Public Affairs 2014

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ii 2014 BRIDGET KATHLEEN GALLAGEHR ALL RIGHTS RESERVED

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iii This thesis for the Doctor of Philosophy degree by Bridget Kathleen Gallagher has been approved for the School of Public Affairs by Jessica E. Sowa, Dissertation Chair Mary Guy, Examination Chair Peter deLeon Todd Ely Mark Rosentraub Date: May 2, 2014

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iv Gallagher, Bridget Kathleen (Ph. D., Public Affairs) How We Pay the Piper: The Impact of Sources of Government Funding on Arts and Culture Nonprofit Organizations Thesis directed by Associate Professor Jessica E. Sowa ABSTRACT Nonprofit sustainability, or survival, has attracted increased scholarly attention. Government resources are shrinking, and the public sector is increasingly relying on the nonprofit sector to provide goods and services. Nonprofit arts organizations are not excluded from this trend. Historically, the arts have relied on private donations with limited direct government support. The majority of government support for arts and culture organizations derives from legislative appropriations, a system suscepti ble to sudden changes driven by economic and political changes. Recognizing the broader social and public good provided by arts and culture nonprofits, a number of states have created alternative methods for supporting their state arts agencies. Twenty n ine states have instituted at least one alternative mechanism as a supplement or alternative to legislative appropriations. As governments leverage arts and culture for a variety of policy agenda, it is an appropriate time to evaluate the sustainability o f arts and culture nonprofits and investigate the relationship between systems of funding the arts and organizational population patterns in order to determine if the mechanisms by which government funds are generated have an impact on the entry or exit of nonprofit arts and culture organizations. This dissertation is undertaken to assess whether the presence of alternative mechanisms funding state arts agencies (SAAs) improves the sustainability and survival of arts and culture organizations.

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v The form an d content of this abstract are approved. I recommend its publication. Approved: Jessica E. Sowa

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vi To my family

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vii ACKNOWLEDGMENTS I would like to begin by thanking Jessica Sowa, Peter deLeon, Todd Ely, Mary Guy, and Mark Rosentraub for serving on m y dissertation committee and advising me throughout the development and execution of this dissertation. First, I wish to express my thanks to my chair, Jessica Sowa, who provided guidance and encouragement throughout my time in the School of Public Affair s and during the development and completion of this study. Peter deLeon, who started me on this journey by extending to me an offer to study at SPA that I could not turn down, continued to shepherd me with comments on my manuscript and insights on the pro cess. Todd Ely generously granted me access to the NCCS data and counseled me on ways to improve my methods and analyses. I benefitted from Mary Guy's example as a scholar and a teacher through my semester as her teaching assistant as well as her review of this dissertation. Special thanks to Mark Rosentraub, my external reader, for sharing his expertise on the quantitative scholarship of sports and cultural amenities. I have benefitted immensely from the mentoring each of you generously gave. I also wish to thank all of the staff members who make the School of Public Affairs at the University of Colorado Denver such a wonderful place to study and work. Gabrielle Sawusch, Jeannie Paradeis, Rose Segawa, Sarah Kirchner, Dawn Savage, and Antoinette Sand oval, in addition to performing the work that keeps students registered and learning and providing alerts regarding obligations and opportunities, you have offered encouragement when it is needed. It wouldn't have been the same experience without you.

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viii Th ere are, of course, other faculty who were not part of my dissertation committee who played some role in bringing me to this point. Joanna Ziegler (College of the Holy Cross), Kent Monroe (University of Illinois, Urbana Champaign), and Veronique Chagnon B urke (Christie's Education) each helped me as I advanced my knowledge of art and its many roles in society. I thank you for believing in and supporting me. I also must thank my student (some now faculty) mentors who generously shared their knowledge, e xperience, and resources. Thank you to my fellow students at the School of Public Affairs. Specifically, thanks are due to the members of my cohort: Teri Bolinger, Mark Davis, Maureen Ediger, Kelly Harp, Lucy Kinsella Mermagen, Ashley Tunstall, and Laura Valcore. After sitting shoulder to shoulder through seminars, I can't imagine the experience without you all! Carrie Chapman, Kate Cope, and Allison Tung proved Mary Poppins correct: a spoonful of sugar, an essential ingredient in pie, makes the medicin e go down. While in different programs, I am grateful to have shared the experience with Sarah Nathan. Jasmine McGinnis Johnson was unbelievably generous sharing her experience and countless resources since we met. Thank you for being a mentor and frien d. I am grateful for the financial support from the School of Public Affairs. The research assistantship and teaching opportunities provided much needed experience and resources. The travel grants from the School of Public Affairs and the Graduate School af forded the opportunity to attend annual meetings of ARNOVA and meetings and doctoral consortiums at the Academy of Management, the Association for Cultural Economics International, and the International Society for Third Sector Research. These

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ix were tremen dous opportunities to see the emerging research in the field and garner insights into the academic job market and the profession. My thanks go to staff members at state arts councils and agencies, the National Assembly of State Arts Agencies, and the Sc ientific and Cultural Facilities District (SCFD) for responding to requests for information. Special thanks to Jim Bob McMillan at the Texas Commission on the Arts who responded to a request for data with the recommendation that I contact Ryan Stubbs and the National Assembly of States Arts Agencies. I am indebted to Mr. Stubbs and Kelly Liu, his associate, who provided the data that made it possible to answer the third research question in this dissertation. And to Sheila Mieger, at the SCFD, who provid ed me with access to the annual reports unavailable at the Denver Public Library, thank you. Finally, I am blessed with the support of amazing family and friends. I am grateful to each of you for the support, counsel, and assurance you have given. Thank you for believing in me and understanding when letters, emails, and calls were not sent or made with the frequency I would have liked over the past five years. Tom, Sarah, and Thomas, this has been a journey we have shared. You made it possible fo r me to pursue my Ph. D. with sacrifices of your own and your willingness to adapt as needed. I hope you will always have the same unquestioning support you have given to me.

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x TABLE OF CONTENTS CHAPTER I INTRODUCTION.. .. 1 Overview ................................ ................................ ................................ ......................... 4 Impetus for Research ................................ ................................ ................................ ...... 8 Structure ................................ ................................ ................................ ........................ 11 II THE ECOLOGY OF ORGANIZATIONS ...... 13 Introduction ................................ ................................ ................................ ................... 13 Ecology of Organizations ................................ ................................ ............................. 14 Cultural Economics ................................ ................................ ................................ ....... 16 Organization Ecology ................................ ................................ ................................ ... 23 Age, Inertia, and Selection ................................ ................................ ............................ 30 Density, Competition, Resource Partitioning, and Niches ................................ ........... 35 Analytic Methods of Organizational Ecology ................................ .............................. 40 Organizational Ecology of Nonprofits ................................ ................................ .......... 41 Assumptions and Limitations of Organizational Ecology ................................ ............ 44 Institutional Demographics of the Arts ................................ ................................ ......... 45 Conclusion ................................ ................................ ................................ .................... 47 III THE ECOLOGY OF ARTS AND CULTURE NONPROFITS . 50 Introduction ................................ ................................ ................................ ................... 50 His tory of Funding for Arts and Culture Nonprofits in the United States .................... 53 Early History ................................ ................................ ................................ ............. 54

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xi Advances in the Twentieth Century ................................ ................................ .......... 55 Formation of the NEA ................................ ................................ .............................. 58 Culture Wars ................................ ................................ ................................ ............. 60 Sources of Funding for U.S. Arts and Culture Nonprofits ................................ ........... 61 Indirect Subsidies ................................ ................................ ................................ ...... 62 Direct Subsidies ................................ ................................ ................................ ........ 64 Earned Income ................................ ................................ ................................ .......... 66 Alternative Funding Sources ................................ ................................ ..................... 67 The United States Model of Arts Funding and Economic Threats ........................... 71 IV DESIGN OF STUDY ... 76 Introduction ................................ ................................ ................................ ................... 76 Research Questions and Hypotheses ................................ ................................ ............ 76 Population ................................ ................................ ................................ ..................... 80 Unit of Analysis ................................ ................................ ................................ ............ 82 Description of Data ................................ ................................ ................................ ....... 84 Measures ................................ ................................ ................................ ....................... 93 Empirical Model ................................ ................................ ................................ ........... 94 Limitations ................................ ................................ ................................ .................... 97 Alternative Mechanisms, Direct Subsidies, and Organizational Ecology .................. 100 V FINDINGS .. 101 Introduction ................................ ................................ ................................ ................. 101 Entry and Alternative Mechanisms for Funding State Arts Agencies ........................ 102 Exit and Alternative Mechanisms for Funding State Arts Agencies .......................... 107

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xii Comparing Entries and Exits ................................ ................................ ...................... 112 Exit and Direct Grants from State Arts Agencies ................................ ....................... 113 Rates of Entry and Exit and MSA level Alterna tive Mechanisms ............................. 115 Comparing State and MSA Entries and Exits ................................ ............................. 120 VI POPULATION PATTERNS . 123 Introductio n ................................ ................................ ................................ ................. 123 Entry, Exit, and Population Strength ................................ ................................ .......... 124 Entries ................................ ................................ ................................ ..................... 125 Exits ................................ ................................ ................................ ........................ 135 An Example ................................ ................................ ................................ ............ 142 Niches ................................ ................................ ................................ ..................... 144 Direct Beneficiaries ................................ ................................ ................................ .... 149 Levels of Analysis: State and Local Interactions ................................ ........................ 151 The Contributions of Alternative Funding Mechanisms to Sustainability ................. 152 Organizational Theory a nd Arts and Culture Nonprofits ................................ ........... 158 Limitations ................................ ................................ ................................ .................. 160 Implications ................................ ................................ ................................ ................. 163 Conclusion ................................ ................................ ................................ .................. 165 VII CULTURAL POLICIES BOON OR BUST 166 Introduction ................................ ................................ ................................ ................. 166 Policy Influences on Populations ................................ ................................ ................ 168 Vulnerability Revisited ................................ ................................ ............................... 171 Arts and Culture Sustainability ................................ ................................ ................... 175

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xiii What Does Sustainability Mean for the Arts? ................................ ............................ 176 State Arts Agency Support and Sustainability ................................ ............................ 179 Research Opportunities ................................ ................................ ............................... 182 Conclusion ................................ ................................ ................................ .................. 185 REFERENCES 188

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xiv LIST OF TABLES TABLE 3.1 Mechanisms for funding state arts agencies ...... 73 4.1 NTEE Classification of arts, culture, and humanities ......81 82 4.2 Descriptive Statistics for Variables Used in Analysis of Arts and Culture Nonprofit Entries and Exits (Research Questions 1 and 2) ...88 4.3 Descriptive Statistics for Variables Used in Analysis of Exits by Grant Recipients Compared to th e General Population 1995 2004.91 4.4 Descriptive Stat istics for Analysis of Entries & Exits in the SCFD and Rest of the State..92 4.5 Variables .......88 5.1 Annual number of ar ts and culture organization entrants and rate on ent ry.....103 5.2 State low and high rates of e ntry......104 0 5 5.3 Negative Binomial Regression Model of Nonprofit Ent ries and Alternative Mechanisms 106 5.4 Annual number of arts and culture organization exits and rate of exit .108 5.5 Annual number of arts and culture organization ex its and rate of exit .........10 9 5.6 Rates of exit among sub populations of arts and cultur e nonprofits .110 5.7 Negative Binomial Regression Model of Nonprofit Arts and Culture Exits and Alternative Mechanisms 111 5.8 Annual number of arts and culture organization exits and rate of exit ........114 5.9 Negative Binomial Regression Model of Nonprofit Exits and Grants ..115 5.10 Negative Binomial Regression Model of Nonprofit Entries with an MSA Alternative Mechanism ..116 5.11 Annual number of Colorado and SCFD arts and culture organization entrants and rate of entry ..117

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xv Table 5.12 Annual number of Colorado and SCFD arts and culture organization exits and exit rates ...119 Table 5.13 Negative Binomial Regression Model o f Nonprofit Exits with an MSA Alternative Mechanism ...120 Table 5.14 Hypotheses and Findings . ..122 6.1 Rates of exit among sub populations of arts and cu lture nonprofits ........144

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xvi LIST OF FIGURES FIGURE 3. 1 NEA annual appropriations ... .61 5.1 Annual number of entrants ...... 103 5.2 Annual number of exi ts ......108 5.3 Composite growth of annual number of entries an d exits ......113 5.4 Annual number of exits . ... ..114 5.5 Colorado and SCFD entries ........117 5.6 Colorado and SCFD ex its .......119 5.7 Composite graph of the number of Colorado and SC FD entries and exits ......121 6.1 Number of arts and culture nonprofits enterin g the US market ........126 6.2 Comparing select state exits to nati onal averages ......131 6.3 Number of arts and culture nonprofits exit ing the US marke t ...........136 6.4 Comparing select state exits to nati onal averages ......137 6.5 Number of arts and culture nonprofits enteri ng/exiting Nevada .........143 6.6 Number of arts and culture nonprofits entering and exiting the US market ... .. .. 147 6.7 Twenty years of government support for the arts: Federal, state, and local (1994 to 2013) ... .. ..... 148

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xvii LIST OF ABBREVIATIONS E IN .Employer Identification Number GDP. Gross Domestic Product IRR.Incidence Rate Ratio IRS ..Internal Revenue Service NASAA .. .....National Assembly of States Arts Agencies NCCS .. ..National Center for Charitable Statistics NEA .. ...National Endowment for the Arts NPO . ....Nonprofit Organizations NTEE .. National Taxonomy Exempt Entities OLS .. Ordinary Least Squares SAA .. ....State Arts Agency SCFD . .. Scientific and Cultural Facilities District WPA .. ......Works Progress Administration

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CHAPTER I INTRODUCTION Sustainability, or organizational survival, is an imperative concern for all organizations, be they private, public, or nonprofit (Kaufman, 1991) Increasingly, the survival of organizations in the nonprofit sector is also important to policy makers, as these organizations are being used to address public problems and deliver publicly funded services and programs to the population (Gazely & Brudney, 3 September 2007; Milward & Provan, 2000) However, at a time of growing reliance on the nonprofit sector, government resources to support their work have been shrinking. The number of nonprofit organizations increased by 24 percent between 2000 and 2010 (Urban Institute, 2012) Budget deficits and sequestration are resulting in reduced government distributions (Donovan, 2013; Ginsburg, 2012) Growth in the sector and shrinking government resources have increased competition, raising questions on how this dynamic impacts the delivery of services and programs (Saxton & Benson, 2005) This phenomenon is no less true in the arts and culture subsector, specifically those organizations ide ntified by the National Taxonomy of Exempt Entities as group A arts, culture, and humanities. The classic mission of arts and culture organizations is to provide access to and deliver education on arts and cultural material (Garber, 2008; Larson, 1983) More recently, they have been used to advance goals in other areas, such as education, urban revitalization, and economic development (Belfiore, 2002, 2004; Colorado Department of Education & Colorado Council on the Arts, 2008; Rosentraub, 2009) The instrumental attachment of arts and culture to broader social issues raises the question of whether the existing, li mited government financial support for arts and

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2 culture organizations is sufficient and whether increased support is needed Historically, the arts have relied on private donations ( Cowen, 2006 ). Direct government support has been limited and subject to major fluctuations as a result of changes in the economy and political trends (Cowen, 2006; Martell, 2004) The majority of government support for arts and culture organizations comes in the form of legislative appropriations, distributed by government agencies as grants to artists, arts and culture organizations, and art or cultural programs (National Assembly of State Arts Agencies, 2012b) This approach to funding has been criticized for susceptibility to rapid, drastic changes (Martell, 2004; National Assembly of State Arts Agencies, 2012b; Wallis, Weems, & Yenawine, 1999) Kaufman (1991) speculated that the most probable cause of organizational failure is inadequate access to resources. Resource challenges have been demonstrated to be a critical challenge in the arts and culture sub sector of the nonprofit sector. Cultural economists have explained many of the economic conditions that threaten the survival of arts and culture organizations. They held that the expens es of arts and culture organizations are rising at rates faster than ticket prices and that the increased need has not been matched by private donations (H. Baumol & Baumol, 1985; A. C. Brooks, 2000a; Heilbrun & Gray, 2001b) Private donations may be influenced by government subsidies, but it is not clear whether they do so positively or negatively (Abrams & Schit z, 1978; Abrams & Schmitz, 1978, 1984; Andreoni, 1993; Andreoni & Payne, 2003, 2011; Borgonovi, 2006; Borgonovi & O'Hare, 2004; A. C. Brooks, 2000c, 2003; Dokko, 2009; P. N. Hughes & Lukestich, 1999) Financial management research in nonprofit studies provides additional measures by which to assess risk and vulnerability (Hager, 2001; Tuckman & Chang, 1991)

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3 Economic methods have been applied to measure the contributions of arts and culture and quantify their impact (Americans for the Arts, 2007; AmericansfortheArts, 2007; Cohen, Schaffer, & Davidson, 2003; Florida, 2004; Markusen & Gadwa, 2010a; Markusen & King, 2003; Rushton, 2008; Vlasic, 2010) To serve the organizational mission and multiple policy goals, arts and culture nonprofits must acquire and sustain the resources needed to remain operational. To this end, arts and culture nonprofits have, as a group, diversi fied their revenue streams, adopted entrepreneurial practices, and resorted to modifying the types and frequency of programs offered (J. Lowell & Ondaatje, 2006; J. F. Lowell, 2008) In spite of these alterations, many arts and culture organizations continue to struggle for survival. For example, as governments leverage a rts and culture for a variety of policy agenda, it is an appropriate time to evaluate the sustainability of arts and culture nonprofits and investigate the relationship between systems of funding the arts and organizational population patterns to determine if the mechanisms by which government funds are generated have an impact on the entry or exit of nonprofit arts and culture organizations. Recognizing the broader social and public good provided by arts and culture nonprofits, a number of states have cre ated alternative methods to support their state's arts agencies (National Assembly of State Arts Agencies, 2012b) These methods derive from five stand ard sources: special taxes and fees; lotteries and gaming; specialty license plates; income tax check offs; and public cultural trusts (National Assembly o f State Arts Agencies, 2012b) Twenty nine states have instituted at least one of these mechanisms as a supplement to legislative appropriations (Natio nal Assembly of State Arts Agencies, 2012b) These alternatives produced at least half of the funding of ten state arts agencies

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4 in fiscal year 2012 (N ational Assembly of State Arts Agencies, 2012b) This dissertation is undertaken to assess whether the presence of alternative mechanisms funding state arts agencies (SAAs) improves the sustainability and survival of arts and culture organizations. T he significance of government created alternative mechanisms as a means of earmarking support for arts and culture nonprofits is not understood. This thesis poses the research question, "Do alternative mechanisms for funding the state arts agency impact t he rate at which nonprofit arts and culture organizations form and/or fail?" Are all arts and culture organizations within the state affected by these alternative mechanisms, or are there different implications for those receiving grants and for those tha t do not receive grants from the state arts agency? This introduction summarizes the rationale for this study, addresses the expected contributions of this dissertation, and stipulates research questions, hypotheses, assumptions, key variables, and the me thod used to explore the questions. Overview Arts and culture organizations are being used to achieve policy goals in other substantive areas other than the arts. For example, it has been demonstrated that students who have taken an arts class are more likely to graduate from high school (Colorado Department of Education & Colorado Council on the Arts, 2008) The arts have been used successfully to propel the economy (Florida, 2004; Markusen & Gadwa, 2010a; Markusen & King, 2003) and to revitalize economically depressed urban areas (Rosentraub, 2009) Arts and cultural programs have also been used to cultivate social cohesion by providing access to arts and culture regardless of socio economic status

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5 (Belfiore, 2002) To consistently serve these broader social and economic goals over a sustained period, the arts and culture sec tor needs to be a dependable source of support. Bowen et al. (1994b) produced a study of nonprofit institutional demographics, including the rates at which organizations enter and exit the market. Their analysis of the nonprofit ecology identified influential variables that contribute to an organiz ation's life expectancy. Studies of institutional demographics, including the rates at which organizations enter and exit the market, provide insight into the dynamics of organizational survival and the overall structure of nonprofit ecology (Archibald, 2007; Bowen, Nygren, Turner, & Duffy, 1994a; Bowen et al., 1994b; Potter & Crawford, 2008) Whi le these studies have highlighted many factors, they have not explored the relevance of revenue and expenditures. Revenue and expenditure patterns are important predictors of organizational survival, as access to necessary resources is essential for organ izational endurance. Larger revenues typically create a cushion if financial shock occurs, allowing the organization to continue (Greenlee & Trussel, 2000; Hager, 2001; Trussel, 2003; Tuckman & Chang 1991) Similarly, organizations with larger expenditures have greater opportunity to find places in which they can make reductions and where smaller organizations may already be surviving with the least possible spending (Greenlee & Trussel, 2000; Hager, 2001; Trussel, 2003; Tuckman & Chang, 1991) Both revenue and spending are typically linked to an organization's size so it is not surprising that size is related to survival (Freeman, Carroll, & Hannan, 1983; Hannan, 1998) Vital statistics vary with field and sub populations (Bowen et al., 1994a; Carroll & Delacroix, 1982; Carroll & Hannan, 2000; Carroll & Huo, 1986; Delacroix & Carroll, 1983; Hannan, Carroll, Dobrev, & Han, 1998; Hannan & Freeman, 1977, 1984, 1989; Swaminathan,

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6 1995; Swaminathan & Wie denmayer, 1991) The behavior of arts and culture nonprofit organizations, as a group, differs from that of other categories of nonprofits. In addition, within the group, additional distinctions are v isible between large and small organizations as well as between museums and ballets, for instance. The study of organizational ecology reports the size of populations and the rates at which events occur in an effort to explain the appearance, survival, and demise of organizational forms. Analyses by this approach identify variables that improve sustainability or raise vulnerability. Bowen et al. (1994) applied this theory to the population of nonprofits. Their study revealed increased incidence of exi t among nonprofits in general and among arts and culture organizations in particular. In the interim, the practice of using arts and culture to benefit diverse social issues has become common (Belfiore, 2002, 2004) while little attention has been dedicated to potential threats of this approach. In the inter est of a synergistic relationship and the achievement of goals, a sustainable population is needed. The vulnerability of arts and culture nonprofits has been linked to economic and financial challenges (H. Baumol & Baumol, 1985; A. C. Brooks, 2000a; Hager, 2001) As such, cultural economists, arts advocates, and policy makers are searching for improved funding models (J. Lowell & Ondaatje, 2006; J. F. Lowell, 2008; National Assembly of State Arts Agencies, 2012b) Evaluating how different funding models contribute to the ecology and impact rates of entry and exit of nonprofit arts and culture organizations increases our understand ing and improves the sustainability of the field. Arts organizations in the United States at present survive by a composite of revenues that include private gifts and donations, indirect government subsidies (such as

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7 tax deductions for donors and tax ex empt status for the nonprofit organizations), and direct government subsidies (Cowen, 2007) On average, direct subsidies from all levels of government contribute 14 percent of arts and culture revenue (Cowen, 2007) Much of this money is channeled through the National Endowment for the Arts (NEA) and state arts agencies (SAA), which then distrib ute the money as grants to nonprofit arts and culture organizations. Public arts agencies are commonly funded via legislative appropriations. Government appropriations currently contribute a median of 8 6.4percent of all state funding for state arts age ncies (National Assembly of State Arts Agencies, 2012b) Appropriations to the arts are considered at risk, however, due to changing political support (Martell, 2004) In instances where funding has been drastically cut and even eliminat ed in a single year, arts agencies and their beneficiaries are exposed to high levels of uncertainty (National Assembly of State Arts Agencies, 2012a, 2012b) This is a pro blem for long term survival and requires an examination of the impact of this uncertainty. The Culture Wars of the 1980s and 1990s, as they are now known, epitomize the ways in which political support can significantly alter government appropriations. Th e National Endowment for the Arts (NEA) made a number of grants in the 1980s and 1990s to artists many viewed as controversial, including Robert Mapplethorpe, Andres Serrano, and Annie Sprinkle (Wallis et al., 1999) In an era of political conservatism, these grants fueled debates over decency, the role of the gover nment as patron to the arts, and the very legitimacy of the NEA itself (Wallis et al., 1999) The NEA budget was cut from the high, in 1992, of $175,954,680 to $97,966,000 in 2000 (National Endowment

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8 for the Arts, 2 012b) Political contests over arts funding occur at all levels of government. As such, arts and culture organizations need to do more to secure stable sources of funding. Alternative sources of revenue may produce greater stability in public fundin g with less susceptibility to the influence of political rhetoric. Alternative mechanisms to generate funding, described earlier in this chapter, have been created to support the arts and have been instituted at the state and local levels (National Assembly of State Arts Agencies, 2012b) How these systems for diversifying funding influence the entry and exit of arts organizations has been largely untes ted. Their potential to dedicate resources without fear of political contests may control one of the threats faced by arts and culture organizations. An evaluation of the influence of alternative funding mechanisms on the arts and culture nonprofit can help assess the potential of alternative mechanisms to increase sustainability. Impetus for Research As stated, arts and culture organizations serve multiple roles in modern society. The a rts were once considered a luxury that, according to Enlightenm ent philosophy, elevated civilization. John Adams wrote to his wife Abigail in 1780: I must study politics and war, that my sons may have the liberty to study mathematics and philosophy, geography, natural history, naval architecture, navigation, commerc e, and agriculture, in order to give their children a right to study painting, poetry, music, architecture, statuary, tapestry, and porcelain. (National Endowment for the Arts, 1965, p.3) Familiarity with the arts was a badge of social and intellectual s tatus (Blair, 1994; K. D. McCarthy, 1991; L. B. Mi ller, 1974) Similarly, Florida (2004) asserts that the presence of a ballet, a symphony, and an art museum served to demonstrate civic status. Arts a nd

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9 culture organizations were once tasked with preserving the accomplishments of the past and providing access, interpretation, and education to the public. The a rts have been proven to serve in a larger capacity, contributing to education, the economy, and quality of life. With this expanded role and potential benefits, it is necessary to build a more comprehensive knowledge of the arts and culture sector. An extensive literature exists on cultural economics, but evaluating how sources of government funding relate to an organization's survival has received little attention. In this dissertation, I bridge two areas of research by incorporating organizational ec ology with cultural economics. Both contribute to the development of the quantitative models and the interpretation of the findings. Organizational ecology uses statistical analyses to understand environmental factors that contribute to the birth, transf ormation, and death of organizational forms (Carroll, 1984; Carroll & Hannan, 2000; G. R. Carroll & O. Khessina, 2005; Hannan & Freeman, 1989; Potter & Crawford, 2008; Singh & Lumsden, 1990) The major influences on the vital statistics of organizations have been identified as inertia, density, competition, and niche (Carroll, 1984; Carroll & Hannan, 2000; G. R. Carroll & O. Khessina, 2005; Hannan & Freeman, 1989; Hannan, Polos, & Carroll, 2007) To date, organizational ecology has been predominantly applie d to cases from the private sector, but it is not necessarily limited to these organizations. Survival is of equal importance to all organizations, regardless of their sector (Archibald, 2007; Potter & Crawford, 2008; D. H. Smith, 2000) As the size and scope of the nonprofit sector expands, understanding their population and environmental influence is important. Arts and culture organizations are not self sustaining The instrumental attachment

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10 of arts and culture to multiple areas assumes a reliable and sustainable sector. Economic threats and potential challenges pose multiple tests for this supposition. The application of organizational ecology affords an ideal means by which to analyze environmental influences on the sustainability of the sector. This dissertation explores the relationship between sources of government funds (legislative appropriations, taxes and fees, license plate fees, revenue from lotterie s and gaming, tax check offs, and special trust funds) and the vital rates of the population of arts and culture nonprofits. Understanding the influence of funding policies on the ecology of arts and culture nonprofits provides for the evaluation of what i s successful and where improvements can be made, enhancing the sustainability of the sector. The sustainability of arts and culture nonprofits has been explored most frequently with economic approaches. These have included motivation and crowding, cost disease, and financial ratios identifying financial vulnerability. Empirical studies addressing changes in the number and types of arts and culture nonprofits, however, are limited (Bowen et al., 1994a) Arts and culture have achieved renewed enthusiasm th rough their links to other policy goals. As arts and culture are used to spur innovation (Florida, 2004) drive the economy (Florida, 2004; Markusen & Gadwa, 2010a; Markusen & King, 2003) revitalize urban areas (Rosentraub, 2009; Ryzi k, 2010) and improve education (Colorado Department of Education & Colorado Council on the Arts, 2008) and quality of life (Belfiore, 2002; Florida, 2004) the vital statistics for the population have likely changed. What is the impact of particular sources of government funds on the population of arts and culture nonprofit organizations in the United States? The following questions are the central focus of this dissertation. Do the sources of revenue for state arts agencies

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11 (S AA) affect the entry rate of arts and culture nonprofit organizations? Do the sources of revenue for state arts agencies (SAA) affect the number of state level exit s of arts and culture nonprofit organizations? Do nonprofit arts and culture organizations that receive grants from a state arts agency experience a different rate of exit than those that do not? Is the number of entries and exits of nonprofit arts and culture organizations in a metropolitan statistical area (MSA) with a special funding district significantly different than that for the state? This dissertation advances our understanding of the basic demographics of arts and culture organizations in th e United States and tests the relationship between vital statistics and sources of government funding. Structure In this dissertation, I examine whether the mechanisms generating government funding for state arts agencies influence the vital statistics of the population of arts and culture nonprofit organizations. Furthermore, I explore whether all organizations within this population are equally affected or if differences occur between groups receiving state arts agency grants and those that do not. The thesis hypothesizes that government units using alternative mechanisms to fund their state arts agency will have higher rates of entry, or formation, and lower rates of exit, or closure, than those in states that rely on legislative appropriations. Furthermore, I propose that nonprofit arts and culture organizations receiving grants from state arts agencies will be less likely to exit th an those not receiving state funds. Finally, this approach examines how the vital counts of arts and culture organizations in a city with an alternative mechanism for funding the arts compare to those of the state. An organizational ecological framework is used to study this population to describe the life cycle The dependent variables are the rates of entry

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12 and exit. The key independent variables are the presence or absence of alternative mechanisms funding the state arts agencies, including special t axes and fees, specialty license plate fees, revenue from lotteries and gaming, tax return check offs, and publicly funded trusts benefiting arts, culture, and humanities organizations.

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13 CHAPTER II THE ECOLOGY OF ORGANIZATIONS Introduction Arts and c ulture organizations are symbiotic with public benefit in multiple dimensions. They are historically used in tandem to benefit education, but more recently, they have addressed the revitalization of urban areas and how to drive the economy (Belfiore, 2002; Colorado Department of Education & Colorado Council on the Arts, 2008; Florida, 2004; Markusen & Gadwa, 2010a; Markusen & King, 2003; Rosentraub, 2009) As the art s have demonstrated their contributions to these social problems and others, they have been increasingly attached to policy areas such as education, economic development, and social unity in diverse communities (Belfiore, 2002, 2004) Instituting public policies that use arts and culture in these areas shoul d be done after ensuring the reliability and sustainability of the sector (K. F. McCarthy, Ondaatje & Novak, 2007; Ragsdale, 2009) Among nonprofits, sustainability is defined as the ability to survive and continue to serve the organization's stakeholders in accordance with its mission (Bell, Masaoka, & Zimmerman, 2010; Weerawardena, McDonald, & Mort, 2009) Vulnerabilities, or weaknesses, that inhibit these efforts need to be included in poli cy development and evaluations. Threats to the survival of arts and culture nonprofits stem from economics and public perceptions of value. Rising production costs, decreasing participation rates, and changes in sources and reliability of funding h ave forced these organizations to alter their operations and scholars to investigate causes and consequences. Cultural economists have addressed questions about the sustainability of arts and culture nonprofits. The earnings gap, when the costs of certai n industries rise faster than revenue (H. Baumol &

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14 Baumol, 1985; A. C. Brooks, 2000a; Heilbrun & Gray, 2001b) the motivation crowding effect of public subsidies on private donations (Andreoni & Payne, 2011; Borgonovi, 2006; Borgonovi & O'Hare, 2004; A. C. Brooks, 1999, 2000b, 2000c, 2003; Dokko, 2009) contingency valuation and willingness to pay (Bille Hansen, 1997; Schwer & Daneshvary, 1995; Throsby, 2003) and indicators of financial vulnerability (Hager, 2001) are threats to the sustainability of arts and culture nonprofits t hat scholars have explored. Cultural economics provides a rich understanding of the conditions and risks faced by arts and culture nonprofits in the contemporary world. Cultural economics have, since the publication of Performing arts: The economic dile mma by Baumol and Bowen (1966) addressed the economic concerns of arts and cultural organizations (Heilbrun & Gray, 2001b) These conditions have not, however, been connected to population dynamics or to the rates at which nonprofit arts and culture organizations are formed or exit. Cultural economics has proven the threat and risks to individual arts organizations. Connecting this to population size and life cycle can facilitate the creat ion of better cultural policies. Ecology of Organizations Organizations are posited to be the engines of civilization (Hannan & Freeman, 1989) Through organizations, people cooperate to attain goals (Hannan & Freeman, 1989) Organizations establish the rules and norms by which people behave (Hannan & Freeman, 1989; North, 1990; Sco tt, 2008) making it virtually impossible to overstate their significance. Early theories of organizations assumed that systems were closed. In this construction, theorists presume that the external environment is stable and does not

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15 influence an orga nization's function (Fry & Raadschelders, 2008; Shafritz & Hyde, 2009; Taylor, 1919 ) This was challenged in the 1960s when open systems theory argued for inclusion of environmental variables (Scott, 2008) The assumption of a stable system was dismissed by Thompson (1967), who wrote: "Uncertainty appears as the fundamental problem of complex organizations, and coping with uncertainty, as the essence of the administrative process" (p. 159) Proponents of an open system advanced the importance of including t he environment in the study of organizations (Scott, 2008) Organizations do not operate in isolation, i mmune to forces such as the economy, policies, and competition. Organizational theorists integrated the role of the environment as an influence on organizations. By the 1970s, Hannan and Freeman's (1977) seminal work on organizational ecology noted that the influence of the environment on organizations had reached a central place in research and scholarship. In their influential article, Hannan and Freem an (1977) argued that ecological approaches rely on the process of understanding environmental influence on the distribution of organizations and the limit ations on organizational structures over time. Competition for organizational resources results in a process similar to natural selection. These dynamics are measured with vital statistics, the rates at which organizations enter and exit the environment, capturing such dynamics as growth, population density, niche development, and resource partitioning. Organizational ecologists conduct their analyses on populations. The population of organizations, bound by industry and geography, serves as the unit of analysis (Hannan and Freeman, 1977). Past applications of this comprehensive approach have underscored the significance of environmental variables on the formation, growth, and

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16 decline of populations. This chapter briefly summarizes cultural economic s as it pertains to the study of sustainability. The concept of populations, their boundaries, and the vital statistics used to measure change are presented. The significance of age, inertia, and selection to populations of organizations is reviewed, and density, competition, niche, and resource partitioning as important environmental factors are identified. The research methods used in organizational ecology are summarized. Organizational ecology has been applied to populations within the nonprofit sec tor. Attention is given here to these studies, and the concept is then related to the population of arts and culture nonprofits. This demonstrates the appropriateness of organizational ecology as a research approach while detailing how this dissertation advances the theory of organizational ecology. Cultural Economics Economics is an important environmental variable for organizations and arts, and culture organizations are no exception. Cultural economics, the relation of culture to economic results, has been used to better understand the cross sector population of organizations that produce, protect, curate, and foster heritage ; the creative arts ; the performing arts ; and associated industries and the transactions between relevant parties in this field (Association for C ultural Economics, n/d) While many research questions have been posed (e.g., the extent of the earnings gap of arts and culture organizations, how private philanthropy is influenced by government funds, to what extent the public is willing to pay for arts and culture, and the ability of arts and culture to revitalize urban areas and contribute to the economy) and a variety of methods and approaches have been used to explain the transactions related to this industry, the one enduring theme has been the role and influence of government support of the arts. Contingent valuation,

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17 motivation and crowding, and economic impact studies have made substantial contributions to the discussion. Contingent Valuation Contingent valuation surveys ask the public to identify preferences and a willingness to pay (WTP) for amenities or benefits. It assumes an economy of rational, individual, utility maximizing decision makers (Throsby, 2003) Noonan (2003) notes the prevalence and problems posed by poor definition and question development in the surveys u sed. This may be compounded by the innate challenges of conceptualizing and operationalizing cultural goods (Frey, 2000) Throsby (2003) articulates how the role of information in decision making presents a critical problem. It is well known that the amount of information provided to respondents in CVM has a critical effect on their WTP judgments, with the general assumption being that better informed ju dgments are more useful than ill informed ones. But it has long been asserted that a distinguishing feature of cultural goods is that acquiring a taste for them takes time, i.e. they are classed as experiential or addictive goods, where demand is cumulati ve, and hence dynamically unstable. If these demand conditions do indeed obtain, it can be suggested that CVM will not be able to provide fully informed WTP estimates for cultural goods. Limited or a lack of experience with the arts is likely to result in an undervaluation by those surveyed and produce a distorted willingness to pay. While problematic, demands for economic evaluation and the non market values of cultural goods drive the application of such approaches. The frequency with which CVM is used to evaluate cultural goods underscores the importance of valuation and economics in contemporary cultural policy. There are over 5,000 published CVM studies with more than 139 reports dealing specifically with cultural resources, of which more than sixty one were published after 2000 (Noonan, 2003) These empirical studies have measured the value of a broad array of cultural

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18 goods in context public broadcasting in Las Vegas (Kling, Revier, & Sable, 2004; Schwer & Daneshvary, 1995) an historic hotel in Colorado (Kling et al., 2004) congestion costs at the British Museum (Madison & Foster, 2003) the Royal Theater in Copenhagen (Bille Hansen, 1997) and, more broadly, arts and culture in Sydney, Australia (Throsby, 2003) Findings from these studies have produced important information for the understanding of public perception and consumer behavior. Contingency valuations serve a necessary function in evaluating arts and culture policies and programs from the perspective of taxpayers. They produce economic values that make it possible to compare arts and culture goods with other publicly provided goods. However, differences in experience with arts and culture ma y yield disparate values for arts and culture. The populace is an influential environmental force. Contingency valuation and WTP studies highlight the significance of arts experience in perceiving the value of arts and culture as a public good, also sugg esting utilizing a local level of analysis to account for national variations. Motivation Crowding Theory Application of motivation crowding theory addresses the effect of government funding on private contributions. It is an important consideration wh en exploring the role of government funding of the arts. Motivation crowding theory contends that nonprofit streams of revenue are not independent (Andreon i & Payne, 2003; Borgonovi & O'Hare, 2004; A. C. Brooks, 1999, 2000a, 2001; Garrett & Rhine, 2009; Hersey, 2009; Horne, van Slyke, & Johnson, 2006) Scholars have asked if government funding displaces, or "crowds out" (i.e., reduces), charitable donations or if government support crowds in (encourages) private charitable giving. The crowd out effect is supported by the

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19 argument that government support leads to public perception of a quasi pub lic organization (Hersey, 2009). People are less inclined to make donations to public organizations (Brooks, 2000b). Crowding in arguments state that government funds bring prestige and credibility and attract private donations (Schiff, 1985, 1990; Conno lly, 1997) (Borgonovi, 2006; A. C. Brooks, 2003) If government support crowds out private support, the use of public funding of arts and cultur e is not production maximizing and is therefore inefficient in terms of stability of the cultural arts sector. Motivation crowding studies began to appear in the 1970s. Initially, these studies tested for complete crowding out, where government funding was matched dollar for dollar in diminished private donations (Hersey, 2009). Abrams and Schiff (1978) discovered that crowding out does not occur in parity, and models evolved to test at what rate crowding out occurs and if variations occur as the result of the level of origin of the government funding (Schiff, 1985), the subsector (Brooks, 2000a), the knowledge of funding sources possessed by donors (Horne, Johnson, and Van Slyke, 2005), or altered fundraising strategies (Andreoni and Payne, 2008). Herse y (2009) conducted a cross sector, multi city examination of motivation crowding theory with a lens of regionalism, reporting that region/city may influence the way in which funding influences private giving. Support for crowding in is extremely limited ( Schiff, 1985, 1990 Connolly, 1997; Hughes and Luksetich, 1999). Motivation and crowding studies continue to advance models whereby the efficiency of public funding of nonprofit organizations is evaluated. Motivation crowding studies provide an important technique for assessing the connection between government patronage and sectorial sustainability. Furthermore, the

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20 identification and clarification of influential variables offer the opportunity to remedy faults and to improve efficiency. Motivation cro wding studies have demonstrated that education and income are significant variables predicting participation in and support of arts and culture nonprofits (A. C. Brooks, 2004b; Rushton, 2005) In deconstructing the environment of arts and culture organizations, education al attainment and economic security are essential variables to be included. Economic Impact & Revitalization Stokes (1985) posited that the global marketplace escalated competition between cities as they vie for industry, business, and economic advantag es. Cities must provide economic opportunity, community features, attractive attributes, and benefits to induce and retain residents (Burnell & Galster, 1 992) It is commonly held that cities with larger populations are able to proffer superior amenities, including professional sports and cultural institutions (Burnell and Galster, 1992, p. 727). Rising demands have prompted research assessing the best return on public investment generated by different amenities. These evaluations have focused on the economic impact and contribution to urban revitalization projects (Americans for the Arts, 2007; Fl orida, 2004; Markusen & Gadwa, 2010a, 2010b; Markusen & King, 2003) Amenities are central to the notion of the creative economy and the creative class. Richard Florida (2004) notably and popularly laid out the argument that amenities attract the creative class composed of people in science, engineering, architecture, and design who power innovation and propel the economy. Comp anies, following the creative class assumptions, will settle in creative centers and fuel the local economy. This argument prompted many cities to pursue the creative class by designating cultural

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21 districts, increasing cultural amenities, and creating fun ding mechanisms to publicly support arts and culture amenities (Markusen & Gadwa, 2010a) Early literature on the prospects of the creative economy emphasize three sets of goals: economic impact, regenerative impact, and cultural impact (Garcia, 2004) Work focused on the United States emphasized the ability of arts and culture to contri bute to the economy through jobs, output, and revenue, and evaluation studies that have been performed tend to report on the economic impact of the cultural sector (Markusen & Gadwa, 2010a) Studies in this genre have been conducted at the national, state, and local level. In June 2000, Americans for the Arts, a nonprofit formed in 1960 for the purpose of advancing the arts, published a call for communities willing to participate in a study of arts and economic prosperity (Cohen et al., 2003) Relying on the survey responses from nonprofit arts organizations and arts audiences in ninety one communities, the researchers developed six community classifications based on population and applied the se to the 19,372 cities in the United States to estimate the economic impact of the arts (Cohen et al., 2003) This resulted in economic impact of $134 billion in spending annually ($53.2 billion from arts organization spending and $80.8 billion in event related spending), $24 billion in government revenue to the local, state, and federal government, and 4.9 mil lion full time jobs (Cohen et al., 2003) The study was repeated in 2005 with 156 participating regions leadi ng to an estimated $166.2 billion in economic activity and 5.7 million fulltime jobs (AmericansfortheArts, 2007) Updated in 2012, findings of $135.2 billion in economic activity and 4.13 million full time jobs were based on data from 182 regions (Americans for the Arts, 2012). These studies are frequently cited and

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22 form the ba sis of many state and local impact studies and are used as the U.S. standard (AmericansfortheArts, 2007, p. 1) They are not, however, without criticism. Markusen & Gadwa (2010) identify significant flaws in these studies. They may, for example, overstate the impact by failing to subtract spending that w ould have taken place elsewhere in the economy (Markusen & Gadwa, 2010). They commonly ignore implications of the numerous nonprofit entities in the sector direct subsidization from government funds and lost tax revenue as a result of tax exempt status (Markusen & Gadwa, 2010a, p. 381) Economic impact studies are a critical measure in evaluating the contributions of arts and culture and aid in justifying government support of the sector, but the rigor of the metrics must be increased. Arts and culture have also become a common ingredient in urban revitalizati on programs. These amenities present the opportunity, it has been argued, to repopulate downtown areas that are suffering the consequences of suburban migration with those seeking leisurely diversions offered by sports arenas, auditoriums, theaters, museu ms, and galleries (Rich, 2012; Rosentraub, 2009; Strom, 1999) Strom (1999), Rosentraub (2009) and Rich (2012) highlight the importance of the local environment by presenting cases highlighting the successful integration of arts and culture in specific urban revitalization programs in Newark, NJ, Scranton, PA, and Reading, PA, respecti vely. Geographic and demographic contexts are important variables in the vitality of industries. Scholars have explored the significance of geography as it influences political climate, philanthropy, and participation in the arts. Elazar (1972) developed a framework of political culture tied to the evolution of the United States that includes three typologies: individualistic, moralistic, and traditionalist. These man ifest differently in

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23 different states and regions. Wolpert (1997) observed that urban lifecycles contribute to city levels of giving. Grnbjerg & Paarlberg (2001) address the geographic variations in nonprofit densities in different counties within one state. Card, Hallock, & Moretti (2008) identified the dividend to nonprofits of executive and upper management philanthropy in cities with medium and large companies. To classify communities into six categories based solely on population size, as has been done in some economic impact studies, and project economic impact misses important variables and may yield misleading conclusions. Cultural economists have applied mult iple approaches to better understand transactions between arts and culture organizations and different stakeholders. The importance and influence of educational attainment and income on participation and support for arts and culture has been demonstrated by contingency valuation and motivation crowding studies. These population attributes vary locally and influence the development of policies to use the arts instrumentally to serve economic development and urban revitalization. Economic studies in these areas have explored the interaction between local environment and arts and culture organizations but have not looked at the ecology that results nor how it relates to the vitality and sustainability of the population of arts and culture nonprofits. Organ izational ecology, conversely, integrates economics to better understand and interpret the ecology in which organizations operate. Organization Ecology The world is populated by organizations. However, basic demographic figures have received limited attention and scholarship (Carroll & Hannan, 2000) Organizational theorists hav e criticized organizational demography as being a process of

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24 counting and dismiss it in favor of theoretical approaches (G. R. Carroll & O. Khessina, 2005; Lawrence, 1997; Perrow, 1986) Lawrence (1997) argues that organizational demo graphy requires only demographic predictors and outcomes, leaving additional theoretical concepts "loosely defined and unmeasured, creating a black box' filled with vague, untested theories" (p. 2). However, scholars specializing within fields are comm only unable to identify average lifespans, stability of the field, and changes over time (Carroll & Hannan, 2000) Kaufman (1991) goes even further when he argues that organizational trouble and failure or survival are attributable to simple ch ance. I anticipate that comparison between organizations that survive and those that expire will in the vast majority of instances disclose no significant differences in their respective levels of ability, intelligence, or leadership talents. (Kaufman, 1991, p. 69) The driving assumption of organiza tional ecologists rejects the thesis that chance drives success or failure, arguing, rather, that the interaction of internal and external conditions produce threats to which organizations must respond in order to survive (Carroll & Hannan, 1989c; Freeman et al., 1983; Hannan, 1998; Hannan et al., 1998; Hannan & Freeman, 1977, 1984, 1989) Organizational ecology, an emphasis of study within organizational theory, was developed to answer the question of which forms of organizations survive and which become extinct and why (Carroll & Hannan, 2000; G. R. Carroll & O. Khessina, 2005; Hannan & Freeman, 1977) This approach relies on the examination of how factors in the environment contribute to the formation, growth, transformation, and demise of population s of organizations (Carroll & Hannan, 2000; G. R. Carroll & O. Khessina, 2005; Hannan & Freeman, 1977) These vital components and rates of a population are central to understanding the ecology of organizational forms.

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25 They also addre ss the demographic composition of organizations, making it possible to better manage organizations, objectives, and policy development. Ecologists use vital rates to study populations of species. Birth rates, growth of the population, and mortality rat es are indicative of changes in the environment. Organizational ecologists use the history of vital rates of populations of organizations to the same ends. Birth rates, growth of the population, and mortality rates are indicative of available resources, including wealth, labor, and technology (Aldrich & Pfeffer, 1976; Stinchcombe, 1965) Identifying the conditions under which populations of organizations form, operate, fail, and exit the environment makes it possible to expla in the number and distribution of organizations, explaining why organizations take many forms (Hannan & Freeman, 1977). Applying ecological concepts, such as birth and death, to organizations requires some refinement of definitions. Instead of being bor n, organizations are typically formed, founded, or enter the market (Bowen et al., 1994a; Hager, 2001) The formation of an organization is a conscious decision of a person or group in response to a perceived opportunity or need in a particular manner. Ecological conditions at the national level have been proven to influence approaches to organizational structure (Wholey & Brittain, 1986) After the Civil War, the United States society underwent changes to political, technological, and s ocial conditions and the expansion of national markets (Aldrich & Mueller, 1982) This environment contributed to the emergence and growth of two particular forms (a) large, functionally org anized industrial firms that relied on technical controls and (b) parent subsidiary organizations that utilized bureaucracy to

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26 maintain control (Aldrich & Mueller, 1982) Organizations were cr eated in these forms as a response to the environment of the times. How scholars define the moment of formation or market entry varies. Hannan and Freeman (1989) used the "presence of a functioning organization" (p. 149) Bowen et al. (1994a) used the date of recognition of tax exempt status in their study of the nonprofit population. This dissertation relies on the identification used by Bowen et al. (199 4a) and Hager (2001) that an organization enters the market in the year of the IRS rule date. It is evident that organizations a ttract resources and begin to serve their mission in advance of this date, but locating comprehensive, reliable evidence of these moments for the population is virtually impossible (Bowen et al., 1994a) The ruling date is the year in which a registered nonp rofit was recognized by the IRS as tax exempt. This is accepted as a proxy for when an organization was created (Bowen et al., 1994a; Hager, 2001; National Center for Charitable Statistics, n/d a) 1 Organizational deaths, like births, are responses to changes in environmental conditions. As environments alter, organizations may adapt, if they have the necessary resources. Internal pressures such as capital investments, information asymmetries, political constraints, and organizational histories an d external constraints such as legal and fiscal barriers to entry and exit, information limits, legitimacy, and collective rationality produce inertia and limit an organization's ability to change (Carroll, 1984; Carroll & Hannan, 2000; G. R. Carroll & O. M. Khessina, 2005; Freeman et al., 1983; Hannan & Freeman, 1977, 1984, 1989) Nonprofit organizations are n ot immune to the forces of organizational inertia. Often operating with narrow, if any, financial reserves 1 Organizations form, acquire voluntary and monetary resources, and may even operate as associations for a while before seeking recognition as a tax exempt entity. F or the purposes of this study, the IRS ruling date was selected for availability and consistency of the data.

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27 and frequently under pressure to serve the founders' mission and traditions of the organization, nonprofits may lack the resources to adapt to chang es in regulations and markets. The significance of mortality rates goes beyond the number of organizations that are unable or fail to adapt. Rather, observations of deaths reveal patterns of longevity and population diversity (Hannan & Freeman, 1989) and contribute to answering the central question of why so many organizational forms exist. Death or failure of organizations has been defined multiple ways. Organizational death has been defined by failure to carry out sustaining routines (Hannan & Freeman, 1989) the move from the active to inactive part of the IRS Business Master File (Bowen et al., 1994a) and the failure to file required documents with the Internal Revenue Se rvice for more than three successive years (Hager, 2001) This research relies on Hager's (2001) definition of organizational exit. An orga nization is considered to have exited when it fails to file the IRS form 990 for three or more consecutive years. This is consistent with current IRS policy that revokes a nonprofit's tax exempt status for failure to file the appropriate 990 for three con secutive years (Internal Revenue Service, 2013) These concepts of birth and death are operationalized and produce quantitative reports about the size and scope of populations of organizations. The value of organizational ecology rests in the ability to understand dynamics of groups of organizations over time. Is an organizationa l form expanding or contracting? Has the number of organizations in a geographic area grown or declined? Are organizations serving a particular mission disappearing? Has a new form emerged? The nuanced meaning of organizational ecology comes not from l ooking at all organizations but from studying sub populations of organizations, and this necessitates the act of bounding the study in some way.

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28 Studying a population clearly requires bounding it in a well defined way. Hannan and Freeman (1977) stipulat ed that populations are aggregates of organizations that share some common feature or features, including history, politics, social structure, geography, and vulnerability. Furthermore, professionalization and other normative claims may be used to define a population (Hannan & Freeman, 1977) Studies conducted on newspapers (Carroll & Delacroix, 1982; Delacroix & Carroll, 1983; Hannan et al., 1998) the automobile industry (Hannan et al., 1998) and beer and wine production (Swaminathan, 1995; Swaminathan & Wiedenmayer, 1991) define populations by the product. Different iations have also been made on an organization's size (J. C. Baum & Mezias, 1992; Swaminathan, 1995, 2001) and sector (J. A. C. Baum & Oliver, 1996; Bowen et al., 1994a; Potter & Crawford, 2008) Aldrich and Stern (1983) and McKelvey and Aldrich (1983) urge deliberate, careful construction of boundaries and taxonomies. These may derive from poli cy interest, public access, or sources of funding (McKelvey & Aldrich, 1983) Furthermore, scholars should define the degree of similarity among organizations under study, on a scale from extremely similar to dissimilar (McKelvey & Aldric h, 1983) They advocate that developing taxonomies will lead to more homogenous groups for study and increase generalizability. An explicit taxonomy, however, is not evident in more recent studies utilizing organizational ecology. A population must b e bound geographically. Spatial aggregation, or the geographic level of analysis, drives the selection of the national, regional, state, or local level. This choice should reflect the level at which competition for resources occurs (J. C. Baum & Mezias, 1992; Carroll & Huo, 1986; Delacroix & Carroll, 1983; Pennings, 1982;

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29 Swaminathan, 1995; Swaminathan & Wiedenmayer, 1991) Newspapers published in Ireland and Argentina in the nineteenth and early twentieth centuries competed for readers and advertisers at a national level (Carroll & Delacroix, 1982; Delacroix & Carroll, 1983) Carroll and Huo (1986) studied newspapers at the metropolitan level because in San Francisco between 1870 and 1910, the competition for readers and advertisers was among local newspapers. Similarly, Baum and Oliver (1996) analyzed issues related to population density of day care organizations at the metropolitan level because customers come from within the MSA. Resou rces also vary with geography. Urban areas present a diversity of resources that escalate with the size of the city (Lincoln, 1979a) The associated specialization this fosters in organizations warrants identification (Lincoln, 1979a) L incoln (1979) found that larger financial institutions competed with other similarly sized organizations, while smaller organizations limited their focus to local markets. This issue of magnitude should be considered when selecting the appropriate level for analysis. Populations of nonprofit organizations have been defined in previous studies. Bowen et al. (1994a) and Potter and Crawford (2008) used an organization's status as a recognized nonprofit to define the popula tions of their studies. Bowen et al. (1994), Hager (2001) and Archibald (2007) further narrowed their populations within the nonprofit sector by classifying the organization's purpose. Arts and culture nonprofits are a generally recognized populat ion. While they may differ in size, age, and the arts and culture they make available for public consumption, the authoritative National Taxonomy of Exempt Entities (NTEE) classifies them, according to nonprofit status and

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30 purpose, as group A. This defin ition of population has been used in other research (Bowen et al., 1994a; Hager, 2001) The United States population of arts and culture nonprofit organizations in the twentieth and twenty first century nu mbers in the tens of thousands. They share status as tax exempt entities, a mission to deliver arts and culture programming or education, and the general funding system of direct and indirect subsidies, private donations, and earned income. Many studies of arts and culture use a national lens (A. C. Brooks, 2000b, 2000c, 2004b, 2007; Cowen, 2006, 2007; P. N. Hughes & Lukestich, 1999; P. N. Hughes & Lukestich, 2004; Schuster, 1991, 1998; T. M. Smith, 2007 ) However, state and local studies capture important variations in the environment. Schuster (2002) identified the rich potential of studying sub national arts policies. The ecology of states varies. Using organizational ecology to stu dy the population of arts and culture organizations at the state level furthers knowledge of the conditions under which forms emerge, persist, and cease to exist. Age, Inertia, and Selection An organization's traits also interact with the environment and contribute to the likelihood of survival. Age, inertia, and selection have been identified for their influence on a firm's ability to survive (Freeman et al., 1983; Ha nnan, 1998; Hannan et al., 1998; Hannan & Freeman, 1984) Organizational responses to the environment are heavily affected by age and inertia. Propositions that organizational change derives from adap tation are challenged by internal and external pressures that limit an organization's capacity to change (Freeman et al., 1983; Hannan, 1998; Hannan et al., 1998; Hannan & Freeman, 1977, 1984, 1989) As organizations mature and age, they develop systems that

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31 produce reliability and stability but simultaneously generate inertia, a force that inhibits the organization's ability to adjust and modify systems and behaviors (Carroll, 1984; Carroll & Delacroix, 1982; G. R. Carroll & O. Khessina, 2005; Delacroix & Carroll, 1983; Freeman et al., 1983; Hannan, 1998; Hannan et al., 1998; Hannan & Freeman, 1977, 1984, 1989; Marple, 1982; Stinchcombe, 1965; Wholey & Brittain, 1986) Hannan and Freeman (1977) argued that organizational change occurs, as a result, through selection or the replacement of outdated organizations with new forms. The influences of age, inertia, and selection are critical concepts to analyzing population dynamics. Age dependence in organi zational ecology models identifies how developmental stage influences the probability of organizational death or exit. When organizations are new, they suffer from the liability of newness and are challenged to build cooperative networks, establish and cr eate legitimacy, and effectively compete with established organizations (Stinchcombe, 1965; (Carroll & Hannan, 2000; G. R. Carroll & O. Khessin a, 2005; Freeman et al., 1983; Hannan & Freeman, 1984) Those that do succeed are able to stabilize their environments (Freeman et al., 1983) Maintaining systems and routines is less demanding than creating new ones (Hannan & Freeman, 1984) As firms age, they are able to rely on existing systems. As age increases, the probability of exit o r merger decreases (Carroll, 1983; Carroll & Delacroix, 1982; Freeman et al., 1983; Marple, 1982) Alternatively, organizations that survive the liability of newness are confronted with a second risk that results from age inert ia. Inertia is any limitation to an organization's ability to adapt (G. R. Carroll & O. Khessina, 2005; Freeman et al., 1983; Hannan & Freeman, 1977) It results from internal and external conditions that constrain

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32 organizations. As new orga nizations build systems to obtain necessary resources, they develop human capital, experience the development of coalitions, establish precedents for decisions, and build histories and traditions (G. R. Carroll & O. Khessina, 2005; Freeman et al., 1983) Organizations also acquire physical capital, including equipment, technology, and real property, that drives what is produc ed, how work is performed, and where (Hannan, 1998) Marple's (1982) examination of American railroads illustrated how delays in adopting new technologies, such as steel rails, increased the probability of mergers. Inertia is a double edged swor d. It comes as a result of resources that may provide the means to survive unanticipated shocks to the organization or environment. However, it typically comes with a reduction in flexibility and adaptability. An organization's ability to change is infl uenced by these conditions. Change may be driven from internal or external motivations. External pressures for change include regulation and law, economic instability, and changes in technology (Amburgey & Rao, 1996; Archibald, 2007) These may lead to changes in product market strategy, organizational structur e, and mergers with other organizations (Carroll, 198 4) Change within individual organizations may prove difficult to document (Singh & Lumsden, 1990) As an alternative, change can be measured at the population level by formation and exit (Amburgey & Rao, 19 96; Potter & Crawford, 2008) Imbalances between the environment and organizations is the chronic source of change (Hawley, 1950; Marple, 1982) Change is difficult and arguably unlikely for most organizations (G. R. Carroll & O. Khessina, 2005) but organizations can and do change (Kearney, 2003; Marple, 1982) Change comes from selection, that is, the replacement of outdated

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33 organizations unable to meet the pace of environmental change (Hannan & Freeman, 1977) Organizations best mat ch their environments at the time of formation, according to the imprinting hypothesis (Hannan, 1998). Systems developed to secure resources in the early phase of development provide stability that, in turn, produces inertia (Hannan, 1998; Hannan & Freema n, 1977). Structural inertia limits an organization's capacity to change at the pace of the environment (Hannan et al., 1998; Hannan & Freeman, 1977) Efforts to change structures in small organizations increase the threat of mortality (Hannan & Freeman, 1984). Inert, small organizations are less capable of adapting to e nvironmental changes and face an increased threat of obsolescence (Hannan, 1998). Large organizations are able to draw on endowments of financial and social capital in order to facilitate and support adaptation (Hannan, 1998, Hannan et al., 1998). The process of adaptation argues that organizations will change in response to alterations in the environment (G. R. Carroll & O. Khessina, 2005; Hannan & Freeman, 1977, 1989) Inertia intensifies the challenges of adaptation (Hannan & Freeman, 1984) When a significant shock or change to the environment occurs, inertia prevents organizations from adjusting quickly enough ( Carroll & Khessina, 2005 (Hannan & Freeman, 1984) This leads to an increased risk of exit or death. The potential implications of inertia and selection for arts and culture organizations are, indeed, significan t. The arts achieved a position of legitimacy in the community as a beneficial entertainment for the public (Blair, 1994; Larson, 1983) Furthermore, it became a symbol of civic attainment to have a museum, symphony, and ballet (Florida, 2004) These organizations relied on the support of traditional, private

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34 philanthropy (Binkiewicz, 2004; Cowen, 2006; Larson, 1983; Netzer, 1980) The National Endowment for the Arts and the system of state arts agencies have become resources for support, both in advocacy and grants, as well as presenting an additional layer of rules and constraints (Baurelein & Grantham, 2009; Cowen, 2007; Moen, 1997b; National Endowment for the Arts, 1966; S. Saunders, 2005) The formation of public agencies institutionalized legitimacy for public patronage of the arts in the United States. It also introduced networks, systems, and rules. Arts and culture nonprofits that adapted to these changes increased their struct ural inertia, dedicating resources to doing things in a prescribed way. Hannan and Freeman (1984) state that existing organizations face significant challenges and threats from new organizations that form to take advantage of changes in the env ironment. Established organizations may find it impossible to change quickly enough to take advantage of these. Arts and culture nonprofits are operating in a changing and unstable environment. Changes in the economy, patterns of philanthropy, and au dience attendance have been evident for some time (Andreoni & Payne, 2003; H. Baumol & Baumol, 1985; Blackwood, Roeger, & Pettijohn, 2012; A. C. Brooks, 1999; Markusen & Gadwa, 2010a; K. F. McCarthy & Jinnett, 2001; National Endowment for the Arts, 1997, 2009; Ostrower, 2002; Schuster, 2000; Wolpert, 1997) How organizations respond to these alterations will be influenced by inertia producing internal and extern al constraints and may reduce the speed with which organizations can respond to environmental changes. The threat posed by inertia increases with population density and competition and raises important questions about the division of resources and the dev elopment of niches within the population.

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35 Density, Competition, Resource Partitioning, and Niches Density is a measure of occurrence of an organizational form and a proxy for legitimacy and competition (Carroll & Hannan, 1989c; Lincoln, 1979b) Hannan and Freeman's (1977) conception of density dependence was derived from the work of Amos Hawley. Hawley (1950) presented a four stage model of competition and selection in which demand for resources exceeds supply, competition prompts similar responses and competitors increase in likeness, and selecti on eliminates the weakest competitors, leaving them to differentiate by geography or function. The survivors then seek ways to expand on their strengths (Hawley, 1950). Organizational forms commonly lack legitimacy when they begin to emerge (Freeman et al., 1983; Hannan, 1998; Hannan & Freeman, 1977, 1984) As the population grows, so does legitimacy and competition (Hannan & Freeman, 1977, 1984, 1989) Resources, such as financial means, human capital, and market /members, are finite, and organizations compete for these (Lincoln, 1979b) Legitimation and competition operate in opposition (Hannan, 1986). According to Hawley's (1986) theory of organizational ecology, at low density, as the population of organizations grows, the form gains legitimacy (Hannan, 1986). As density rises, competition dominates (Hannan, 1986). As density rises, the number of new entries will decrease, and s everal large, generalist firms will gain control of the market (Carroll & Hannan, 1989b; G. R. Carroll & O. M. Khessina, 2005; Hannan & Freeman, 1977, 1989) This produces an environment with opportunities fo r niche and specialty organizations to form (G. R. Carroll & O. Khessina, 2005; Hannan & Freeman, 1977, 1989) The dynamics of this produce a U shaped pattern (G. R. Carroll & O. Khessina, 2005) Conversely, the

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36 number of exits will be graphed as an inverted U, rising with density before declining (G. R. Carroll & O. Khessina, 2005) Competition is driven by resource needs (J. A. C. Baum & Oliver, 1996) Heightened similarity raises competition (J. A. C. Baum & Oliver, 1996) and decreases the impulse to cooperate (Aldrich & Stern, 1983) Among organizations, as a form gains acceptance, the density, or number of organizations, rises and elevates competition for resources (G. R. Carroll & O. Khessina, 2005) 2 Hannan and Freeman (1977) proposed that organizations compete with those of similar size, driving the need for differentiation and the manifestation of specializations and d ifferent forms. Density and competition shape the distribution of resources and the rates of formation, or entry, and mortality, or exit (Hannan & Freeman, 1989) Density, in organizational ecology, is measured as the total number of active organizations less any that have ceased operation (Carroll & Hannan, 1989c, 2000; Hannan & Freeman, 1977, 1984, 1989) This operationalization has been ch allenged for failing to recognize that organization size can be influential in attracting resources (Barnett & Amburgey, 1990) Other scholar s have unbundled density to more accurately capture competition between organizations (Baum & Singh, 1994; Baum and Mesias, 1992). Hannan and Freeman (1989) and Hannan and Carroll (1995) advocated the continued use of census as a measure of density becaus e it is generalizable across forms. Density dependence theory is supported by a substantial body of research on a variety of organizational populations. These have included labor unions (Hannan & Freeman, 1989) ; telephone companies (Barnett & Carroll, 1987) ; newspapers (Carroll & 2 This may be less applicable among nonprofits that, according to Baum and Oliver (1996), are more likely to eschew competition and seek cooperation.

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37 Hannan, 1989b) ; banks (Ranger Moore, Banazak Holl, & Hannan, 1991) ; life insurance companies (Ranger Moore et al., 1991) ; and business interest associates (Aldrich, Staber, Suimmer, & Beggs, 1990) Other studies have not supported the theory of density dependence (Carroll & Hannan, 1989b; Delacroix, Swaminatha n, & Solt, 1989; Tucker, Meinhard, & House, 1988) Carroll and Wade (1991) identified truncated histories in Delacroix (1989) and Tucker et al. (1988) and the level of analysis Carroll and Hannan (1989b) as possible causes for divergence from the theory. Studies in organizational ecology have reported similar population developments across a diverse set of fields. These are characterized by a small number of organizations in the early period, a period of rapid increase in population size, and then stabilization or decline of the population (Carroll, 1984; Klepper & Graddy, 1990) This is in keeping with Hannan's theory of density dependence that asserts organizational forms emerge, seek and attain legitimacy and become subject to increased density (Hannan & Freeman, 1977, 1989) As density rises, the population approaches the environmental carrying capacity and competition intensifies, decelerating growth and producing a declining rate of founding and rising rate of mortality or exit (Carroll & Hannan, 1989c; Hannan et al., 1998; Hannan & Freeman, 1989) Competition generated by population density prompts organizations to become generalists or specialists in their production. Unstable environme nts will produce generalist organizations, and stable environments will generate specialty organizations and (Hannan & Freeman, 1977) Generalist fi rms will allocate resources that can be used to respond to changes in the environment (Carroll & Hannan, 1989c) Rising density escalates the rate of failure and results in market domination by several large firms

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38 (Carroll & Hann an, 1989a, 1989b; Carroll & Wade, 1991; Delacroix et al., 1989; Hannan & Freeman, 1989; Swaminathan, 1995; Swaminathan & Wiedenmayer, 1991) Large surviving firms seek to maintain central positions in the market as a generalist or monoolist (Carroll & Hannan, 1989a, 1989b; Carroll & Wade, 1991; Delacroix et al., 1989; Hannan & Freeman, 1989; Swaminathan, 1995; Swaminathan & Wiedenmayer, 1991) Resou rce partitioning stipulates that this condition creates resources at the margins where specialty firms can thrive (Carroll & Hannan, 1989a, 1989b; G. R. Carroll & O. Khessina, 2005; Carroll & Wade, 1991; Hannan & Freeman, 1989; Swaminathan, 1995; Swaminathan & Wiedenmayer, 1991) Specialist firms will derive efficiencies from a more narrow miss ion (Carroll & Hannan, 1989c) Diversity of forms reveals alternative solutions to satisfying conditions or demands and has significant value when the future is uncertain (Hannan & Freeman, 1989) A diverse population is more likely to possess or produce a satisfactory response to unanticipated environmental shocks (Carroll & Hannan, 2000) Research on the American wine making field validates resource partitioning and niche development. In the post Prohi bition era, the industry was characterized by the consolidation of producers and increased sales, trends consistent with maturity of an industry (Swaminathan, 1995) Between 1940 and 1990, the ratio of industry capacity held by the largest four firms increased from 23 percent to 52.4 percent (Swaminathan, 1995) By the late 1960s, the growth rate was slowing, and the industry was dominated by a few large, generalist producers (Swaminathan, 1995) Farm wineries produce premium varietals (Swaminathan, 1995) Between 1969 and 1990, the number of farm

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39 wineries grew from 30 to 1,099. These specialty firms produce a wide variety of quality products in limited quantities (Swaminathan, 1995) The significance of niche development is further illustrated by the hotel industry. Baum and Mezias (1992) contended that all organizations may not compete for the same limited resourc es. They investigated the importance of localized competition among New York hotels from 1898 to 1990. Size, price, and location drive local competition among hotels (Baum and Mezias, 1992). The more similar these organizations are in size, the greater the intensity of competition experienced. Location and price also increased competition when modeled with competitive window restrictions. According to Baum and Mezias (1992), organizations that specialize and develop niches tend to out compete generalis ts located in the middle. Arts and culture organizations appear to support the theory fragment of density, competition, and niche development. Arts and culture nonprofits are diverse in size and mission. The quest for a civic museum, ballet, and orches tra (Blair, 1994; Florida, 2004) testify to the early legitimacy earned by several forms of arts and culture organizations. In many communities, these organizations continue to dominate the landscape, attracting elite trustees and major donors (Ostrower, 2003) Similarly, the low barriers to entry for some specialty arts organizations foster niche development (Bowen et al., 1994a) The civic museum, ballet, and orchestra are no longer the only venues to access arts and culture within a community. Tepper and Ivey (2007) point to changing patterns of participation and engagement with the arts. Following changes in population demographics, work and lifestyle changes, and advances in technology, the US public, in particular, is

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40 experiencing arts and culture that are not provided by or part of the established, and formerly privileged, categories of "high arts". From cultural festivals showcasing traditional arts from around the world to digital access, the traditional nonprofit ar ts organizations are facing heavy competition for audience. Analytic Methods of Organizational Ecology Organizational ecologists have used a variety of data and methods to evaluate changes in populations and organizations. These have included counts an d vital rates, case study, and regression analyses. These different methods reflect the variety of applications, data, and purposes of research. Identifying changes in populations is one reason to apply organizational ecology. Population counts and vi tal rates calculated on changes over time are among approaches employed. This technique has been used to observe the impact of technological innovation on mergers among railroads (Marple, 1982) resource mobilization among producer cooperatives (Aldrich & Stern, 1983) influences on the formation of women's medical societies (Marrett, 1980) and the size and br eadth of the nonprofit sector (Bowen et al., 1994b) Counts and vital rates reveal growth or decline in populations of organizations. Organizational form is another central interest of organizational ecologists. Langton (1984) used a case study to explore bureaucracy. Wedgewood was selected to illu strate how Josiah Wedgewood's leadership contributed to the bureaucratization of the British porcelain industry. As Yin (2008, p. 4) has noted, case studies are appropriate for a holistic approach to understanding "complex social phenomena." In depth case studies offer another means by which to explore an organization, a form, or a population.

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41 Organizational ecology has used multiple methods to assess the environmental influences on populations of organizations. The approach relies on data representing entire populations. Variations in the size, scope, and depth of data influence the selection of an appropriate methodological approach. Organizational Ecology of Nonprofits Organizational ecology has been dominated by the study of private sector populations of organizations (Archibald, 2007) Perrow (1986), a critic of organizational ecology, posited that it is limited to market based industries because government agencies and nonprofit s are not allowed to fail or exit the population. This is a false claim, as evidenced by studies documenting the mortality of organizations outside the private sector (Archib ald, 2007; J. A. C. Baum & Oliver, 1996; Carroll, 1984; Kearney, 2003; Koak & Carroll, 2008; Marrett, 1980; Potter & Crawford, 2008) The relevance of using organizational ecology to better understand nonpro fit populations was defended by Potter and Crawford (2008). They reasoned the following: However, as governments increasingly turn to nonprofit organizations to help implement policies (Kerst et al., 2004; Milward, 1996; Osborne & Gabler 1993), the presence of nonprofit organizations becomes even more important to state and local governments in urban areas. This change calls for deeper analysis of shifts in those urban landscapes over time with attention to the interrelationships among nonprofit organizational factors, demographic patterns, and government policies. (Potter & Crawford, 2008, p. 92) An increasing role of nonprofit organizations in the development of public services underscores the need to study population changes and the ecological conditions associated with these changes. The application of o rganizational ecology to populations of nonprofit organizations has resulted in an improved understanding of the sectorial dynamics and

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42 distinctions between subpopulations. Nonprofits enter and exit at rates that differ from those of private sector organi zations (Bowen et al., 1994a) These rates vary between and within populations differentiated by the purpose (Bowen et al., 1994a) Archibald (2007) reiterated the need for frameworks specific to nonprofit organizations. It is important to recognize that varia bles in the ecology have different degrees of influence on private, government, and nonprofit organizations. Newness and smallness present two significant liabilities to organizations in the private sector (Freeman et al., 1983) Similarly, youth and small size hinder the ability of nonprofits to survive (Galaskiewicz & Bielefeld, 1998; Twombly, 2003) Overcoming newness and smallness present a dditional advantages. Among self help/mutual aid organizations, those that dominated at the beginning remained dominant in spite of the entry of specialty organizations and emergence of subpopulations (Archibald, 2007). An important condition for sustai nability is the ability to attract needed resources, including financial ones. Organizational ecology studies of private sector organizations typically do not include financial variables for the population of study. Inclusion of this information in studi es concerned with nonprofit populations is important due to the amalgam of funds on which organizations rely. It is facilitated by data sets, such as NCCS, which extract information from forms filed with the IRS. Private giving has traditionally been an important and substantial part of nonprofit revenue in the United States. As one might expect, regional variations in philanthropy were identified as influential to the rates of entry and exit of nonprofit organizations (Twombly, 2003) Similarly, reliance on private donations increases the likelihood of exit (Galaskiewicz & Bielefeld, 1998)

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43 Government policies and funding have played an increasin gly influential role in the operation of nonprofit organizations. Scholars have reached different conclusions about their influence. Twombly (2003) found that public funding and resource concentrations did not influence the rates of entry of nonprofit hu man service organizations and only weakly predicted their exit. Potter and Crawford (2008) examined the breadth of nonprofit organizations in one MSA and found that government funding does matter. Government funding remained influential to survival among urban nonprofits relying on any government grants, even when contributing only a small percentage to total revenue (Potter and Crawford, 2008). Twombly (2003) and Potter and Crawford (2008) identified the need for additional research on the ecological in fluence of government funding. Twombly (2003) cautioned that environments that support the formation of nonprofits may prove to be unsustainable. Potter and Crawford (2008) called for data sets that incorporate policy variables, allowing for direct testin g of the relationship between government policies and populations of organizations. Organizational ecology literature is rich with examples of private sector industries and populations. While early criticism posited that organizational ecology was limit ed to these (Perrow, 1986) subsequent research has invalidated the claim. Studies applying organizational ecology have demonstrated that age and size are influential conditions regardless of sector (Archibald, 2007; Galaskiewi cz & Bielefeld, 1998; Twombly, 2003) Thes e have also incorporated additional variables, such as regional philanthropy (Twombly, 2003) source s of revenue (Galaskiewicz & Bielefeld, 1998; Twombly, 2003) and policy conditions (Potter and Crawford, 2008), as essential elements of the ecology for these organizations/populations. Hager (2001) used organiza tional ecology to

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44 empirically test the predictive value of Tuckman and Chang's ratios of financial vulnerability and found that the ratios did predict exit in some types of nonprofit arts and culture organizations. Organizational ecology has proven to be an appropriate approach to the study of nonprofit arts and culture organizations. Assumptions and Limitations of Organizational Ecology Organizational ecology emphasizes the importance of the entire population. This presents two limitations to the application of arts and culture organizations. Available data for the national population of arts and culture organizations do not extend to their first appearance in America. This does not preclude application of organizational ecology to the field to understand the impact of different mechanisms for supporting direct subsidies. Direct subsidies administered by the NEA and state arts agencie s are modern systems. Prior to 1965, there was no national system for administering the arts, and few state arts agencies administered grants. Bowen et al. (1994) document changes in the national population after the formation of the NEA. The consequenc es of funding cuts that stemmed from political backlash against the NEA in 1996 also produced a significant shock to the arts and culture ecology. Scholarship has addressed implications on artists, exhibitions, and the nature and character of art produced (Bradford, Gary, & Wallach, 2000; J. E. Cuno, 2006; Dubin, 1999; Rothfield, 2001; Wallis et al., 1999) Attention needs to be directed to the vitality of the sector in the succeeding years. Doc umentation of the population is further truncated. Organizations with revenues less than $5,000 are not required to register with the IRS. Prior to 2011, organizations with revenue less than $25,000 were not required to file annually. This results in a loss of smaller organizations from the data. This has prompted criticism of

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45 past studies (D. H. Smith, 1997) The absence of such data limit the findings of this work to organizations large enough to be required to file with the IRS (Hager, 2001) Institutional Demographics of the Arts Cultura l economists have reported numerous vulnerabilities faced by arts and culture nonprofits. Cost disease, the public's willingness to pay for arts and culture amenities, and the interaction and crowding of revenue sources are threats to the sustainability o f these organizations. The risks to sustainability/survival of arts and culture organizations are important to enthusiasts and traditional supporters but are also important to a broader audience. The arts have demonstrated the ability to enhance educatio n, contribute to urban revitalization, and impact the economy (Colorado Department of Education & Colorado Council on the Arts, 2008; Markusen & Gadwa, 2010a; Ri ch, 2012; Rosentraub, 2009; Strom, 1999) These ties have led to the attachment of the arts to other policy areas (Belfiore, 2004) This institutional attachment of the arts to other policy areas warrants a better understanding of the sustainability and reliability of arts and culture nonprofits and the dynamics of the population. Organizational ecology was developed and has advanced to explain why forms of organizations emerge and fail. Analyses have proven the influence of age, size, and density on the survival of organizations. Applications to nonprofit popul ations have indicated that public policies and the philanthropic characteristics of the environment are also influential on population dynamics (Galaskiewicz & Bielefeld, 1998; Potter & Crawford, 2008; Twombly, 2003) This is particularly pertinent due to government collaboration wit h and reliance on nonprofits (Potter & Crawford, 2008)

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46 There are limited accounts of the institut ional demographics of arts and culture organizations. The work of Bowen and his colleagues (1994) is an exception. They prepared and published a survey of the nonprofit sector using a count approach. Their study provides a broad overview of patterns of entry and exit of charitable nonprofits as well as detailed examination of fields within this group, including the arts. Their work systematically measured the size and expansion and contraction of the nonprofit population. It produced baseline vital rat es of nonprofits and of certain subpopulations within the sector. The examination of arts and culture nonprofits by Bowen and his coauthors (1994) began with the establishment of the National Endowment for the Arts in 1965 (Bowen et al., 1994). Using a national lens, it was reported that arts and culture organizations grew at a rate of 11.2 percent between 1965 and 1975, but only by 4.1 percent between 1975 and 1988 (Bowen et al., 1994a) The variation in the rates of exit among arts and culture subfields was large. These ranged from 6.9 percent (among historical societies) to 25.1 percent (for ballets) for the period, or 0.8 percent to 3.0 percent per year (Bowen et al., 1994a) Compared to rates for the entire, nonprofit sector, the arts had an increased r isk of mortality, or exit (Bowen, et al., 1994). In the interceding years, the nonprofit sector has continued to expand, and the population of arts and culture organizations has expanded with it. The re calculation of the population's vital rates has not been undertaken. This dissertation will deliver the vital rates of nonprofit arts and culture organizations in the United States from 1989 to the present.

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47 Conclusion Organizational ecology offers rich opportunities for deeper understanding of the dyna mics of arts and culture nonprofits. Plagued with ongoing economic vulnerabilities (A. C. Brooks, 2000a, 2003; Greenlee & Trussel, 2000; Hager, 2001) and high mortality rates (Bowen et al., 1994a; Hager, 2001) the threats to sustainability of arts and culture nonprofits need to be addressed. Using organizational ecology allows for testing how ecological conditions contribute to population size and dynamics and offers the prospect of identifying key variables that contribute to sustainability of the population. The exa mination of arts and culture nonprofits via organizational ecology offers benefits beyond the immediate application. The [cultural] sector cannot continue to compete with other increasing demands for expenditure on education, health, law, etc. without the essential ammunition that performance measurements offer. The greater the impact, the greater the chance that the ro le and fundamental potential of the sector will be fully recognized across government and by the public. (Quality Efficiency and Standards Team, 2000) The increased density of arts and culture organizations and, by extension, the increased comp etition for resources mirrors that in the nonprofit sector. As governments reduce spending and allocate larger percentages to nondiscretionary spending, all nonprofits face the threat of limited government spending. Nonprofit arts and culture organizatio ns have survived for the majority of United States history with limited direct, government funding, as will be detailed in the following chapter, and provide an ideal case for examining the role of funding policies on sustainability of an industry. Further more, the examination of alternative means of obtaining financial resources is relevant to other categories within the nonprofit sector. Recently, the governor of Tennessee announced plans to fund two years of community college for all high school graduat es funded by an endowment

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48 created from lottery funds (Wilson, 2014) Competition in the nonprofit sector and increased use of alternative means of genera ting public funds make this relevant to more types of organizations than arts and culture. Organizational ecology literature has been dominated by private sector cases. Additional application to nonprofit populations further demonstrates the appropria teness. Application to nonprofits also creates additional opportunity. To date, there has been limited exploration of financial resources as an environmental variable. Gathering this historical data on private sector organizations presents numerous chal lenges. Twombly (2003) introduced financials as a variable in the organizational ecology of nonprofit health and human services with independent variables and a proxy for geographic variations in philanthropic patterns and another for government support. Potter and Crawford (2008) called for models that incorporate policy. The research in this thesis advances from Twombly by identifying the sources of government funding legislative appropriations, alternative mechanisms, and combinations thereof. Thes e combined changes seek to improve the ecological model. A national orientation to observation of populations provides useful information as to whether the total number of organizations is growing or contracting. However, organizational ecologists have identified the importance of selecting an appropriate level of analysis (J. A. C. Baum & Oliver, 1996; J. C. Baum & Mezias, 1992; Delacroix & Carroll, 1983; Swaminathan, 1995; Swaminathan & Wiedenmayer, 1991) States present different policies affecting arts and culture nonprofits, different patterns of philanthropy (Twombly, 2003; Wolpert, 1997) and different patt erns of arts and culture participation (Baurelein & Grantham, 2009; Moen, 1997a; Putnam, 2000) As State Art Agencies

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49 (SAAs) increase their spending and influence (National Assembly of State Arts Agencies, 2012b) Schuster's (2002) call to investigate sub national arts policies has increased in relevance. Arts and culture organizations have attained a more prominent role in the policy fi eld. As arts and culture are used to serve a variety of goals, understanding how the population of organizations has changed since the 1994 publication of The charitable nonprofits provides a benefit to scholars, administrators, and policy makers who supp ort or seek to leverage the benefits of the arts. Furthermore, the connection between government funding of the arts and organizational demographics has been under researched. Understanding the implications of variations in public support for arts and cu lture nonprofits on sustainability of the field should be undertaken. The next chapter addresses the history and systems for funding the arts in the United States.

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50 CHAPTER III THE ECOLOGY OF ARTS AND CULTURE NONPROFITS Introduction Organizational ecologists consider the history and environment in which a population exists as critical to understanding why forms emerge, transform, and either continue or fail. The survival of any organization is linked with its ability to attract and r etain the resources necessary to operate. Arts and culture organizations have been documented by cultural economists as particularly vulnerable to changes in fortunes that result from tradition, policy, and the economy. To understand the organizational e cology of arts and culture nonprofits, it is necessary to appreciate the United States' system for funding these organizations, the benefits conveyed by different choices in the system, and the threats posed. Arts and culture were not accepted as an area for government involvement in the United States until the twentieth century. Debates commonly constructed the support of the arts as the domain of aristocrats (Binkiewicz, 2004; Larson, 1983; L B. Miller, 1974) Support of the arts was thought to lack practical utility and was contrasted to projects that built infrastructure (Binkiewi cz, 2004; Larson, 1983; L. B. Miller, 1974) Arts received direct support from the federal government when they were linked to work relief during the Depression (e.g., the W.P.A.) and international relations during the Cold War (Binkiewicz, 2004; Larson, 1983; L. B. Miller, 1974) Post World War II, policy entrepreneurs advocated for support of the arts as an antidote to the escalating influence of popular culture and as beneficial to public welfare, education, and international policy ( Larson, 1983 ; Binkiewicz, 2004) Support for a federal arts program grew during the 1960s, from the establishment of a Special Subcommittee on the Arts, under the Senate

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51 Committee on Labor and Public Welfare, to the ap pointment of Arthur Hekscher as the first Special Consultant on the Arts to the President, and to, finally, the act that created the National Endowment for the Arts in 1965 (Baurelein & G rantham, 2009 ; Binkiewicz, 2004; Urice, 2003) Legitimized by establishment of the National Endowment for the Arts, government support was symbolic but remained a modest portion of arts revenue ( Larson, 1983 ) (Binkiewicz, 2004) Arts and culture nonpro fits draw support from a wide variety of sources and programs. The public sector has encouraged private support of arts and culture organizations through Federal tax benefits to nonprofit organizations and private donors (A. C. Brooks, 1999, 2003, 2007; Cowen, 2006, 2007) All levels of governmen t have provided land, buildings, and financial support to art and culture institutions (Cowen, 2006, 2007) Individuals and corporations have contributed to nonprofit arts and culture organizations through donations of money, works of art, artifacts, documents, and the like. The delivery of arts and culture programs, or goods, comes through cooperation among the public, private, and nonprofit sectors. Despite a diversified approach to funding, cultural economists have identified a number of threats to arts and culture organizat ions. Cultural economists use economic analysis to study arts and culture (Association for Cultural Economics International, n/a) They have produced a wealth of insight on the public 's willingness to pay for arts and culture amenities (Bille Hansen, 1997; Feld, 2008; Rushton, 2008; Schwer & Daneshvary, 1995) issues of motivation crowding when public funding and private donations comingle (Abrams & Schitz, 1978; Andreoni, 1993; Andreoni & Payne, 2003, 2011; Borgonovi, 2006; Borgonovi & O'Hare, 2004; A. C. Br ooks, 1999, 2000b, 2000c, 2003;

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52 Connolly, 1997; Dokko, 2009; Kingma, 1989; Lindsey & Steinberg, 1990; Schiff, 1985; T. M. Smith, 2007) and analyses of financial vulnerability and stability (Hager, 2001) The potential benefits, including economic imp act and urban revitalization (Cohen et al., 2003; Florida, 2004; Markusen & Gadwa, 2010a; Markusen & King, 2003; Rose ntraub, 2009) have been measured to demonstrate the return on government spending. What has not been studied is if systems for funding state arts agencies, which in turn make grants to arts and culture nonprofits, influences entry and exits within the nonprofit arts a nd culture population. Arts and culture organizations exit, or cease operation, at rates higher than private firms or the average for the nonprofit sector. Bowen and his colleagues (1994a) reported patterns of institutional entries and exits for the non profit sector as a whole while also detailing the sub sectors, including the arts. Private entities exited the market at a rate just over 1 percent between 1984 and 1990, while the overall rate for 501(c)(3)s was more than double, at 2.3 percent per year b etween 1984 and 1992 (Bowen et al., 1994a) Among nonprofits, arts organizations were found to exit at a rate of 0.8 to 3 percent (Bowen et al., 1994a) These findings raise questions about the risk exposure and sustainability of the members of the nonprofit a rts sector. Arguments have been made that financial conditions are the reason for the exit of an arts and culture organization (Bowen et al., 1994a; Hager, 2001) This calls for an examination of current ra tes of entry and exit and the factors contributing to the sustainability of the sector. The use of arts and culture by government to benefit diverse public problems requires reliable partners and a sustainable sector. Traditional objections to direct gov ernment support are still presented. Cultural economists and organizational

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53 ecologists have identified elevated sectoral risks. Review of history and systems provide a necessary background to ecological evaluation. This chapter details the United Stat es' system for funding the arts because of its significance in the ecology of arts and culture nonprofit organizations in the United States. A brief history of funding for arts and culture nonprofits in the United States, a description of the United State s' model of funding arts and culture organizations, and a summary of economic threats and implications resulting from this approach are reviewed. History of Funding for Arts and Culture Nonprofits in the United States The United States' system of funding arts and culture institutions has been considered unique when juxtaposed with the systems of other countries. However, the policies that resulted from political evolution form an important legacy that cannot be overloo ked. The European tradition of supporting artists and the arts was built on patronage from the aristocracy and the Roman Catholic Church (L. B. Miller, 1974) The United States intentionally broke with this tradition and maintained limited direct financial support for the majority of its history (Binkiewicz, 2004; L. B. Miller, 1974) Lloyd Goodrich, curator and director of the Whitney Museum of American Art and ch air of the Committee of Government Arts in the 1950s, reported that the three greatest obstacles to federal patronage were a puritan tradition, a decentralized federal system, and the growth of private wealth (Larson, 1983) These circumstances resulted in the limited government involvement for the majority of United States history. This position changed in 1965 with the formation of the National Endowment for the Arts. While the NEA formalized a role for government involvement at the national level and incentivized development at the state level, funding levels rema ined limited and modest (Cowen,

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54 2007; National Endowment for the Arts, 2012b) Debates over government funding of arts and culture organizations have continued to position the arts as subsidies for the wealthy and of less utility than other social programs. E arly History The American Founding Fathers debated the role of the state as patron of the arts. Some expressed concern over the association of arts patronage with monarchs and aristocrats (L. B. Miller, 1974) Counter to this is the notion that art and culture have the ability to edu cate and elevate the individual, tracing to Enlightenment philosophy (J. Cuno, 2006) John Adams, Thomas Jefferson, James Madison, James Monroe, and John Quincy Adams supported the establishment of national cultural institutions for the benefits they would supposedly foster in the citizens (L. B. Miller, 1974) Even with such influential advocates and merits, arts and cu lture were considered less essential than projects aimed at economic development (L. B. Miller, 1974) The perceived value of arts and culture organizations has been repeatedly contrasted to the projected benefits of other projects demanding public support. The a rts have continually b een judged to be nonessential luxuries to be acquired and supported by individuals. The arts in the United States were historically supported by private patronage. Artistic knowledge and accomplishment was cultivated at home to enhance education and the personal lives of the American populace (K. D. McCarthy, 1991) The formation of women's service clubs, after the Civil War and before World War I, fostered women's roles as municipal housekeepers and expanded the application of this function from home to community (Blair, 1994) Community arts initiatives were part of reform movements of the Progressive Era of the late nineteenth century, brin ging musical performances,

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55 literary readings, and exhibitions to communities around the nation (Gibans, 2006) Greater access to arts and culture was advocated, driven by the desire for equity and to democratize arts and culture by making them available to all Americans (Gibans, 2006) While movements in the Progressive Era championed the benefits of arts and culture for society, programs continue to be the product of privat e efforts and funding (Blair, 1994; Gibans, 2006; Larson, 1983) Arts and culture were thought b y many to contribute to a good (or at least an enlightened) society. Those with resources continued to support access to arts and culture for a wider population and with broad benefits. Advances in the Twentieth Century The arts finally gained public s upport in the United States through attachment to other public policies. Under the guise of a social welfare program, the Works Progress Administration (W.P.A.) of the 1930s was the first federal attempt at arts programming (Larson, 1983) These programs directed at theater, music, arts, and literature produced reli ef of white collar unemployment, as well as funding the production of works of art that would be consumed by and broadly benefit the public (Larson, 1983) However, some argued that the government did not have the power to utilize tax revenues to support the arts (Binkiewicz, 2004) The entry of the United States into World War II raised, again, the argument that federal patronage of arts and culture was a luxury that could not be afforded in the face of greater demands on limited resources. Americans were still uncomfortable with the role of the government as patron, and federal support of arts and culture diminished to almost nothing (Binkiewicz, 2004; Larson, 1983) Early traditions left a conti nuing legacy of limited support for arts and culture at all levels of government.

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56 The prelude to and aftermath of World War II prompted the American federal government of the United States to identify the utility of art as visual rhetoric on the value of d emocracy (Geduld, 2010; Grincheva, 2010; Kushner, 2002; Larson, 1983; Mulcahy, 1999) The United States government began to engage in arts diplomacy with the Pan American Conference for the Maintenance of Peace in 1936 (Mulcahy, 1999) Cultural exchanges continued with the International Exchange Program and The American National Arts, Sports, and Recreation Act (Larson, 1983) The government maintained, however, that private agencies and funding would be sought to support the activities (Larson, 1983) There was, however, a growing opinion that art had a national purpose a nd should be used as a tool in the Cold War (Geduld, 2010; Grincheva, 2010; Kushner, 2002; Larson, 1983; Mulcahy, 1999; F. S. Saunders, 1995) Thus, the purpose of government involvem ent with the arts served a Cold War function to facilitate cultural exchange, demonstrate American strength and cultural richness, and spread the power of democracy at home and abroad. The election of President John F. Kennedy was a significant advance in the establishment of a United States national arts policy (Urice, 2003) Kennedy pr omised to reinvigorate America, and he selected the arts as one means to raise the level of American civilization. His remarks to [ Musical America ] went on to explain the purposes art could serve in both domestic and foreign arenas to elevate America's image and culture. (Binkiewicz, 2004, p. 34) Kennedy's administration aligned with the opinions of cultural critics who recognized the paradox of the opportunity to freely express in artistic form and the uniformity emerging with prosperity and suburban migrati on (Baurelein & Gr antham, 2009 ; Bin kiewicz, 2004; Urice, 2003) To counter this trend, the arts, cultur al critics believed, should become a

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57 regular recreational activity for the populace, stimulating intellectual development and advancement (Binkiewicz, 2004) Public funding of the arts was not without other supporters in government. Senators Jacob Javits (R NY), Hubert Humphrey (D MN), and Claiborne Pell (D RI) and Representatives Frank Thompson (D NJ) and John Brademas (D IN) acti vely advanced the cause of the arts as important to international and domestic policy (Baurelein & Grantham, 2009; Binkiewicz, 2004) Popular culture was becoming increasingly accessible and prominent. Fearing the ramifications of mass culture left unchecked, intellectuals stressed the need to ele vate American culture and called for the formation of a national arts foundation (Binkiewicz, 2004) The cause of a Federal arts a genda advanced significantly in 1962. Sen. Lister Hill (D AL), chair of the Committee on Labor and Public Welfare, created a Special Subcommittee on the Arts (Binkiewicz, 2004) The provision for a federal role in supporting the arts was provided for, it was argued, in the Preamble of the Constitution ( Congressional Record, 88 th Congress, 1 st Session, 25263 64). The links between th e arts and public welfare, education, and international policy were becoming solidified. The case for government support for the arts was advanced under the Kennedy administration. Arthur Hekscher was appointed as the first Special Consultant on the Arts to the President in March 1962 (B aurelein & Grantham, 2009 ; Binkiewicz, 2004; Urice, 2003) In May 19 63, he issued his "Report to the President on the Arts and the National Government" (Baurelein & Grantham, 2009; Binkiewicz, 2004; Urice, 2003) Heckscher's report concluded that it was time for a domestic arts policy (Baurelein & Grantham, 2009; Binkiewicz, 2004) The report identified the need for a permanent

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58 special consultant on the arts, the appointment of an advisory council, and the establis hment of a foundation (Baurelein & Grantham, 2009; Binkiewicz, 2004) When Congress failed to enact a bill that had already been reported out of subcommittee, Kennedy signed Executive Order 11112 establishing the President's Advisory Council on the Arts in June 1963 (Binkiewicz, 2004) Kennedy chose not to pursue, however, the establishment of an arts foundation without Congressional support, and it was not achieved before h is 1963 assassination (Binkiewicz, 2004) Formation of the NEA The National Endowment for the Arts (NEA) was formed during the Jo hnson Administration. President Johnson built his own panel of advisors who supported an expedient advancement of cultural policy (Baurelein & Gra ntham, 2009; Binkiewicz, 2004) With support from an overwhelming majority in the presidential election, Johnson was confident in pursuing his agenda an d vision of the Great Society (Binkiewicz, 2004) Johnson leveraged his Congressional experience to directly lobby for support of a national arts policy (Binkiewicz, 2004) Furthermore, the arts had attained broader acceptance among the American public (S. Saunders, 2005) Johnson's strategy, buoyed by positive economic indicators and the presentation of the links between arts and humanities and their benefit to improved education, for the forma tion of an arts endowment attracted increased support, and President Jonson signed the bill establishing the National Endowment for the Arts (NEA) on June 29, 1965 (Binkiewicz, 2004; S. Saunders, 2005) Formation of the NEA would drive the development of arts policies at all levels of gover nment in the United States.

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59 The first annual report on the NEA articulated the organization's purpose to foster the arts in the United States and identified a program to build cooperation among federal, state, and local governments (National Endowment for the Arts, 1966) At the time of formation, the Chairman of the National Endowment for the Arts and Humanities (NEA), advised by the National Council on the Arts, offered an incentive to states that did not yet have an arts council (National Endowment for the Arts, 1966) States were offered $25,000 as a one time study grant and $25,000 in matching funds to begin programs and projects at the state arts council level (Larson, 1983) 3 Between the formation of the NEA in 1965 and the end of 1967, the number of state art agencies increased from 18 to 53 to include all 50 states and three special jurisdictions (Larson, 1983) The federal government not only adopted an official role as patron to the arts but also encouraged every state to follow suit and collaborate or partner with the NEA to promote arts and culture in the United States. The next twenty years was a period of growth and consolidation for the NEA and state arts agencies (SAAs). Concerns over what forms of art were funded and regulation of the agency persisted (Baurelei n & Grantham, 2009) However, funding for both the NEA and SAAs increased (J. Lowell & Ondaatje, 2006) The NEA budget reached its pinnacle in real dollars and purchasing power in 1979 (DiMaggio, 1991) Adjusted for inflation, the NEA declined by 40 percent between 1979 and 1987 (DiMaggio, 1991) By 1985, aggregate total spending of SAAs exceeded that of the NEA (J. Lowell & Ondaatje, 2006) By 1989, the aggregate of SAAs budgets totaled approximately 60 percent more than the NEA budget (DiMaggio, 1991) Importantly, the spending power and influence of state arts agencies has continued to increase, relative to NEA appropriations. By 1994, 3 Adjusting for inflation, $25,000 from 1965 is equivalent to more than $184,877 today.

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60 state legislatures in 35 states wer e the dominant providers of revenues (J. Lowell & Ondaatje, 2006) Controversy in the late 1980s and the 1990s would shift the power between SAAs and the NEA. Culture Wars Federal and state programs were established in the mid twentieth century but public patronage was not without question. The issue of legitimacy exploded in what is commonly known as the Culture Wars, an era of conflict between conservative and liberal orientation in which arts and culture featured prominently. The NEA funde d a number of controversial projects such as Andres Serrano's Piss Christ and exhibitions of work by Robert Mapplethorpe and Annie Sprinkle (Wallis et al., 1999) These funding decisions contributed fuel to the debate between accountability to public sensibilities and the freedom of speech of the artist or curator (Wallis et al., 1999) Controversies have proven to increase the risk of volatility and political retribution made via cuts to funding. NEA funding grew from $2,898,308 in 1966 to $158,795,000 in 1981, equivalent to $20, 838,924 and $40,651,200 when adjusted for inflation to 2013 (National Endowment for the Arts, 2012a) Appropriations dipped in 1982 and 1983 and then fluctuated mildly between 1984 and 1995. Funding dropped nearly 40 percent between 1995 and 1996. The annual appropriation s remained in this range until 2001, when it once again exceeded $100 million. The so called Culture Wars of the 1990s resulted in substantial cuts to NEA appropriations. Funding was reduced from $162,311,000 in 1995 to $99,470,000 in 1996, illustrated in Figure 3.2 (National Endowment for the Arts, 2012b) Cuts continued annually until 2000 when only $97,627,600 was appropriated. Funding did not re turn to

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61 1995 levels until 2010. The Culture Wars clearly demonstrated the risks involved in an arts community relying largely on legislative appropriations. Figure 3. 1 NEA annual appropriations State level appropriations ranged from $0 in several states in the early 1970s to over $68,000,000 in California in 2001 (National Assembly of State Arts Agencies, 2012a) In contrast to the seismic decline in NEA appropriations between 1995 and 1996, total state appropriations for 1996 declined less than two percent from 1995 and continued to increase until 2002 (National Assembly of State Arts Agencies, 2012a; National Endowment for the Arts, 2012a) Sources of Funding for U.S. Arts and Culture Nonprofits Organizational ecology seeks to understand the impact of environment al conditions on the population. The population of arts and culture organizations is approximated by those arts and culture organizations that file the IRS 990. There were 39, 536 reporting public charities identified as arts and culture organizations in 2010 !" #!!!!!!!" $!!!!!!!!" $#!!!!!!!" %!!!!!!!!" %#!!!!!!!" &!!!!!!!!" &#!!!!!!!" '!!!!!!!!" '#!!!!!!!" $())" $()*" $(+!" $(+%" $(+'" $(+)" $(+*" $(*!" $(*%" $(*'" $(*)" $(**" $((!" $((%" $(('" $(()" $((*" %!!!" %!!%" %!!'" ,-./0"123450/.462" 7889-894/.4-:5" ;:<0/.4-:"7=>?5.2="

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62 (Blackwood et al., 2012) These represented 10.8 percent of the nonprofit sector population (Blackwood et al., 2012) This is an under representation in that organizations with revenue under $25,000 were not required to file annually and orga nizations with less than $5,000 in revenue are not required to register with the IRS. However, it is the best approximation we have and is routinely used by scholars. Other ways to contextualize the population include analyzing revenues, expenses, and as sets. The subsector reported $29.3 billion in revenues, $27.8 billion in expenses, and 98.9 billion in assets (Blackwood et al., 2012) These amounts represent 1.9 percent, 1.9 percent, and 3.7 percent of the sector totals, respectively (Blackwood et al., 2012) Contemporary funding of arts and culture organizations in the United States relies on several common forms. Gifts and grants from the private sector, direct and indirect subsidies from the public sector, and earned income are the primary s ources of revenue for arts and culture nonprofits. Indirect Subsidies The government provides indirect subsidies to nonprofit organizations by means of tax expenditures. Tax expenditures are the income the government forgoes to encourage certain behavior from individuals and corporations (Howard, 2002) They are favored by a breadth of policymakers because they encourage the desired behavior without demanding it (Howard, 2002) Tax deductions encourage charitable giving by reducing tax obligations and allow individuals to choose which charities to support rather than making that a decision of the government (Howard, 2002) Indirect subsidies are the original form of public support in the United States for arts and culture organizations. They are incentives offere d by a government policy to

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63 encourage the production of art (Cowen, 2006, p. 30) A common indirect subsidy to the arts is the income tax deduction offered to individuals who make charitable contributions to nonprofit arts and culture organizations. Supporters of indirect subsidies prefer a system that allows individuals and corporations to make direct gifts to nonprofit organizations (Cowen, 2006, 2007; Howard, 2002) The government provides indirect subsidies by permitting these donors to deduct these gifts, up to 15 percent of their income (Cowen, 2006, 2007) Additional indirect subsidies provided by the government include the exemption from paying taxes on earned income and gifts and on property taxes (Cowe n, 2006, 2007) Indirect subsidies are unmeasured (Cowen, 2007) although Brooks (2004b) estimated current indirect subsidies to arts and culture as equal to $16 for every $1 of direct aid. A 2006 Boston Globe editorial spoke to the benefit of indirect aid, arguing that private support for arts and culture nonprofits was more reliable than government funds that reflect political partisanship and government budgets (Garber, 2008) Individuals, corporations, and foundations contribute 31 percent of arts and culture nonprofit revenues (Americans for the Arts, 2012a) or $14.44 billion (Boehm, 2013) Indirect sub sidies benefit from broad support of politicians but are not without criticism. It has been argued that they produce windfall benefits by rewarding behavior that would have been occurred with or without the incentive (Howard, 2002) They produce greater benefits for wealthy donors. Wealthy donors are more likely to claim charitable deductions (Ho ward, 2002) While 62 percent of those with income in excess of $100,000 claimed tax deductions, only 29.7 percent of those earning $50,000 to $100,000 and 8.4 percent of those earning less than $50,000 did so (Howard, 2002)

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64 Furthermore, tax expenditures are opaque, lacking the visibility of direct expenditures (Howard, 2002) As a result o f the federal budget deficit and these issues, indirect subsidies have been targeted for reform (National Council of Nonprofits, 2013; Whitehead, 2013) Opinions on the i mpact of changes to charitable tax deductions differ (Clolery, 2013; Donovan & Perry, 2013) Direct Subs idies Direct subsidies derive from federal, state, regional, and local agencies (Cowen, 2007, p. 3) Direct subsidies occur when government agencies provide funds directly to artists or an arts institution (Cowen, 2006) These may be offered by the federal, state, or local levels of government. Grants are a common form of these direct public subsidies. They are payments from a donor (in the case of direct subsidies, a government) to an organization or an individual with the intent of supporting some of the service or activity of the recipient (Beam & Conlan, 2002) Direct subsidies to arts and culture fi rst emerged with the WPA but truly arrived in the funding landscape with the creation of the National Endowment for the Arts (NEA) and Humanities in 1965. Supporters of direct subsidies assert that government patronage is provided for by the Preamble of t he United States Constitution, tasking the government with providing for the general welfare of the United States (Larson, 1983) Direct subsidies from the all levels of government provide only 9 percent of arts budgets, on average (Americans for the Arts, 2012a) 4 This amounted to approximately $1,230,000,000 in 2009 (Americans for the Arts, 2009) 4 This is compo sed of 3% from the federal level, 2% from the state level, and 4% from local government.

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65 Government subsidies for the arts have been justified as a method of economic development, as they contribute to developing tourism, attracting businesses, and increasing public access to the arts (Heilbrun & Gray, 2008; Martell, 2004; Mulcahy, 1992; Schuster, 1998; Tepper, 2002) Furthermore, it is argued that government patronage inspires and encourages private patronage of the arts by endorsing their value to the public (Connolly, 1997; Garber, 2008; P. N. Hughes & Lukestich, 1999) Those in favor of government support argue that the arts are not economically sustainable without the support of the government (Larson, 1983) Dissenters often counter that arts and culture organizations are luxuries benefitting a small portion of the population and should not take scarce resources away from more widely dispersed public goods. Direct subsidies are typically made possible by legislative appropriations or allocations from the general fund. Legislative appropriations are authorizations from a specific fund to a specific agency or program to make expenditures/incur obligations for a specified purpose a nd a period of time (California Department of Finance, 2012; National Assembly of State Arts Agencies, 2012b) These resources are given by state and city governments and are justified, in part, by efforts to attract the creative class, draw businesses, and increase tourism (Cowen, 2006). In 2009, state funding totaled $343 million and local support was $832 million (Americans for the Arts, 2009) Direct subsidies are, of course, highly susceptible to changes in political leadership and the putative economic "health". It is reported that state appropriations are less consistent and predictable than federal funding. In describing state level funding, Cowen (2006) wrote the following:

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66 State art budgets exhibit more year to year volatility than does th e NEA, largely because of the volatility of local state economics. In many cases, cultural nonprofits receive a direct, line item appropriation from the state. (pp. 88 89) The role of state and local appropriations in the sustainability of nonprofit arts and culture organizations warrants evaluation and careful consideration. City level expenditures are no differ ent and fluctuate with the state of the economy (Cowen, 2006). These fluctuations are particularly significant when considering the power of state and local appropriations. The NEA budget peaked in dollars in 1979 and declined, when adjusted for inflatio n, by approximately 40 percent between 1979 and 1989 (DiMaggio, 1991) By 1989, state legislative appropriations for the arts totaled approximately 6 0 percent more than the NEA budget (DiMaggio, 1991) In 2009, NEA appropriations were $155 million, total state appropriations were $343 million, and local appropriations totaled $832 million (Americans for the Arts, 2009) Earned Income Earned income is deriv ed from services provided for a fee, including but not necessarily limited to admissions, education programs, gift shop sales, and licensing. A shift in purpose from repository of cultural artifacts and relics to educational facility and changing patterns of philanthropy prompted elite cultural organizations, such as New York's Metropolitan Museum, to venture into new methods of generating revenue (Toepler, 2006) Earned income accounts for an average 60 percent of nonprofit arts and culture revenues (Americans for the Arts, 2012a) Earned income produces the largest stream of revenue, on average, to arts and culture organizations.

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67 Alternative Funding Sources Legislative appropriations are the most common form of state level arts funding. Forty eight states and four jurisdictions use legislative appropriations to fund, in part or in whole, the state or jurisdictional arts agency, with Arizona and South Dakota as the exceptions that use alternatives for 100 percent of their state arts agency funding (National Assembly of State Arts Agencies, 2010) These general fu nds contribute a median of 86.4 percent of all state funding received by these agencies (National Assembly of State Arts Agencies, 2012b) Legislative appropriations are highly vulnerable to political and economic tides, leaving arts organizations exposed to a high le vel of risk, and the adoption of alternative mechanisms has increased to insulate against threats. The number of states using alternative mechanisms to fund the state arts agency has grown from 15 in 2003 to 29 in 2013 (National Assembly of State Arts Agencies, 2012b) Furthermore, ten states using alternative m echanisms generated at least 50 percent of state funding by alternative mechanisms. As states consider and adopt these mechanisms, it is important to build a deeper understanding. Appropriations are not the exclusive mechanism for funding the arts. There are alternative sources of revenue documented in 29 states (National Assembly of State Arts Agencies, 2012b) These include special taxes and fees, lotteries and gaming, specialty license plates, income tax check offs, bond issues, and cult ural trusts. In ten states, these alternatives contribute at least half of funding to the state arts agencies (National Assembly of State Arts Agencies, 2 012b) Specialty taxes and fees take a variety of forms and may be imposed at the state and local levels. Hotel/motel fees, a percentage of sales tax, conservation taxes,

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68 corporate filing taxes, special income taxes, and admissions tax programs have been used to generate and earmark funds for the arts (National Assembly of State Arts Agencies, 2012b) For example, Missouri authorized the collection of an incom e tax from visiting performers and athletes in 1993 (St. Louis Volunteer Lawyers and Accountants for the Arts, 20 10) Proceeds were divided between the Missouri Arts Council Trust Fund and cultural partners (St. Louis Volu nteer Lawyers and Accountants for the Arts, 2010) Only ten state art agencies receive income from dedicated taxes or fees. These are more common at the local level and include special districts. Special districts are defined as "independent, limite d purpose local governments that exist as separate legal entities with substantial administrative and fiscal independence from general purpose government" (Marlow, 1995, p. 569) They may be created to levy taxes and provide services typically not provided by the local government (U. S. Census Bureau, 2011). Since 1972, special cultural districts to support arts and culture organizations have formed in eight communities in the U. S. (Hansberry, 2000). Variations exist between them, including sources of funds, geographic area included, types and number of organizat ions supported, and distribution of funds. "Cultural districts" is a term that is broadly used and may imply a variety of things. Frost Kumpf (1998) defined a cultural district as a "well recognized, labeled, mixed use area of a city in whic h a high concentration of cultural facilities serves as the anchor of attraction" (p. 10). However, there are many variations within this, from types of art and culture anchors, point of genesis, and sources of funds (Frost Kumpf, 1998; Galligan, 2008) For the purposes of this dissertation, a definition is drawn from Denver's Scientific and Cultural Facilities District (SCFD) because the district is well

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69 documented in scholarly research (Hansberry, 2000; Martell, 2004; Moon, 2001) it is one of eight nationally that includes an alternative to general funds to support the arts, and it is used as a case in this dissertation. Cultural district is used to connote collaboration among rural, suburban, and urban counties established by law and a pproved by voters to levy and collect a specific tax to distribute to arts and culture organizations in the community (Hansberry, 2000). This mechanism protects funds, removing them from shifting political tides (Martell, 2004). For instance, in 2011, De nver's SCFD collected the 1/10 th of 1 percent sales tax and distributed $41,517,605.34 to 300 nonprofit arts and culture organizations in the metro area (Scientific and Cultural Fa cilities District, 2011) The use of special districts as mechanisms for funding the arts is also an example of cultural governance an institutional and financial arrangement to support local and regional cultural resources (Moon, 2001) Districts dedicate locally collected public resources to arts and culture for the benefit of the district. Lotteries and gaming have been used to raise state revenues for a variety of causes. Many states claim that public programs have benefitted from th e revenue generated by lotteries and gaming (Stanley & French, 2003) Miller and Pierce (1997) found that states using lotteries to increase education funding did at first experience a funding increase, but the benefits declined over time. Four states have dedicated income from lotteries and gaming to help fu nd state arts agencies (National Assembly of State Arts Agencies, 2012b) In Colorado, Iowa, and West Virginia, revenue from lotteries and gaming are a significant stream of income (National Assembly of State Arts Agencies, 2012b) Since 1992, Iowa has earned $1.4 billion from lottery revenue, with $72 .75 million in 2012 (Iowa Lottery, 2013 ) West Virginia reported $663 million in state

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70 revenue from the lottery (West Virginia Lottery, 2012) In Massachusetts, the state general fund is reimbursed from the lottery account for the general funds granted to the state arts agency (National Assembly of State Arts Agencies, 2012b) In Colorado, 50 percent of gaming revenue is dedicated to the state general fund to be distributed among nine groups, including the State Council on the Arts/Creative Industries, for their cash fund. In 2010, this was $1,121,726 (Colorado, 2014) Specialty license plates provide consumers with the option to visibly display their support for a particular cause or organization. Motorists can order these for an additional fee, a portion of which goes to the cause supported. Choices vary by state. New Hampshire offers only one plate, while Maryland offers more than 800 (Eyler, Dodson, S., & Brownson, 2011) Seventeen states use specialty license plates to generate revenue for the st ate arts agency, but only California and Tennessee identify it as a primary source of funding (National Assembly of State Arts Agencies, 2012b) Incom e tax check offs are another source of funds. State residents are allowed to designate dollars from their state income tax return to specific causes, including the arts (National Assembly of State Arts Agencies, 2012b) This is actively used in Alabama and Virginia. California has this revenue system, but the state is holding these revenues because they failed for two consecutive years to reach the thr eshold for disbursal. This approach was used in other states but has been discontinued due to low funding returns. Bond issues have also been passed to support the arts. These are typically associated with capital improvements for cultural facilities (National Assembly of State Arts Agencies, 2012b) These are usually limited in time and scope (National Assembly of State Arts Agencies, 2012b)

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71 Trust funds have been established at the state level to benefit the arts. Endowments are built by using public funds to attract private donations or by estab lishing special tax mechanisms (National Assembly of State Arts Agencies, 2012b) The money is held in trust and generates interest that may then be di stributed without reducing the principle. Cultural trusts exist in 15 states but are generating current support in only seven Connecticut, Indiana, Montana, Nebraska, Oregon, Texas, and Utah (National Assembly of State Arts Agencies, 2012b) Donations, earned income, indirect subsidies, and direct subsidies are the principled means by which arts and culture organizations are funded in the United Stat es. The rate of contribution of each varies with influence from state and local approaches and responses to individual organizations. In an effort to stabilize direct funding for the arts, a number of state and local governments have adopted alternatives to legislative appropriations. As governments, globally, have been forced to cut funding, arts scholars and advocates have looked to the American model to fund the arts (Ginsburg, 2012) The United States Model of Arts Funding and Economic Threats Arts and culture nonprofit organizations in the United States rely on a variety of sources of revenue. Federal patronage is based on a hybrid form that uses both direct and indirect subsidies. Economists who favor the United States' system for arts suppo rt praise the combination of direct and indirect subsidies (Cowen, 2006; Heilbrun & Gray, 2008) First, they argue that a blended approach of support diversifies sources and insulates organizations from erratic swings of the political pendulum. Second, indirect tax subsidies benefit all nonprofi t organizations, and individual tax deductions for charitable donations keeps the government from favoring certain types of organizations

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72 and from acting as art critics forced to judge the good, the bad, and the indecent (Cowen, 2006) Finally, 66 to 75 percent of Americans favor some form of government support, but they prefer direct support to be distributed at a local level (DiMaggio & Pettit, 1999) This is an important point that is overlooked by studies focusing on the NEA, federal funding, and national, aggregate studies that fail to consider t he local context of arts funding. The local context plays an important role in determining how to support arts and culture organizations. According to Stubbs (2013) NEA fiscal year 2013 appropriations declined 5 percent to $139 million, while aggregate state appropriations increased more than 7 percent to $279 million, and direct expenditures on the arts by local governments increased nearly 3 percent to $727 million. Twenty nine state arts agencies received state funds through some mechanism other than appropriations (National Assembly of State Arts Agencies, 2012b) How these alternative mechanisms relate to vulnerability and sustainability of the sector has not yet been tested.

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73 Table 3.1 Mechanisms for funding state arts agencies (National Assembly of State Arts Agencies, 2012b) (* indicates at least 50 percent of state funding from alternative mechanism(s); Years are noted for those instituted befor e 2004) Mechanism Description States using Legislative appropriations Competition, budget shortages, and politics are threats to this method of funding, but it is believed important for the arts to be part of the state budgeting process, raising consider ation of state's cultural needs. All except AZ. Taxes and fees May come from hotel/motel fees, a percentage of state sales tax, conservation tax, corporate filing fees, income tax on out of state entertainers and athletes, and admissions tax programs. AR (1998), AZ*, DE, MN*, MO (1994/1998)*, MS, NJ*, NV*, SD*, WA Lotteries & Gaming Revenue from lotteries and gaming have been used to boost state revenues and in several states, and the arts have been the beneficiaries. CO*, IA (1992), MA, WI, WV (1989)* License Plates States offer specialty license plates for which users pay an additional fee that benefits the state arts agency or the cultural trust. AL (1996), CA (1994)*, NC, NH (2001), NV (1997)*, SC, TN (1996)*, TX Tax Check offs State residents are given the opportunity to direct money to the state arts agency on their state income tax return. AL (1982 2005), CA (2011, suspended 2012)*, VA (2004) Public Trusts Active in 15 states, trusts are currently generating funds for state arts agencies in 7 states. Trusts have been funded with special taxes and state tax credits. The interest from the trusts is used to benefit endowments of local arts groups or fund spec ial grants or education programs through the state arts agency. CT (1993), DE (1992), IN (1997), MT (1975), NE, OR (2001), TX (1995), UT (1990) More than one alternative mechanism Several states have implemented two of these mechanisms. AL (License plates 1996; Tax check off 1982 2005), CA (License plates 1994; Tax check off 2011, suspended 2012)*, NV (License plates 1997; Taxes and fees 1955)*, TX (License plates 2003, Public Trust 1995) Financial vulnerability of arts and culture organizations is a growing concern. Cultural economists have studied cost disease, or the income gap, among arts and culture nonprofits. "Cost disease" argues that arts and culture organizations see their labor costs escalate while productivity remains the same (A. C. Brooks, 2000a; Heilbrun & Gray, 2001b) Admissions prices rise more slowly, causing a gap between revenues and expenditures. Furthermore, Bowen, et al. (1994) found the average

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74 annual exit rate of nonprofits, or the percent of nonprofits that ceased to operate each year, from 1984 to 1992 to be 2.3 percent 5 The implied that annual failure rate among nonprofit arts and culture organization s was subs tantially higher: 1.1 percent among museums, 2.4 percent among theaters, 2.7 percent among dance organizations, 2.7 percent among opera companies, and 3.0 percent among ballets 6 More recently, Harrison and Laincz (2008) reported nonprofit exit rates for the p eriod 1989 to 2000. The United States nonprofit sector experienc ed an average exit rate of 2.14 percent Arts, culture, and humanities were treated as a single group, with an exit rate of 2.29 percent Scholars have operationalized vulnerability differe ntly. Tuckman and Chang (1991) identified a vulnerable organization as one that reduces services immediately upon experiencing a financial shock. Greenlee and Trussel (2000) reported organizational vulnerability when an organization reduced program expen ditures in each of three consecutive years. Hager (2001) used an organization's inability to survive financial shock as the operationalization of vulnerability. Hager (2001) applied the financial ratios offered by Tuckman and Chang (1991) to arts and cul ture nonprofit organizations to evaluate their value in predicting the well being of organizations. Using data from IRS 990 tax returns, Hager (2001) calculated financial ratios for equity balance, revenue concentration, administrative costs, and operatin g 5 Bowen, Turner, Nygren, and Duffy (1994) contrast this to 1.2 percent (1984 1987) and 0.8 percent (1989 1990) among for profit organizations. 6 Bowen, Turner Nygren, and Duffy (1994) report exit rates for 1981 1991 and then offer an "implied annual rate". Their method of calculating was to establish "the average annual rate of increase in the total number of new entrants (gross entrants) between 1981 and 199 1. We then calculate the average annual rate of increase in the number of still active organizations (surviving entrants). The average annual exit rate is the difference between these measures" (p. 101).

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75 margin. Hager (2001) cautioned about broad application of his finding, noting that even among arts and culture nonprofits, there were variations in the strength of these ratios in predicting exit or failure. However, low equity balance predicts failu re of art museums, theaters, and music organizations. High revenue concentration is associated with the closure of visual arts organizations, theaters, music organizations, and generic performing arts organizations. Low administrative costs were associat ed with the failure of theater and music organizations. Low operating margins were predictive of the collapse of theaters and generic performing arts organizations. Organizational ecology studies the environment to ascertain how the environment influenc es a population of organizations. The ability to attract resources and heightened financial vulnerability are two important issues confronting arts administrators. A deeper understanding of how alternatives to legislative appropriations to fund state art s agencies contribute to the ecology of nonprofit arts and culture organizations may bring better methods for attracting necessary resources and controlling financial vulnerability.

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76 CHAPTER IV DESIGN OF STUDY Introduction This dissertation represents an application of organizational ecology to the population of arts and culture nonprofits for a quantitative study of the vital counts of arts and culture nonprofits. It also investigates if state level funding mechanisms supporting state arts agencies impact the sustainability of the sector. Arts and culture nonprofit organizations are an important component of contemporary life. In addition to preserving, providing access to, and educati ng about art, culture, history, and science, these orga nizations support initiatives and programs that benefit education, the economy, and society. Applying organizational ecology to this population provides an evaluation of the strength and sustainability of these organizations and identifies potential hazard s to the sector. This section details the methodology for this study and reviews research questions and hypotheses. It describes how organizational ecology is operationalized, the construction of the data set, and the empirical models used for testing. Research Questions and Hypotheses The hazards to which arts and culture organizations are exposed have been identified by cultural economists, organizational ecologists, arts administrators and advocates. Cultural economists have observed that costs are rising faster than revenues (H. Baumol & Baumol 1985; A. C. Brooks, 2000a; Heilbrun & Gray, 2001a) and that revenue from private do nations is shrinking (Cowen, 2006, 2007) The majority of states use legislative appropriations to support the state arts agency. Arts advocates argue for

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77 greater public support to face economic and financial challenges. Earned income has been leveraged as a source of revenue a nd now produces 60 percent of revenue (Americans for the Arts, 2012a) Alternative mechanisms have been identified as another mechanism t o insulate arts funding from sudden changes (National Assembly of State Arts Agencies, 2012b) They have been instituted as a supplement in many states and as a substitute for legislative appropriations in only one (National Assembly of State Arts Agencies, 2012b) Legislative appropriations have been the prevalent form of support for state arts agencies for the majority of their history. Just 15 states used alternative funding mechanisms to benefit the SAA in 2003 (National Assembly of State Arts Agencies, 2012b) By 2013, that number had almost doubled, reaching 29. Therefore, entry and exit patterns among states that use only legislative appropriations when the number of states using alternative mechanisms was limited should resemble national averages. Exit and turnover are natural in a population of organizations. Organizations exit for a variety of reasons. However, when exit patterns are noticeably different than those for other organiz ation s as well as for organizations within the same sector, additional scholarship is warranted. Too much turnover reduces market efficiencies. A sustainable population of organizations is necessary to function and contribute to shared policy goals. These conditions prompted the formulation of four research questions and seven hypotheses. Research Question 1 Do the sources of revenue for state arts agencies (SAA) affect the entry rate of arts and culture nonprofit organizations? Hypothesis 1 The number of entries of arts and culture nonprofits in states where alternative funding mechanisms are in place will be higher than in states relying on legislative appropriations.

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78 Subsidy advocates, in the words of Cowen (2006), have argued that gov ernment support of the arts is essential for survival of the sector. Beginning largely with the creation of the NEA, this has been done via legislative appropriations (Cowen, 2006; National Assembly of State Arts Agencies, 2012b) Most states, 48 of the 50, rely on these for part or all of the funds allocated to the state arts agency (SAA), which in turn provides grants to ar ts and culture organizations and programs (National Assembly of State Arts Agencies, 2012b) States that follow this norm should resemble the national average in terms of entries. Alternative mechanisms, such as special taxes or fees, revenue from license plates, lotteries and gaming, tax check offs, and public trusts for the arts, promise more stable revenue streams that are not subjected to political changes in the legislature and changes in the economy (Martell, 2004) This underscor es the legitimacy of the organizations and should spur additional entries according to organizational ecologists (Hawley, 1950) Resea rch Question 2 Do the sources of revenue for state arts agencies (SAA) affect the number of state level exit s of arts and culture nonprofit organizations? Hypothesis 2 Exits of arts and culture nonprofits in states in which alternative mechanisms are in place will be lower than in states that do not. The majority of states use legislative appropriations to support the state arts agency, as previously stated. Therefore, exit patterns among states that rely exclusively on legislative approp riations should resemble the national average. Alternative mechanisms should reduce financial risks and reduce the number of exits in states where they are present.

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79 Research Question 3 Do nonprofit arts and culture organizations that receive grants from a state arts agency experience a different rate of exit than those that do not? Hypothesis 3 Nonprofit arts and culture organizations receiving grants from state arts agencies will experience fewer exits than nonprofit arts and culture organizations not receiving these grants. Grants from the National Endowment for the Arts have been purported to serve as an endorsement, or a seal of approval, and ha ve been claimed to attract private donations (Hershenson, 1995; Larson, 1983; National Endowment for the Arts, 2005) 7 This argument has been extended to the benefit from state arts agencies (National Assembly of Sta te Arts Agencies, 2010) According to claims that have been in circulation for almost 50 years recipients of grants should have greater success in attracting private donations. Research Question 4 Are the number s of entries and exits of nonprofit arts and culture organizations in a metropolitan statistical area (MSA) with a special funding district significantly different than those for the state? Hypothesis 4a The number of entries of nonprofit arts and culture organizations in an MSA will b e highe r t han state counts. Hypothesis 4b The number of exits of nonprofit arts and culture organizations in the Denver MSA will be lower than state counts. 7 That grants from the National Endowment for th e Arts serve as a Good Housekeeping Seal of Approval has been often repeated. A review of events on the occasion of the Endowment's 40 th anniversary included the grant made to the Watts Writer's Group. Founder Budd Schulberg is quoted as saying, in 1966, "The NEA provided tremendous assistance, no question about it," says Schulberg. "It was like the Good Housekeeping seal of approval, and it helped us gain additional private support and also obt ain help from the film industry (National Endowment for the Arts, 2005)

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80 Alternative mechanisms to fund the arts have been created at different levels of government (Frost Kumpf, 1998; Hansberry, 2000; M artell, 2004; Moon, 2001; National Assembly of State Arts Agencies, 2012b) Metropolitan statistical areas (MSAs) have created mechanisms to support local arts and culture organizations. The stability of these funds should encourage the formation, or entry, of arts and culture organizations and reduce the incidence of exit a mong arts and culture organizations at the city level. The position of arts and culture nonprofits as utilitarian for the advancement of other policy goals warrants an improved understanding of the population and ecology. One of the most pressing and i nfluential issues facing arts and culture nonprofits is the ability to secure adequate, predictable, financial resources to survive. It has been postulated that alternative mechanisms of funding will be more stable than legislative appropriations and that this stability will benefit arts and culture organizations (Hansberry, 2000; Martell, 2004; National Assembly of State Arts Agencies, 2012b) A study to test these claims has not, until now, been undertaken. As an increasing number of states and MSAs adopt alternative mechanisms to supplement or replace legislative appropriations, these will have an increasing role in the ecology of arts and culture nonprofits. This dissertation seeks to advance understanding of how different means of government support con tribute to sustainability. Population Organizational ecology empirically studies populations of organizations. These are defined by shared organizational features, such as structures, behaviors, and members (Hannan & Freeman, 1989) This thesis examines the population of arts and culture nonprofits in the United States. These are define d as organizations that are identified in

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81 the National Taxonomy of Exempt Entities Core Codes (NTEE CC) as "A" organizations, arts, culture, and humanities. These are further classified by decile and centile codes that identify the organization's activity area. These codes appear in Table 4.1. The NTEE codes are used, including the decile and centile codes, to look at the research questions broadly (arts and culture) as well as more narrowly (museums versus performing arts), and even more narrowly (being able to distinguish within performing arts between ballet and symphonies, for example). This is in keeping with scholarship of organizational ecology and arts and culture organizations (Bowen et al., 1994a; Ha ger, 2001) Table 4.1 NTEE Classification of arts, culture, and humanities A ARTS, CULTURE & HUMA NITIES A01 Alliances & Advocacy A02 Management & Technical Assistance A03 Professional Societies & Associations A05 Research Institutes & Public Policy Analysis A11 Single Organization Support A12 Fund Raising & Fund Distribution A19 Support NEC A20 Arts & Culture A23 Cultural & Ethnic Awareness A24 Folk Arts A25 Arts Education A26 Arts & Humanities Councils & Agencies A27 Community Celebrations A30 Media & Communications A31 Film & Video A32 Television A33 Printing & Publishing A34 Radio A40 Visual Arts A50 Museums A51 Art Museums A52 Children's Museums A54 History Museums A56 Natural History & Natural Science Museums A57 Science & Technology Museums A60 Performing Arts

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82 Table 4.1 cont d A61 Performing Arts Centers A62 Dance A63 Ballet A65 Theater A68 Music A69 Symphony Orchestras A6A Opera A6B Singing & Choral Groups A6C Bands & Ensembles A6E Performing Arts Schools A70 Humanities A80 Historical Organizations A82 Historic al Societies & Historic Preservation A84 Commemorative Events A90 Arts Services A99 Arts, Culture & Humanities NEC Unit of Analysis Organizational ecology utilizes three levels of analysis: organizational demography, population ecology, and community ecology (Carroll, 1984) Organizational demography attends to the life cycle events of individual organizations, such as birth, the liabilities of newness and smallness, status as a gene ralist or specialist firm, and death (Carroll, 1984; Wholey & Brittain, 1986) Population ecology examines the vital counts and rates of the population of organizations (Carroll, 1984) Community ecology studies the interaction among multiple populations within a geographic area (Carroll, 1984) This dissertation takes the approach of population ecology by studying the entry and exit of arts and culture organizations in the United States. Many organizational ecology studies examine populations at the national level (Bowen et al., 1994a; Carroll & Delacroix, 1982; Delacroix & Carro ll, 1983; Hannan et al., 1998; Hannan & Freeman, 1989) However, Delacroix and Carroll (1983) argue that the environmental unit should be established in accordance with exchange boundaries related

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83 to the task environment. State and local geographic boundaries are also com monly used to reflect the appropriate level of competition for resources (J. A. C. Baum & Oliver, 1996; Carroll & Huo, 1986; Lincoln, 1979a; Swaminathan, 1995; Swam inathan & Wiedenmayer, 1991) U. S. arts and culture nonprofits draw resources from the national, state, and local levels (Cowen, 2006, 2007; Howard, 2002) National studies provide a baseline and allow for comparison to other countries but fail to capture the variation resulting from the state environments (Schuster, 2002 ) The NEA sought to and succeeded in fostering the development of an arts agency in every state. Until 1986, the NEA appropriations were more than the aggregate of state arts agency revenues with two exceptions (National Assembly of State Arts Agencies, 2012a; National Endowment for the Arts, 2012b) 8 After 1985, aggregate state arts agency revenues exceeded NEA appropriations every year indicating the growing importance of state arts agency funding. The National Assembly of State Arts Agencies has collected and maintained data on state arts agency revenue and state arts agency grants that enhance comparison between states (National Assembly of State Arts Agencies, 2012b, 2013) State level analysis provides for testing the influence of state alternative mechanisms on population dynamics of arts and culture nonprofits. The unit of analysis for resear ch questions one, two and three is, therefore, the state. Funding alternatives have also been adopted at the local level (Hansberry, 2000; Howard, 2002; Martell, 2004; Moon, 2001; Rushton, 2005) Currently, data at this level 8 There are two exceptions, 1971 and 1977, in which the aggregate appropriations to state arts agencies exceeded NEA appropriatio ns. State arts agency appropriations were equal to an average of 78% of NEA appropriations for the period 1970 to 1985.

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84 are fragmented and inconsistent mak ing panel studies unfeasible. This does not eliminate the value to be found in study ing examples of local alternatives to fund the arts. Extending the study to include a case of local alternative funding of the arts will present another level of ecological analysis. Research question four uses three geographic areas as the unit of analy sis. The Denver metropolitan statistical area (MSA) is compared to the state of Colorado and to the United States to see how the entry and exit of arts and culture nonprofit organizations varies with the presence of an arts agency funded by an alternative mechanism from one funded by legislative appropriations and from the national average. Description of Data Organizational ecology relies on the study of a population of organizations. The IRS Form 990 is a common source of financial information on non profit organizations in the United States. The IRS has required tax exempt organizations to file the Form 990 since 1941 (National Center for Charitable Statistics, n/d b) It is the only financial information that a nonprofit is required to make public (Calabrese, 2009) The rules governing the filing of the Form 990 have changed over time, including the level of revenue at which filing becomes mandatory (National Center for Charitable Statistics, n/d b) That is to say until recent revisions, not all nonprofits were required to annually file an IRS 990 As a result, some newer and/or smaller organizations were not required to file and may have been excluded (Hager, 2001) The data set wa s constructed from several existing data sets and sources of data. These include the core data files from the National Center for Charitable Statistics, The State Arts Agency Public Funding Sourcebook, a custom report identifying all grants

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85 made by state arts agencies to arts and culture organizations between 1995 and 2011 from the National Assembly of State Arts Agencies, and data on the population, education, gross domestic product, and political party representation. The following paragraphs describe ho w the data were employed in response to the research questions posed. The National Center for Charitable Statistics at the Urban Institute compiles and maintains the National Center for Charitable Statistics (NCCS) Core Files. The core financial files include more than 60 variables drawn from the IRS annual Return Transaction Files (RTF) for all organizations required to file since 1989 (Urban Institute, 2006) This provided basic information, inc luding organization name, employer identification number (EIN), National Taxonomy Exempt Entities (NTEE) classification, address, rule date (when the tax exempt status of an organization was recognized), and financial details, such as total revenues. It al so documents the last year of filing, used to establish years of entry and exit. As noted, NCCS core files are available from 1989 forward. While arts and culture nonprofit organizations have existed in the United States earlier than the NCCS core data files, the analysis for research questions one and two begin with the first year of available data, 1989. At the time data were downloaded, they were available through 2007. Given the operationalization of exit, the final year for which exits can be est ablished is 2004. A total of 25,952 nonprofit arts and culture organizations entered during the period. A total of 12, 209 nonprofit arts and culture organizations exited during the period.

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86 Counts were made of entries and exits for each state and year be tween 1990 and 2004 9 These formed the basis of each observation and were augmented with the annual allocation of government funds received by each state arts agency from the National Assembly of State Arts Agencies The State Arts Agency Public Funding So urcebook Each state/year observation includes whether there is one or more alternative mechanisms in place in a given state and year. These were coded by program. The following codes were used: state legislative appropriations only (1); specialty t axes and fees (2); lotteries and gaming (3); fees from license plates (4); tax check offs (5); cultural trusts or endowments (6); and more than one alternative mechanism (7). The 750 observations analyzed for research questions 1 and 2 include 596 observa tions in which only legislative appropriations were used, 33 observations where special taxes and fees were in place, 29 occurrences in which lotteries and gaming were used, 31 observations in which fees from license plates were used, 7 observations in whi ch tax check offs were featured, 84 observations in which cultural trusts and endowments were in place, and 20 observations where more than one alternative was being used. Nonprofit scholars and cultural economists have identified key variables that dri ve support for, donations to, and participation in arts and culture organizations. These include measures, educational attainment, unemployment, and population size (A. C. Brooks, 2001; Rushton, 2005, 2008; Wolpert, 1997) Politicians and party affiliation can also influence support for the arts (A. C. Brooks, 2001; Moen, 1997a) Organizational ecology recognizes that density, the number of organizations in the marketplace, will 9 Use of core data files makes it impossible to know what organizations filed in the years before 1989 and ceased filing in 1989. I was able, however, to observe if an organization filed in 1989 and failed to do so subsequently.

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87 impact the population of organization s. This is captured with the number of nonprofit arts and culture organizations present at the beginning of the year. Control variables for state population and educational attainment were gathered (U. S. Census Bureau, n. d. a, n. d. b, n.d. a) Annual state unemployment rates (not seasonall y adjusted) were drawn from the Bureau of Labor Statistics (Bureau of Labor Statistics, n. d.) Education attainment was operationalized as the percentage of the population over 25 who had earned a bachelor s degree or higher (U. S. Census Bureau, n.d. b) .These decennial data for educational attainment were transformed to annual estimates by dividing the amount of change by the ten years in the period to find an estimated annual rate of change. These rates were then multiplied by the time period and adde d to the base to approximate an annual rate of educational attainment using the process of linear interpolation. The data for the analysis of organizational entries and exits were organized as annual time series for the years from 1990 to 2004 for all v ariables. This combination of data produced 750 observations for use in addressing research questions 1 and 2. Table 4.2 provides descriptive statistics for the variables used in entry and exit analysis for research questions one and two.

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88 Table 4.2 Descriptive Statistics for Variables Used in Analysis of Arts and Culture Nonprofit Entries and Exits (Research Questions 1 and 2) Variables Obs. Mean S. D. Min. Max. Number of nonprofit arts and culture entries by state 750 33.60 44.92 0 332 Number of nonprofit arts and culture exits by state 750 16.27 25.04 0 240 Program Type (Legislative appropriations, 5 alternative mechanisms, combination of two alternative mechanisms, as described on page 86) 750 1 7 Legislative appropriations only 551 Taxes and fees 32 Lotteries and gaming 28 License plate fees 30 Tax check offs 6 Cultural trusts and endowments 83 Combination of two alternative mechanisms 20 Density of nonprofit arts and culture organizations 750 626.60 777.40 60 6191 State population (humans), in 1000s 750 5331.62 3 5902.93 454 35580 State unemployment rate 750 5.19 1.42 2.3 11.3 Educational attainment (% of the population 25 or older with a bachelor s degree or higher) 750 22.69 4.38 12.3 35.4 Change in state GDP 750 5.53 2.61 11.01 14.41 Per capita GDP, in 1000s 750 31703 25327 15063 388274 SAA Revenue, lagged 1 year and adjusted for inflation, in 1000s 750 12881 20024 255 189193 Percentage of the state senate seats held by Democrats 10 735 53.96 16.59 8.82 97.06 Percentage of the state house seats held by Democrats 9 735 54.06 16.39 12.86 92.56 10 The Nebraska Legislature is unicameral and nonpartisan. This means there is not a reported percentage of seats in the House or the Senate held by Democrats, reducing observations by one for each of the 16 years in the study.

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89 The third research question required additional information and an additional data source. NASAA provided a custom report identifying all grants made by state arts agencies to arts and culture organizations between 1995 and 2011. This reduced the number of years for analysis. The two sets were then matched by organization. Matching the two data sets for the unique identifier of the employer identifications numbers (EIN) would have been ideal. However, the NASAA data did not include the EIN until later years (circa 2007). This proved an additional challenge for merging the two data sets needed to answer the third research question. Names had to appear identically every year and across data sets to identify a match. Absent this, the data sets were comb ined and then separated by state. They were cleaned using Google Refine. This eliminated unnecessary leading and ending spaces. It also clustered organizations by name, identifying those that were likely to be related based on similarities. This made i t possible to review and accept one name for an entire cluster, if appropriate. The resulting data were then split back to their sources, NCCS or NASAA. Stata was used to collapse NASAA reported grant awards to an annual total per organization/fiscal yea r. This process resulted in 13,271 observations for the period 1995 2004. The data were collapsed to create one observation for each organization that included the total amount received in grant awards in that fiscal year. The data were match merged to create one record per organization that included the data from NCCS and NASAA for the time period 1995 2004. This resulted in a sample of 3,127 unique organizations in 44 states. Counts were made of exits for the entire period for each state in which there were organizational matches in the data for the period 1990 to 2004. This contrasts with annual counts in research questions one and two. Density is the number of organizations

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90 in the population at the start of the period. For research questions on e and two this was all nonprofit arts and culture organizations that filed the IRS 990 form between 1989 and 1995 that had not exited. For the organizations that received grant awards it was the population of organizations that received grants during th e period. State averages during the period were calculated from the control variables described above (population, unemployment, educational attainment, state GDP level, per capita GDP, and number of seats held in the state senate and state house held by Democrats). The population of organizations receiving grants was coded as program 2. These values were compared to results for the general population from research question 2, where the program was coded as 1. The data for the analysis of organizational entries and exits were organized as annual time series for the years from 1995 to 2004 for all variables. This combination of data produced 94 (50 states for the entire population during the period and 44 states in which there were merged observations of organizations that received grants) observations for use in addressing research questions 3. There are important limitations to this approach and they are discussed in the Limitations section of this chapter. Table 4.3 provides descriptive statistics f or the variables used in entry and exit analysis for research question three.

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91 Table 4.3 Descriptive Statistics for Variables Used in Analysis of Exits by Grant Recipients Compared to the General Population 1995 2004 Variables Observ ations Mean S.D. Min. Max. Number of nonprofit arts and culture exits by state 94 138.31 263.38 2 1,685 Program Type (1= population; 2 = only grant recipients; 50 observations of type 1, 44 observations of type 2) 94 1 2 Density of nonprofit arts and culture organizations 94 439.17 560.37 36 3,312 State population (humans), in 1000s 94 5,128 5,348 493.1 33,689 State unemployment rate 94 4.75 0.87 3.1 6.9 Educational attainment (% of the population 25 or older with a bachelor s degree or higher) 94 23.75 4.11 14.71 32.85 Change in the state GDP 94 5.44 .96 3.6 8.5 Per capita GDP 94 32,886 5,675 22,952 49,780 Percentage of the state senate seats held by Democrats 11 93 51.38 15.65 15.48 88.8 Percentage of the state house seats held by Democrats 93 51.48 15.86 17.43 85.55 Data availability is a common problem in studying the arts. This becomes further exacerbated when moving to local populations (DiMaggio & Pettit, 1999; Schuster, 2002) Information on alternative mechanisms at the local level is not as equally accessible as that at the state level. Denver's Scientific and Cultural Facilit ies District (SCFD) is an exception. The District has produced annual reports since its formation. These reports have documented the revenue generated and the details of distributions. Denver's SCFD provides a case to test whether the level of governmen t from which the funds generate vary in their influence. The data set was used to answer research 11 The Nebraska Legislature is unicameral and nonpartisan. This means there is not a reported percentage of seats in the House or the S enate held by Democrats, reducing observations by one for each of the 16 years in the study.

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92 questions 1 and 2 and was filtered to identify two sub populations for analysis for research question 4. The population was first narrowed to only those org anizations in Colorado. Then, using the code for the metropolitan statistical area, the population was further divided between organizations within the geographic boundaries of the SCFD and those that were located outside of the district. Annual reports from the SCFD were used to identify the annual revenue generated for the district, in contrast to appropriations received by the state arts agency. The data for the analysis of organizational entries and exits were organized as annual time series for the years from 1990 to 2004 for all variables. This combination of data produced 30 observations for use in addressing research question 4. This is admittedly a small sample but is offered as a case. Table 4.4 provides descriptive statistics for the vari ables used in entry and exit analysis for research question four. Table 4.4 Descriptive Stat istics for Analysis of Entries & Exits in the SCFD and Rest of the State Variables Observations Mean S.D. Min. Max. Number of nonprofit arts and culture entries 30 28.28 8.33 13 47 Number of nonprofit arts and culture exits 30 11.75 10.71 2 42 Program Type (0= no AM in place to fund arts and culture agency; 1= specialty tax in place to fund arts and culture agency) 1 2 Density of nonprofit arts and culture organizations 30 443.75 134.69 233 704 State population (humans), in 1000s 30 2958.44 1064.42 1639 4600 Unemployment rate 30 4.45 1.92 2.5 6.4

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93 Measures The vital statistics of interest in this study are the annual counts of entry and exit of arts and culture nonprofits. These are attainable from the Core Data from the National Center for Charitable Statistics (NCCS). The year of entry is defined as the year in which the organization received IRS recognition (Bowen et al., 1994a; Hager, 2001) The number of entries is calculated as the number of organizations formed in a year (Bowen et al., 1994a; Hager, 2001) Consistent with existing research, exits are identified when an NPO fails to file with the IRS several consecutive years during the time period studied (Bowen et al., 1994a; Hager, 2001) The exit count is the number of organizations that failed to file an IRS 990 for three consecutive years. Stata was used to identify the last year an organization in the data filed the 990 form. If the organizatio n did not file for at least three consecutive years, the exit year was the year after the final filing. The organizational population density for states, or the total number of NTEEC type A organizations in a state, can be disparate. Large states with h igh densities, such as New York and California, may overshadow the changes in less dense states, such as Wyoming or Idaho. This makes comparisons of counts difficult. For the readers use, the annual entry and exit rates were calculated and are reported i n Chapter V. The entry rate was calculated as the count of entries for the state in a given year divided by the total population of NTEEC type A organizations in the state from the previous year. The exit rate was calculated as the exit count divided by the population of NTEEC type A organizations in the state from the previous year. Counts, not rates, were used for the statistical analysis.

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94 Empirical Model Organizational ecology has used multiple methods to assess the environmental influences on po pulations of organizations. It relies on data from entire populations. Variations in the size, scope, and depth of these data drive selection of an appropriate methodological approach. Regressions have been used to analyze how environmental variables inf luence the formation and mortality of populations of organizations. The selection of linear or logistic regression proves problematic in working with count data. Poisson regression is commonly used to analyze count data but includes several assumptions. First, the Poisson Distribution Function (PDF) assumes an equidispersion (Hilbe, 2007; Piza, 2012) A h istogram of the data used in this study show s that counts are strongly sk ewed. Second, the PDF assumes that counts are independent of one another (Hilbe, 2007; Piza, 2012) W hen w orking with longitudinal counts of population s entries, and exits can not satisfy this assumption. Negative binomial regression can be used for over dispersed count data where the mean exceeds the variance. It is a generalization of Poisson regression with parameters included to model for over dispersion. The model was fi t using Stata version 12. The dependent variables are the counts of organizations. For research question 1 the dependent variable is the annual number of nonprofit arts and culture organizations that enter in each state. For research question 2 it is the annual number of nonprofit arts and culture organizations that exit in each state. For research question 3 the dependent variable is the count of exits among recipients of state arts agency grants between 1995 and 2004 for each state. For research question 4 the dependent variables are the annual

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95 counts of entries and exits to a geographically bound cultural district and to the state excluding the area contained by the cultural district between 1990 and 2004. The independent variables are the presence or absence of particular sources of funds. Research questions 1 and 2 are attendant to the presence of the different types of alternative mechanisms generating revenue for SAAs. Research question 3 focuses on th e purported significance and benefit of government grants to arts and culture organizations. Research question 4 compares entry and exit counts in a geographically bound cultural district with an alternative mechanism for funding to entry and exit counts in the state excluding the area contained by the cultural district. Control variables to account for the environment include the state population (in thousands), the percentage of the state population that has earned a bachelor's degree or higher, the st ate annual rate of unemployment, the log of the state gross domestic product (GDP) level, and the annual allocation of funds to each state arts agency (in thousands). The allocations of funds were lagged by one year as changes in the level of funding are expected to have a delayed effect on the entry and exit of organizations (A. C. Brooks, 2003) They were also adjusted for inflation to bring all dollars into the same y ear. These variables and their sources of data are summarized in Table 4.5.

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96 Table 4.5 Variables Variable(s) Data Source How calculate State Entry and Exit Count (also communicated as rates for readers' ease) NCCS Calculated by year State Legislati ve Appropriations (1); Special Taxes & Fees (2); Lotteries & Gaming (3); License Plate Fees (4); Tax Check Offs (5); Public Cultural Trusts & Endowments (6); More than one alternative mechanism in place (7) NASAA policy report on supplemental funding strat egies, supplemented with research determining when instituted Each program was given a unique "Program" identifier that was used for performing the negative binomial regression. The number is noted after the category in the variables field. Population density NCCS Base number from previous year + entries exits SAA Revenues NASAA Sourcebook Reported SAA Revenues, inflation adjusted NASAA Sourcebook Reported amount multiplied by an inflation calculato r f rom the Bureau of Labor and Statistics to br ing to 2013. SAA Revenues, inflation adjusted, lagged by one year Census data L agged for 1 year and adjusted for inflation Population Bureau of Labor and Statistics Annual estimates Unemployment Rate Census data (1980, 1990, 2000) As reported, not seasonally adjusted % over 25 with college Bureau of Economic Analysis Calculated for implied annual rates State level GDP ($)/capita Bureau of Economic Analysis State level GDP/Population of the state % change in the GDP Bureau of Economic Analys is % change in the GDP To analyze whether state entry counts are improved by the presence of alternative mechanisms for funding the state arts agencies the following model is hypothesized:

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97 State entry count = f (organizational population density, human population, rate of unemployment, change in the state GDP, educational attainment of the population 25 or older, per capita state GDP, state arts agency revenue lagged one year and adjusted for inflation, and types of programs used to fund the state arts agency) Whether alternative mechanisms influence state exit counts is analyzed with a parallel model to the one above where exit count is substituted for entry count. The relationship between grants and the ability of arts organizations to attract additional resources has been heavily researched through motivation crowding studies. This study, instead, asks whether state grants are associated with lower rates of exit and higher rates of survival. The proposed model is as follows : State exit count = f (organizational population density, human population, rate of unemployment, change in state GDP, educational attainment of the population 25 or older, per capita state GDP, state arts agency revenue lagged 1 year and adjusted for inflation, and grant r eceipt from SAA) Finally, to explore whether the use of local alternative mechanisms to fund an arts agency is associated with higher entries and lower exits the following model was used in this study: State/MSA entry/exit count = f (organizational popul ation density, human population, rate of unemployment, state arts agency revenue adjusted for inflation, and programs used to fund public arts agency) Limitations Organizational ecology emphasizes the importance of the entire history of a population. M issing and disaggregate sources of data on many populations make assembling such data challenging. This standard would prohibit studying numerous populations, including arts and culture organizations in the United States. The data used for this dissertat ion span the years 1990 to 2007. The data are limited for the third research question from 1995 to 2004. While this may reduce the depth of information

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98 specific to each organization, it contributes to understanding the current scope and patterns within the arts and culture subsector. Direct government funding of arts and culture emerged as an ongoing federal program with the establishment of the NEA in 1965. Most states followed suit shortly thereafter and imitated the federal system of funding leg islative appropriations. Alternative mechanisms to fund the arts are, for the most part, even more recent additions. This results in a limited number of observations. Further dividing these 179 observations by type of funding mechanism (special taxes an d fees, lotteries and gaming, license plate fees, tax check offs, and cultural trusts) further reduces the number of observations in each category. While a limitation, it does not invalidate the relevance of this study. The implementation of alternative m echanisms to fund the arts is a growing trend. The number of states using them grew from 15 in 2003 to 2009 in 2013 (National Assembly of State Arts Agenc ies, 2012b) (National Assembly of State Arts Agencies, 2012b) While additional time will yield more data and, ultimately, add to the understanding o f the ecological influence on the population of arts and culture nonprofits there is a need to begin understanding the impact of these sources of funding. Prior to 2007, nonprofits with gross receipts less than $25,000 were not required to file annu ally with the IRS. Smaller organizations, while part of the total population, were not documented in the NCCS data. Unfortunately, small organizations are under represented in the data set. Smaller organizations may be subject to additional threats (Hager, 2001) Commonly, they do not have resource surpluses that make it possible to continue operation following financial shocks (Hager, 2001; Tuckman & Chang, 1991) Their exclusion from this study may understate the incidence of exit in the population.

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99 However, the NCCS data set is the most comprehensive source of i nformation on the nonprofit sector and is routinely used by scholars in this field, making it an appropriate source of data. NASAA's data provides a comprehensive list of grants awarded that includes the recipient names and state location, the amount of each grant, year of award, and grantor agency. In aggregate, the 50 states arts agencies made 173,896 grants during the ten year time period. There are many types of beneficiaries, including, but not limited to, arts and culture nonprofits, individual a rtists, schools, recreation centers, and churches. This eliminates the possibility of a 100 percent match. Unfortunately, the lack of a clear, unique, consistent identifier across all observations in the NASAA data set, such as an employer identification number, created a major obstacle to merging these data with the NCCS data for arts and culture nonprofit organizations. While cleaning the data with Google Refine increased the number of matches, it was far from complete. Of the 173,896 awards, 13,271 we re matched to organizations/fiscal years in the NCCS data set. This is an extremely small 7.63 percent of the number of grants awarded. It is a gross under statement to say that this produced an incomplete study of the population. There are several stat es in which no organizations were successfully matched between the two data sets. Missing data may underrepresent segments of the population and contribute bias to the study. The findings from the limited match in this study need to be taken very cautiou sly. The details of the Denver case study are not generalizable to a wider study. It does, however, serve as an example of a special district supporting arts and culture organizations. In keeping with the tenets of organizational ecology, forms ada pt to meet

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100 the conditions of their environments. Transplanting a successful form from one environment to another will not guarantee success. Alternative Mechanisms, Direct Subsidies, and Organizational Ecology The ability of alternative mechanisms to provide improved stability has not been previously tested. The next chapter presents the findings regarding the presence of alternative mechanisms and the entry and exit of arts and culture nonprofits to each state. I also report the findings as to wheth er recipients of grants from state arts agencies are any less likely to exit than national averages. Finally, the entry and exit rates in Denver, where artists and nonprofit arts and culture organizations benefit from revenue generated by a tax designated for support of arts and culture, are compared to state and national rates.

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101 CHAPTER V FINDINGS Introduction Findings from this research provide benefits on multiple levels. First, the vital rates provide indicators of the sustainability of the arts and culture nonprofit sector. Is the sector growing or declining? Bowen et al. (1994) provided details for the period from 1965 through 1988. Since 1994, much scholarship has been devoted to the economic vitality of arts and culture and the benefits ass ociated with arts and culture but a census of the population has not been conducted. The findings reported here include national figures, as an overview and to connect with those of Bowen and his colleagues. State level counts and rates are also reporte d for greater detail. Second, these vital counts were then statistically analyzed to identify the importance of state level methods for funding the state arts agency (SAA) on patterns of entry and exit in the sector. Do the sources of revenue for state a rts agencies (SAA) affect the entry rate of arts and culture nonprofit organizations? Do the sources of revenue for state arts agencies (SAA) affect the number of state level exit s of arts and culture nonprofit organizations? Third, it has been claimed that grants from the National Endowment for the Arts and from state arts agencies leverage private donations. This has been tested by economists exploring motivation crowding, but these have not been evaluated as they contribute to the environment of arts and culture nonprofits and survival patterns of individual organizations. Do nonprofit arts and culture organizations that receive grants from a state arts agency experience a di fferent rate of exit than those that do not? Finally, in the case of Denver's Scientific and Cultural Facilities District (SCFD) local alternative funding mechanism, are the number s of entries and exits of nonprofit arts and culture organizations in a metropolitan

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102 statistical area (MSA) with a special funding district significantly different than those of the state? While analysis of this final question rests on a small data set, it begins the exploration of the varying levels at which alternative mech anisms to fund the arts are in place. As nonprofits arts and culture organizations compete for resources it is critical to gain a deeper understanding of how different forms of government funding contribute to the ecology. This chapter is organized to first report counts and rates of entry and significance of alternative mechanisms. Second, it presents the counts and rates of exit and significance of alternative funding mechanisms. Next, it contrasts state patterns of exit counts among grant recipien ts to the larger population of nonprofit arts and culture organizations. Finally, it provides readers with the comparison of Denver's SCFD to the rest of Colorado before concluding. Entry and Alternative Mechanisms for Funding State Arts Agencies The formation of new organizations is one vital count of interest. Using the IRS ruling year as a proxy for entry, this study found that 25,952 organizations entered the nonprofit arts and culture sector in the United States between 1990 and 2004. The number of new entrants per year ranged from 1,125 in 1990 to 2,060 in 1999, with an annual average of 1,730 new organizations. This was matched by rates ranging from 4.30 percent to 7.10 percent an d an average entry rate of 5.65 percent These annual, national figures are repeated in Table 5.1. The annual number of entries is graphed in Figure 5.1.

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103 Table 5.1 Annual number of arts and culture organization entrants and rate of entry Year Count of Orgs. Entering Nonprofit Arts & Culture Sector Rates of Entry of Arts and Culture Organizations 1990 1186 5.26% 1991 1125 4.90% 1992 1253 6.27% 1993 1517 6.29% 1994 1671 7.10% 1995 1909 6.42% 1996 1814 6.20% 1997 1895 5.45% 1998 1817 5.58% 1999 1795 6.43% 2000 2060 5.47% 2001 1849 5.33% 2002 1905 5.08% 2003 1915 4.69% 2004 1765 4.30% Figure 5.1 Annual counts of entries Entries varied across states and years. Rates of entry varied from 0.00 percent in Nevada in 1991 to 16.67 percent in Wyoming in 1990. Average entry rates for the period ranged from 4.23 percent in North Dakota to 8.80 percent in Nevada. The mean rate of !" #!!" $!!!" $#!!" %!!!" %#!!" $((!" $(($" $((%" $((&" $(('" $((#" $(()" $((+" $((*" $(((" %!!!" %!!$" %!!%" %!!&" %!!'" !"#$%&'()*# @A",-./0"

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104 entry was 5.86 percent Entries rose between 1990 and 1994. They were fairly stable from 1995 to 2002 and declined in 2003 and 2004. Table 5.2 summarizes the low and high rat es, with years, and the period averages for all 50 states. Table 5.2 State low and high rates of entry State State Low Rate Year of Low State High Rate Year of High State Avg. AK 1.60% 2000 3.60% 2003 5.18% AL 3.60% 2003 8.30% 1995 5.39% AR 2.40% 1995 8.20% 1994 4.95% AZ 4.40% 1993 10.20% 1996 6.19% CA 3.20% 1990 9.90% 1994 6.14% CO 4.10% 1999 9.60% 1991 6.40% CT 2.60% 1990 8.20% 1993 4.67% DE 2.30% 1992 11.60% 1995 4.87% FL 4.90% 2003 8.30% 1990 6.87% GA 2.60% 1991 8.20% 1999 5.63% HI 3.80% 1990 15.00% 1995 7.89% IA 2.90% 1990 7.30% 1994 5.01% ID 2.70% 1999 13.10% 1993 7.26% IL 3.40% 1990 9.70% 1994 5.85% IN 2.50% 2002 6.60% 1993 4.27% KS 2.10% 1999 6.80% 1990 4.56% KY 2.80% 1997 10.50% 1990 6.09% LA 3.30% 1000 10.90% 1999 5.90% MA 3.60% 1991 6.50% 1993 4.91% MD 3.80% 1999 8.90% 1990 5.90% ME 2.60% 2001 9.20% 1994 5.70% MI 3.80% 1995 6.10% 1990 4.87% MN 3.20% 2004 10.30% 1993 5.56% MO 3.00% 1997 7.30% 1996 5.09% MS 2.20% 2004 9.00% 2003 5.08% MT 2.90% 2001 11.70% 1995 5.99% NC 2.60% 1993 5.80% 1997 3.92% ND 0.80% 2002 12.20% 1994 4.20% NE 1.40% 1996 11.70% 1994 5.16% NH 2.20% 2002 9.40% 1999 5.22% NJ 4.60% 2001 7.80% 1999 5.83% NM 4.40% 2004 11.00% 1996 6.50% NV 0.00% 1991 16.00% 1994 8.65% NY 4.10% 1994 6.70% 1993 5.52% OH 3.60% 2004 6.80% 1991 4.72% OK 3.20% 2000 7.90% 1992 4.99%

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105 Table 5.2 cont'd. State State Low Rate Year of Low State High Rate Year of High State Avg. OR 3.50% 1991 11.30% 1996 6.78% PA 3.30% 1996 7.10% 1994 5.15% RI 2.50% 1990 8.50% 1998 5.25% SC 3.10% 1990 8.70% 1995 5.71% SD 1.70% 2003 7.30% 1996 5.03% TN 2.40% 2004 8.00% 1990 4.76% TX 4.50% 1994 7.20% 1992 5.65% UT 1.90% 2004 14.90% 1997 7.26% VA 4.50% 2004 7.10% 1995 5.86% VT 2.40% 1996 10. 10% 1993 6.23% WA 2.10% 1990 12.10% 1996 6.65% WI 2.70% 1991 7.70% 1994 4.64% WV 2.90% 2004 8.20% 2001 6.58% WY 1.00% 2001 16.70% 1990 6.10% The negative binomial regression of alternative mechanisms against these counts, controlling for year, density of arts and culture organizations, population, unemployment, state GDP level, education, per capita GDP, and the state arts agency revenue lagged by 1 year 12 and adjusted for inflation was performed to evaluate how the different alternatives to legislative appropriations to fund state arts agencies impact formation of new arts and culture nonprofits. The results are in Table 5.3. 12 The revenue of the state arts agency was lagged by one year. In motivation crowding studies, it has been argued that changes in the receipt of government m oney has its impact not in the year of distribution but in following years (A. C. Brooks, 2003; Hersey, 2009) Similarly, changes to state arts agency revenues are likely to have a lagged influence on the entry and exit of organizations.

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106 Table 5.3 Negative Binomial Regression Model of Nonprofit Entries and Alternative Mechanisms Variable Coefficient Std. Err Density .0000463 .0000383 Population .0000955*** .00000442 Unemployment .0028749*** .0163264 Change in state GDP .0017553 .0066464 Educational attainment .0540369*** .0042498 Per capita GDP .00000472*** .00000407 State Arts Agency Revenue Lagged 1 year and adjusted for inflation .00000233 ** .00000071 % State Senate seats held by Democrats .0127223*** .0017968 % State House seats held by Democrats .013799*** .0018787 Taxes & Fees .1692775 .0857485 Lotteries & Gaming .1145023 .1068969 License Plates .387948*** .0776269 Tax Check offs .1147778 .1806729 Public Trusts .2593705*** .0544132 More than one alternative mechanism .1317464 .0998722 Number of cases 735 Wald Chi Square 6087.46 Degrees of freedom 15 p<.10, **p<.05, ***p<.01 The independent variables of license plates and public trusts have a negative influence, associated with fewer arts and culture nonprofit entries, at a statistically significant level. The coefficients in negative binomial regression are the log of the ex pecte d count. This complicates their interpretation. Using the incident rate ratio (IRR) is another method of interpreting these figures. Funding via licens e plates reduces entry counts to 0.71 times the incident events as those without license plates. Cultural trusts reduce the entry counts to 0.75 times the incident events as those without. The population, unemployment education, per capita GDP, the revenue of the SAA, and the political variables are positively related to the entry of arts and cultu re nonprofits and are statistically significant. Of these, educational attainment is the most influential, consistent with

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107 research highlighting the importance of educational attainment on arts participation and support (A. C. Brooks, 2001, 2004b) Exit and Alternative Mechanisms for Funding State Arts Agencies The rate at which organizations exit the market is equally important, as it reveals what forms are not surviving in the current environment. Between 1990 and 2004, 12,187 arts and culture nonprofits exited the market Annual exits ranged from 219 in 1990 to 1,245 in 2003. The se are matched to rates of 0.91 percent to 5.18 percent The annual, national average was 1,625 exits per year or 2. 39 percent of the population per year. Exits have been rising since 1990 with spikes in the number of exits in 1999 and 2002. This is not unexpected, given the rise in the density of the population. However, the rates of exit have also risen in this fashion. The annual number of exits and exit rates are reported in Table 5.4 and the number of exits is illustrated by Figure 5 .2.

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108 Table 5.4 Annual number of arts and culture organization exits and rate of exit Year Total Orgs. Exits Nonprofit Arts & Culture Sector Rates of Exits of Arts and Culture Organizations 1990 219 0.91% 1991 345 1.44% 1992 333 1.15% 1993 455 1.53% 1994 473 1.63% 1995 565 1.73% 1996 605 1.68% 1997 711 2.12% 1998 813 2.33% 1999 1390 4.03% 2000 849 2.42% 2001 1061 3.06% 2002 1890 5.18% 2003 1245 3.44% 2004 1233 3.26% Figure 5.2 Annual number of exits !" %!!" '!!" )!!" *!!" $!!!" $%!!" $'!!" $)!!" $*!!" %!!!" $((!" $(($" $((%" $((&" $(('" $((#" $(()" $((+" $((*" $(((" %!!!" %!!$" %!!%" %!!&" %!!'" !"#$+(&*# @A",-./0"

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109 Among stat es, exit rates ranged from 0.00 percent in mu ltiple states and years to 10.0 percent in Nevada in 2002. State averages for the period ranged fro m 1.55 percent in North Dakota to 3.53 percent in UT, with a mean of 2.39 percent Table 5.5 summarizes the exit rates for all states. Table 5.5 State low and high rates of exit State State Low Rate Year of Low State High Rate Year of High State Avg. AK 0.00% 1993, 1997 7.00% 1991 2.45% AL 1.00% 1991 4.00% 1999 2.24% AR 0.00% 1990, 1991 5.00% 2001 2.30% AZ 1.00% 1990 5.00% 2002 2.70% CA 1.00% 1990 4.00% 2002 2.55% CO 0.00% 1990 8.00% 2002 2.39% CT 0.00% 1990 5.00% 2002 2.29% DE 0.00% 1990, 1993, 1998 4.00% 1999 1.79% FL 1.00% 1990 6.00% 2002 2.88% GA 1.00% 1995 6.00% 2002 2.64% HI 1.00% 1995 6.00% 2003 2.89% IA 0.00% 1991, 1992, 1993 5.00% 2002 2.02% ID 0.00% 1990, 1991, 1995, 1996 6.00% 2003 2.45% IL 1.00% 1990 7.00% 2002 2.90% IN 1.00% 1990 4.00% 2002 1.94% KS 0.00% 1992 5.00% 2002 2.05% KY 0.00% 1992 5.00% 2002 2.47% LA 1.00% 1994 5.00% 2002 2.57% MA 1.00% 1991 5.00% 2002 2.41% MD 0.00% 1990 6.00% 2002 2.45% ME 0.00% 1992 6.00% 2002 2.33% MI 1.00% 1991 4.00% 2002 2.26% MN 1.00% 1990 7.00% 2002 2.39% MO 0.00% 1995 6.00% 2002 2.25% MS 0.00% 1990 6.00% 2002 2.06% MT 0.00% 1992 5.00% 1999 2.21% NC 0.00% 1991 3.00% 2002 1.79% ND 0.00% 1997 3.00% 2001 1.55% NE 1.00% 1995 4.00% 2002 2.16% NH 0.00% 1992 5.00% 2002 1.64% NJ 1.00% 1992 5.00% 2002 2.52% NM 0.00% 1991 7.00% 1999 3.07% NV 0.00% 1992 10.00% 2002 3.20%

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110 Table 5.5 cont'd. State State Low Rate Year of Low State High Rate Year of High State Avg. NY 2.00% 1990 5.00% 2002 2.75% OH 1.00% 1991 4.00% 2002 2.19% OK 0.00% 1993 6.00% 2002 2.37% OR 1.00% 1991 5.00% 2004 2.32% PA 0.00% 1990 5.00% 2002 2.38% RI 0.00% 1992 6.00% 1999 2.69% SC 0.00% 1995 5.00% 2002 2.61% SD 1.00% 1999 6.00% 2002 2.00% TN 0.00% 1992 4.00% 2002 1.90% TX 1.00% 1990 6.00% 2002 2.58% UT 1.00% 1996 8.00% 2002 3.53% VA 1.00% 1992 5.00% 2002 2.53% VT 0.00% 1991 8.00% 2002 2.39% WA 1.00% 1990 6.00% 2002 2.20% WI 0.00% 1992 5.00% 1999 2.07% WV 0.00% 1996 8.00% 1999 3.35% WY 0.00% 1990, 1993 5.00% 2001 2.07% Exit patterns among arts and culture subpopulations differ, as illustrated in Table 5.6. Bowen et al. (1994) selected sub populations for comparison. Historical societies had the lowest probability of exit among the group between 1981 and 1991. That rem ains true for 1992 2004. Museums maintained their position as having the second lowest rate of exit. While the ranking of the remaining subpopulations shuffled, all of the sub populations in this comparison exhibit an increase incidence of exit over 1981 1991. Table 5.6 Rates of exit among sub populations of arts and culture nonprofits Sub pop 1981 1991* Implied Annual Rate* 1992 2004 Implied Annual Rate Ballet 21.1% 3.0% 45.11% 3.47% Opera 22.7% 2.7% 51.67% 3.97% Dance 22.3% 2.7% 68.75% 5.29% Theater 20.3% 2.4% 55.61% 4.28% Museums 9.8% 1.1% 48.93% 3.76% Historical Societies 6.9% 0.8% 32.17% 2.47% (Bowen et al., 1994b)

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111 All state annual exit counts were analyzed with negative binomial regression to test if the presence of alternative funding mechanisms to generate revenue for the SAA was related to the exit counts. The resu lts are reported in Table 5.7. Table 5.7 Negative Binomial Regression Model of Nonprofit Arts and Culture Exits and Alternative Mechanisms Variable Coefficient Std. Err Density .0001085 .0000428 Population .0001064*** .00000509 Unemployment 0 0778895 .01966 Change in state GDP .0026674 .0079254 Educational attainment .0543425*** .0048222 Per capita GDP .00000468*** 000000457 State Arts Agency Revenue Lagged 1 year and adjusted for inflation .00000357*** .000000822 % State Senate seats held by Democrats .00137563*** .0020899 % State House seats held by Democrats .0165513*** .0021798 Taxes & Fees .2298151 .0935714 Lotteries & Gaming .0702108 .1265855 License Plates .546622*** .0899388 Tax Check offs .1215145 .2142177 Public Trusts .2161592*** .0598054 More than one alternative mechanism .2977294** .1126476 Wald Chi Square 4990.11 Degrees of freedom 15 Number of cases 735 p<.10, **p<.05, ***p<.01 The independent variables of license plates, cultural trusts, and the combination of more than one alternative mechanism have a negative influence, associated with fewer exits of arts and culture nonprofits, at statistically significant levels. Whereas th e alternative mechanisms corresponded with limited impact on entries and not i n the direction anticipated, three of the mechanisms and the combination of mechanisms are associated with a reduced incidence of exit. Using the IRR, as described above, indica tes the influence of three alternative mechanisms that were statistically significant. License

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112 plates cultural trusts, and the combination of alternative mechanisms reduce the incidence of exit Funding via license plates reduces exit counts by 1.64 ti mes the incident events of those without license plates. Cultural trusts reduce the exit counts by 0.881 times the incident events of those without. Finally, the combination of two alternative mechanisms reduces exits by 1.22 times the incident of those without. The population of arts and culture organizations, unemployment, educational attainment, per capita GDP, SAA revenue, and seats in the state house held by Democrats are positively associated with exit counts, meaning that as these variables rise one should expect a rise in the number of exits. Comparing Entries and Exits Entries are interesting in that they show the rate at which new organizations are emerging, transforming the landscape, and responding to new conditions in the environment. Exit rates create a picture of stability in the ecology low rates suggest stability and fewer threats, while high rates suggest instability and numerous or large threats. Together, they produce the growth rate and report whether the population is incre asing or decreasing. This generates a more complete picture of what is occurring in a population of organizations. As illustrated in Figure 5.3, entries and exits ran relatively parallel to one another between 1990 and 1997. There was a spike in the num ber of exits in 1999. The number s of entries and exits dropped in 2000. In 2002, there were 1,915 entries and 1,890 exits. The number of entries dropped between 2003 and 2004. Rising exits are not unexpected when the number of entries is increasing. Us ing counts, rather than rates, means that as the population grows, the number of exits will also rise, even if

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113 the rates remain unchanged. Years in which entries drop and exits rise suggest that there are additional changes to the ecology that deserve add itional exploration. Figure 5.3 Composite growth of annual number s of entries and exits Exit and Direct Grants from State Arts Agencies It has been purported that direct grants from arts agencies (the NEA and SAA) serve as endorsements and will attract, or crowd in, additional support. Data from the National Assembly of State Arts Agencies made it possible to test whether these grants positively impact the rates of exit of arts and culture nonprofits. Between 1995 and 2004 10,362 arts and cult ure nonprofits exited the market Annual exits ranged from 565 in 1995 to 1,890 in 2002. The se are matched to rates of 1.68 percent to 5.18 percent The annual, national average w as 1,036 exits per year or 2.93 percent of the population per year. Exits for those that received grants that were successfully matched with the larger data set, as described in chapter 4, produced different figures. Between 1995 and 2004, 532 arts and culture nonprofits that received grants exited the market The number of e xits ranged from 36 in Wyoming to 1,987 in Georgia. The national average was 11.64 exits per state for the period. The number of exits is illustrated in Figure 5.4 and the !" #!!" $!!!" $#!!" %!!!" %#!!" @A"B:.9425" @A"BC4.5"

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114 annual number of exits and exit rates are reported in Table 5.8. Results of the n egative binomial regression are reported in Table 5.9. Figure 5.4 Annual number of exits Table 5.8 Annual number of arts and culture organization exits and rate of exit Year Total Orgs. Exits From Nonprofit Arts & Culture Sector Rates of Exits of Ar ts & Culture Organizations Matched Grant Recipients Exits 13 Grant Recipients: Rates of Exits of Arts and Culture Organizations Total Number of SAA Grants 14 1995 605 1.80% 13 1.89% 17,003 1996 711 2.27% 20 2.54% 18,193 1997 813 2.49% 24 2.76% 16,790 1998 1390 4.31% 62 6.57% 16,004 1999 849 2.62% 37 3.86% 17,612 2000 1061 3.31% 43 4.20% 17,924 2001 1890 5.73% 102 9.63% 18,129 2002 1245 3.76% 68 6.68% 18,817 2003 1233 3.52% 56 5.69% 17,458 2004 2010 5.89% 107 11.29% 15,990 13 This excludes grant recipients that were not matched to NCCS data. Matches should be increasingly successful with the inclusion of the EIN number. 14 This is number of grants given in a year, not number of recipients. Grants are distributed to organiz ations outside of the nonprofit arts and culture designation. Some recipients received multiple grants in a given year. Others receive multiple grants across time. !" #!!" $!!!" $#!!" %!!!" $((#" $(()" $((+" $((*" $(((" %!!!" %!!$" %!!%" %!!&" %!!'" @A" D7A77"

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115 Table 5.9 Negative Binomial Regression Model of Nonprofit Exits and Grants Variable Coefficient Std. Err Density .0013176*** .0002184 Population .0003604*** .0001007 Unemployment 01704 .0737883 State GDP level .0000102** .00000307 Educational attainment .0490216** .0171082 Per capita GDP .0000145 .0000151 SAA Revenue lagged 1 year and inflation adjusted .000000486 .000000544 % State Senate seats held by Democrats .0093396 .0078225 % State House seats held by Democrats .0107668 Grant receipt 2.500051*** .0081394 Pseudo R2 .2290 Number of cases 93 p<.10, **p<.05, ***p<.01 The coefficient of grant receipt is negative and statistically significant indicating a lower number of exits among the population of grant recipients. The IRR indicates that exit of grant recipients will be .1867789 the count of the general population. This is the largest, statistically significant coefficient identified in the study. Implications are discussed in the following chapter. Rates of Entry and Exit and MSA level Alternative Mechanisms This research has focused on the impact of alternative funding mechanisms on the population of arts and culture by studying policies and populations at the state level. It is important in studying the population of arts and culture organizations to remember that these organizations typically benefit from funding from all levels of government. Data limitations currently make the analysis of funding at the city or state level impractical on a large scale ; there are exceptions that provide the opportunity for case study. Denver's Scientific and Cultural Facilities District is one such example.

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116 Colorado's arts and culture nonprofit population was divided into two groups. These were divided between orga nizations within the SCFD and other arts and culture nonprofits in the state. Statewide, excluding the SCFD, arts and culture nonprofits experienced 516 entries between 1990 and 2004. These ranged between 23 and 47 entries p er year with rates between 4.0 7 percent and 9.98 percent The geographic area that matches the SCFD boundaries had 340 entries. The number of annual entries ranged from 13 to 36 entries p er year with rates between 1.77 percent and 7.69 percent The results of the negative binomial r egression are listed in Table 5.10, and counts and rates are detailed in Table 5.11 and illustrated in figure 5.5. With an extremely small and limited sample, a lack of significant variables is not surprising. Table 5.10 Negative Binomial Regression Model of Nonprofit Entries with an MSA Alternative Mechanism Variable Coefficient Std. Err Density .0031424 .0072802 Population .0008958 .001441 Unemployment .0966557 .3695048 SAA Revenue lagged 1 year and inflation adjusted 0.00000000584 0.0000000092 Special district 1.388855 1.57831 Wald Chi Square 34.22 Degrees of freedom 3 Number of observations 30 p<.10, **p<.05, ***p<.01

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117 Table 5.11 Annual number of Colorado and SCFD arts and culture organization entrants and rate of entry Figure 5.5 Colorado and SCFD entries The division into two populations was also used to calculate exits and exit rates. Statewide, excluding the SCFD arts and culture nonprofits, there were 165 exits between !" #" $!" $#" %!" %#" &!" &#" '!" '#" #!" EF"B:.9425" AEGH"B:.9425" CO Number of Entries CO Rates of Entry SCFD Number of Entries SCFD Rates of Entry 1990 28 7.47% 15 5.88% 1991 40 9.98% 23 8.61% 1992 33 7.52% 23 7.99% 1993 23 4.89% 13 4.21% 1994 26 5.35% 24 7.50% 1995 32 6.32% 28 8.26% 1996 39 7.29% 30 8.29% 1997 34 5.95% 27 7.03% 1998 38 6.35% 18 4.48% 1999 25 3.97% 17 4.19% 2000 36 5.64% 30 7.48% 2001 47 7.00% 36 8.59% 2002 38 5.40% 17 3.87% 2003 37 5.26% 20 4.83% 2004 34 4.74% 19 4.52%

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118 1990 and 2004. These ranged between 2 and 38 exits per ye ar with exit rates between 0.49 percent and 5.77 percent The S CFD had 206 exits. The number of annual exits ranged from 2 to 42 exits per year with rates between 0.69 percent and 10.34 percent These are listed in Table 5.12 and illustrated in figure 5.6.

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119 Table 5.12 Annual number of Colorado and SCFD arts and culture organization exits and exit rates Figure 5.6 Colorado and SCFD exits !" #" $!" $#" %!" %#" &!" &#" '!" '#" $((!" $(($" $((%" $((&" $(('" $((#" $(()" $((+" $((*" $(((" %!!!" %!!$" %!!%" %!!&" %!!'" EF" AEGH" CO Number of Exits CO Rates of Exit SCFD Number of Exits SCFD Rates of Exit 1990 2 0.53% 2 1.18% 1991 2 0.50% 2 0.75% 1992 7 0.46% 2 0.69% 1993 6 1.49% 5 0.65% 1994 3 1.23% 5 1.56% 1995 3 0.12% 8 1.47% 1996 7 2.54% 9 2.21% 1997 7 0.47% 14 2.34% 1998 16 2.09% 22 3.48% 1999 3 0.49% 12 3.10% 2000 14 2.20% 16 4.08% 2001 38 5.77% 42 10.34% 2002 23 3.44% 14 0.35% 2003 16 2.34% 20 4.96% 2004 18 2.56% 33 8.18%

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12 0 Table 5.13 Negative Binomial Regression Model of Nonprofit Exits with an MSA Alternative Mechanism Variable Coefficient Std. Err Density .0077278 .0116681 Population .0016162 .0026208 Unemployment 1.140641 .7372412 SAA Revenue lagged 1 year and inflation adjusted 0.0000000419 0.0000000214 Special district 1.3525102 3.136439 p<.10, **p<.05, ***p<.01 Th e n egative binomial regressions results, provided in Table 5.13, do not indicate any variable in the model with statistical significance. The limited small population, as with entries, is largely an important factor and will be discussed in the next chapter. Comparing State and MSA Entries and Exits Regarding entries and exits simultaneously adds to understanding the population. Figure 5.7 illustrates both entries and exits. Colorado and SCFD entries follow similar patterns, hitting peaks and valleys typically in the same years. The patterns of exits between the two funding systems are also quite si milar until 2004. In that year there was a spike in the number of exits in the SCFD. The composite graph also illustrates that the SCFD typically had a fewer number of entrants than the state but usually experienced higher exit rates. This likely is a reflection of density.

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121 Figure 5.7 Composite graph of the number of Colorado and SCFD entries and exits The analyses reported in this dissertation indicate that not all alternative mechanism s are associated with changes in the population of nonprofit arts and culture organizations. While alternative mechanisms of license plates and cultural trusts are associated with changes in entries and alternative mechanisms of license plates, cultural trusts, and combinations of alternative mechanisms reduce the number of exits, specialty taxes and fees, revenue from lotteries and gamin g and tax check offs are not statistically significant for entries or exits. Table 5.14 summarizes the hypotheses and findings. Results and implications will be discussed in the next chapter. !" #" $!" $#" %!" %#" &!" &#" '!" '#" #!" EF"B:.9425" AEGH"B:.9425" EF"BC4.5" AEGH"BC4.5"

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122 Table 5.14 Hypotheses and Findings Hypothesis Findings 1 The number of entries of arts and culture nonprofits in states where alternative funding mechanisms are in place will be higher than in states relying on legislative appropriations. Not supported. 2 Exits of arts and culture nonprofits in states in which alternative mechanisms are in place will be lower than in states that do not. Supported for fees from specialty license plates, cultural trusts/endowments, and the combination of multiple alternative mechanisms. 3 Nonprofit arts and culture organizations receiving grants from state arts agencies will experience fewer exits than nonprofit arts and culture organizations not receiving these grants. S upported. 4a The number of entries of nonprofit arts and culture organizations in an MSA will be highe r t han state counts. Not supported. 4b The number of exits of nonprofit arts and culture organizations in the Denver MSA will be lower than state counts. Not supported.

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123 CHAPTER VI POPULATION PATTERNS Introduction Arts and culture organizations have been an important part of the Ame rican landscape for much of America's history. They have long been recognized for providing enriching leisure time activities to the populace. The commitment of public resources to their support has a much shorter history in the United States. The estab lishment of the National Endowment for the Arts in 1965 drastically changed the position of nonprofit arts and culture organizations, formally bringing them into the policy arena. This position was fortified by the multi faceted use of arts and culture to serve numerous domains of contemporary society. The previous chapter of this dissertation reported findings for the period from 1990 to 2004. This chapter begins by connecting the new findings of this dissertation to the numbers and rates reported by Bowen and his coauthors. It describes the ways in w hich the population has evolved. Then, I examine the counts in light of what insights they provide for the sustainability, or survival, of arts and culture nonprofits. The influence of state level alternative funding mechanisms and the receipt of state g rants on the population of arts and culture nonprofits are also discussed. This model is tested for its ability to explain differences in entries and exits between a state, Colorado, and a local district with an alternative mechanism to fund the arts, Den ver's Scientific and Cultural Facilities District. Limitations of the research conducted for this dissertation are reviewed before opportunities for further research are proposed.

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124 Entry, Exit, and Population Strength Vital rates of populations of organizations are the key measures by which organizational ecologists understand how the ecology influences the growth or decline of organizational forms (Carroll & Hannan, 2000; G. R. Carroll & O. Khessina, 2005; Hannan & Freeman, 1977) Populations that are rising in number suggest legitimacy, demand, health, and vitality. Populations that are declining may indicate resource partitioning, with domination by several large firms, or market correction, where decreasing demands le ads to the exit of weak firms (Carroll & Hannan, 2000; G. R. Carroll & O. Khessina, 2005; Hann an & Freeman, 1977, 1984, 1989) The changes in population are indicative of broader economic and social conditions to which org anizations must respond. Changes in the size and scope of the nonprofit arts and culture sector have been observed using a variety of scholarly approaches. While contributing important information to our understanding of the function and operation of a rts and culture organizations, few of these have documented changes in the membership of the population of arts and culture nonprofit s An exception was the population demography of the nonprofit sector conducted by Bowen, Turner, Nygren, and Duffy (1994) Arts and culture organizations were one area of the nonprofit sector identified for additional examination and detail. Their research documents population trends from 1965, the year in which the NEA was established, to 1988. The research presented in this dissertation began in 1990 and continues through 2004. Combining the findings of Bowen et al. with this dissertation makes it is possible to see the number of arts and culture nonprofits that entered the United States each year for a forty year perio d. The arts and culture sector

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125 has been transformed during this era. The influential grants of the Ford Foundation, the establishment of the NEA, and the expansion of state arts agencies and their spending power have changed the funding landscape and, th us, the environment in which arts and culture organizations operate (Binkiewicz, 2004; Kriedler, 1995; Larson, 1983) Examining the formation and demise of arts and culture nonprofits is one tool for understanding how these institutions contributed to the ecology. Entries The num ber of arts and culture nonprofits entering the market rose substantially between 1965 and 2004. Illustrated in Figure 6.1, the upward rise between 1965 and 1988 is evident. Bowen et al. divided their observations into two periods, 1965 1975 and 1976 19 88. The third period illustrated represents the entries identified by this dissertation. The average annual increase in period one was 11.2 percent (Bowen et al., 1994a) It was 4.1 percent in the second period (Bowen et al., 1994a) For the third period, it was 5.65 percent

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126 Figure 6.1 Number of arts and culture nonprofits entering the US market There are several important considerations to be made in interpreting this figure. First, Bowen and his coauthors used the Business Master Files while the Core Files were used for this research. It is possible that this influenced the counts of organizations formed and possibly produced the visible dip between 1990 and 1995. However, that period also coincides with an economic recession and the era referred to as the Culture Wars in which NEA funding decisions became a polarizing subject in American politics leading to major funding cuts to the NEA. Second, it is unknown whether the decline in number of entries in 2003 and 2004 is part of a lon ger downward trend reflecting a market correction or changing demand or reflects a short term response to the economy, changes in available resources, or population adaptation. Advancing this work by integrating additional years of data will provide evid ence of whether entry and exit counts are continuing on similar trajectories, have stabilized, or have changed course. If !" #!!" $!!!" $#!!" %!!!" %#!!" $()#" $()+" $()(" $(+$" $(+&" $(+#" $(++" $(+(" $(*$" $(*&" $(*#" $(*+" $(*(" $(($" $((&" $((#" $((+" $(((" %!!$" %!!&" ,-./)'#01#!"#$%&'()*# @A",-./0"

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127 exits have continued to rise, special attention should be given to the influence of recession. Economic recession was an environment al variable in 2002 and 2003 and again, more dramatically, in 2008. If the population has stabilized with entries and exits in balance, the reduction in entries and rise in exits may have been a market correction or right sizing of the population. NTEE c lassification codes and studying sector niches may illuminat e w hether new organizations maintain the demographic status quo or if certain sub populations are expanding while other contract. Tepper and Ivey (2007) have argued that media and digital access have transformed the way in which people engage with the arts. The most rece nt Survey of Public Participation in the Arts (National Endowment for the Arts, 2013) reflects this. Seventy one percent of U.S. adults are using electronic devices (computers, laptops, tablets, MP3 players, and the internet) to download, view, listen to, read, watch, and cre ate benchmark arts. While the economy has changed, so has the behavior of audiences. Organizational ecologists are attentive to the problem of inertia. Established arts organizations may face challenges in changing how they connect with audiences. Conv ersely, smaller and younger organizations may face liabilities of newness and smallness in the form of resource limitations (financial, technological, and human) in responding to changing audience expectations and behaviors. These are among possible expla nations for the variation in the national number of annual entries. As the population of the United States changes in size, age, composition, and recreational habits, organizations must evolve or risk obsolescence. Obsolete organizations will be handicap ped in securing resources audiences, donors, earned income, and grants. Organizations unable to attract needed resources face additional pressures and the

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128 possibility of exit. The population of arts and culture organizations will be shaped by the behav ior and conditions of users, audiences, and stakeholders. These national figures provide an easy to read summary of patterns but belie the variations that can and do occur at the state level. The establishment of the National Endowment for the Arts i n 1965 created a central model of government support for the arts in the United States (Baurelein & Grantham, 2009; Binkiewicz, 200 4; Cowen, 2006, 2007) However, government support for arts and culture comes from virtually all levels of government (Cowen, 2006). Total NEA appropriations for 1 990 to 2004 were $2,146,627,399, or $3,290,027,464 inflation adjusted. Combined state arts agency funding for the same period was more than double that number, $4,563,171,886, or $6,712,699,865 when adjusted for inflation. These dollar amounts represent the power of decisions about how the arts and culture nonprofits will be funded by the government in each state. The National Endowment for the Arts was established as a model for government support of the arts. In the first years after formation, states were encouraged to create analogous state arts agencies and emulate the federal model (Binkiewicz, 2004; J. Lowell & Ondaatje, 2006; J. F. Lowell, 2008) In doing so, many states followed the NEA in funding via legislative appropriations. Over the course of time, some states created new means by which to fund arts and culture, capturing revenue from special taxes, lotteries and gaming, specialty license plates, tax check offs, and interest earned from special public trusts (National Assembly of State Arts Agencies, 2012b) These mechanisms earmark fun ds for the arts and purportedly protect funding from erratic changes resulting from politically driven decisions (National Assembly of State Arts

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129 Agencies, 2012b) This dissertation sought to identify the influence of these alternative mechanisms on the population of arts and culture organizations. Government contributions are a small part of funding for arts and culture nonprofits. The y contribute an average of 9 percent to organizations' revenues (Americans for the Arts, 2012a) Volatility associated with legislative appropriations a re at higher threat of change than other sources of funding (Martell, 2004) To insula te arts and culture nonprofits from this volatility and protect funds, alternative funding mechanisms have been proposed and instituted in more than of the 50 U. S. states (National Assembly of State Arts Agencies, 2012b) Do these limited amounts contribute to population dynamics? Alternative mechanisms to fund state arts agencies are associated with population dynamics that are different. However not all forms are and those that are may also bring unintended side effects. States with funds for the state arts agency generated by license plate fees, cultural trusts and endowments, and the combination of two alternatives are associated with a lowe r incidence of exit. A decreasing incidence of exit may increase sector stability and deliver greater benefit to instrumentally attached policy goals. The decrease in exit is also paired with a decrease in the number of new entries. This may contribute to inertia, restrict innovation, and lead to a stagnant population that is slow to change and less able to keep pace with the changes in society. These mechanisms are becoming common at the state level and have been implemented at the local level, as well The case study of Denver's SCFD relied on a very small sample that did not result in statistically significant findings. As one of eight specially funded cultural districts in the United States, there is the opportunity for additional exploration and te sting.

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130 The myth of a public grant as a seal of approval has been circulated in the arts community at least since 1966 (National Endowment for the Arts, 2005) While there have been studies to evaluate the impact of these grants on private donations their relationship with organizational survival has not previously been examined. Cautiously, given the serious limitations of this research, o ne can conclude that nonprofit arts and culture organizations that receive grants from the state arts agency are more likely to survive. Further work is needed to increase understanding of this and the practical implications. A deeper analysis of so me of the population patterns found is possible. Cumulatively, 1990 produced the fewest entries (1,125) while 1999 produced the most (2,060). There was an average of 1,730 entries per year during the period. However, entries varied by state and by year. They were as low as 0 in Nevada in 1991 and as many as 332 in California in 1996. North Dakota experienced an average for the period of 5 entries per year while California had an average of 254 entries per year. Using rates provides a means by which t o compare states with disparate populations Entry rates varied from 0.00 percent in Nevada in 1991 to the high of 16.67 percent in Wyoming in 1990. North Dakota had the lowest average entry rate for the period, 4.20 percent while Nevada had the highest average, 8.65 percent These are visually represented in Figure 6.2. These variations illustrate that there can be substantial variation between states, which will be further illustrated with the example of Nevada later in this chapter.

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131 Figure 6.2 Co mparing select state entries to national averages An essential concept in organizational ecology is density, the size of the population within a certain area. The arts and culture sector tends to conform to standard patterns of an industry lifecycle. T he sector has acquired resources and gained legitimacy, and the population has grown in size and strength. Furthermore, it is common for several large arts organizations to dominate the local landscape in the form of a museum, a symphony, and a performing arts center (Florida, 2004) These organizations have amassed resources and operate as generalists. Niches have developed and organizations specializing in pa rticular genres of art, music, dance, and performing arts co exist. All of these organizations must compete for and partition a finite amount of resources including revenue and audience. These conditions provide an environment in which a declining po pulation dominated by several large firms and a cluster of niche providers is likely to emerge. !I!!J" %I!!J" 'I!!J" )I!!J" *I!!J" $!I!!J" $%I!!J" $'I!!J" $)I!!J" $*I!!J" $(*(" $((!" $(($" $((%" $((&" $(('" $((#" $(()" $((+" $((*" $(((" %!!!" %!!$" %!!%" %!!&" @A" DH" DK" LM"

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132 Graphically, the population counts show a decline over time. The negative binomial regression does not indicate a statistical significance of density to entry in this model. The theory fragment of density argues that a more dense population of arts and culture organizations will result in fewer entries and that these will be specialist serving more narrowly defined niches. Returning to the data provides the op portunity to integrate the NTEE classifications to better understand the demographics of the population. While this study updated understanding of the size and vital patterns of the entire population, future research should give careful consideration to t he types of organizations entering the field. Organizational characteristics, such as classification and operating revenue, will contribute a more nuanced understanding of the emerging population. Peterson and Rossman (2008) argue that changing patterns of arts participation will mean that all but the largest cities will be unable to support standing symphonies, operas, and dance com panies. Instead, these will be replaced with small companies that will contract talent as needed. Using NCCS data will allow organizational ecologists to assess whether this is an emerging trend. The model employed for this analysis used edu cational attainment and unemployment as proxies for participation. Educational attainment and income are key predictors of arts engagement (A. C. Brooks, 1999, 2001; Rushton, 2005) Both are relevant to the entry of arts and culture nonprofits. While these two factors are correlated, with income rising with education, Brooks (2004b) demonstrated that education is the more important predictor. Florida, in his work on the creative class, describes the expectations of a creative, educ ated workforce to live in an environment with plenty of opportunities for arts engagement (Florida, 2009) Arts and culture are argued to be

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133 experiential goods (Tepper & Ivey, 2007) Once a person has consumed them, they are increasingly interested in consuming more. Education increases participation. Participation increases the desire for more participation, rather than satiating the ne ed. This may increase demand and opportunity for arts and culture nonprofits. Two variables in the model have a negative impact at a statistically significant level on the entry of arts and culture nonprofits the presence of alternative mechanis ms generating revenue from specialty license plates and public trusts/endowments. I hypothesized that the stability of funds accompanying alternative mechanisms would incentivize formation and increase the number of entries. The results from the regressi on, instead, indicate that the presence of certain alternative mechanisms reduce the number of entries to the field. Financial volatility has been identified as one of the threats to arts and culture nonprofits (Martell, 2004) Alternative mechanisms have been purported as a means to stabilize the sector (National Assembly of State Arts Agencies, 2012b) If the alternative mechanisms increase stability and reduce the number of exits, new organizations may face additional challenge s enter ing the environments in which they are i n p lace. Survival of organizational forms comes from the ability to evolve, advancing with civilization and innovating to meet emerging expectations. Stable organizations find themselves hindered by inertia of ex isting systems and resource allocation that makes change more difficult. Do stability and the accompanying inertia create additional barriers for the arts and culture sector to remain relevant to contemporary audiences and compete with other leisure pursu its for participants? The large percentage of revenue that derives from earned income necessitates that organizations must respond to participant

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134 demand. This poses a possible theoretical advance. Organizational ecology has been largely tested on privat e sector populations. Studies that have explored nonprofit organizations have not tested the role and interaction of sources of revenue. It would be valuable to understand the role of public funding on other areas within the nonprofit sector. The abilit y of existing organizations to survive and increasingly dominate the field has repercussions for potential entrants. Faced with additional barriers, organizations may develop to fill a niche in the environment, as described above. Alternatively, organiza tions may seek new forms. Arts and culture organizations are not bound to the nonprofit sector. They may also operate in the private sector, as many media and entertainment businesses and most individual artists do. Population dynamics of arts and cultu re nonprofits do not reveal what is occurring in the private sector and should not be overlooked as an opportunity for migration from those unable or unwilling to overcome potential barriers to entering the nonprofit sector. The number of nonprofit arts and culture organizations entering annually rose substantially between 1965 and 2004. National figures summarize patterns but obfuscate the influence of state policies, funding, and conditions that shape the environment. This dissertation set out to tes t how state approaches to funding state arts agencies impact the entry, or formation, of nonprofit arts and culture organizations. Several of these alternative mechanisms (taxes and fees, license plates, and public trusts) have influence, but not in the p ositive direction predicted by the hypothesis. Rather, they reduce the number of new entrants. As a result, the attempt to form new organizations in areas with these alternative mechanisms in place may face additional barriers to entry.

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135 Exits The entr y, or formation, of organizations only tells one part of the story. What exits reveal is equally important. It is not possible to look at the 40 year history of exits of arts and culture organizations. While Bowen, Turner, Nygren, and Duffy (1994) repor ted annual entries of all arts and culture organizations they narrowed their focus in addressing exits. Instead, they reported rates for specific subpopulations to calculate several exit rates for the period 1981 to 1991. These included ballet, opera, d ance, theater, museum, and historical societies that were, in turn, compared to job training and higher education. In light of this limitation, it is possible to discuss exits of arts and culture from the entire population from 1990 to 2004 based on the f indings of this dissertation. Then, it is possible to explore exits among subpopulations for the periods 1981 1991, as reported in Bowen et al. (1994), and 1992 2004, as reported in this dissertation. The general population of arts and culture organi zations experienced a rising number of exits between 1990 and 2004. There were a total of 14,197 exits in the period. They ranged from 219 in 1990 to 1,233 in 2004. These are illustrated in Figure 6.3. The exit rates, which relate exits to the total population of organizations in a given year, ranged from 0.91 percent to 5.18 percent nationally. These national numbers provide a baseline or benchmark for comparison, as they did with entries. Improved understanding of how the environment shapes the p opulation comes from looking at state level results.

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136 Figure 6.3 Number of arts and culture nonprofits exiting the US market Exits varied at the state level. They were as low as 0 in multiple states and years and as high as 240 in California in 2002. North Dakota experienced an average for the period of 3 exits per year while California had an average of 217 entries per year. Rates ranged from 0.00 percent in multiple states and years to 9.94 percent in Nevada in 2002. North Dakota, in addition to having the lowest average entry rate, also had the lowest average exit rate, 1.55 percent Utah had the highest average exit rate for the period, 3.53 percent These are illustrated in Figure 6.4. These variations support the conclusion that the local environment is relevant to exit rates of arts and culture nonprofits. !" %!!" '!!" )!!" *!!" $!!!" $%!!" $'!!" $)!!" $*!!" %!!!" $((!" $(($" $((%" $((&" $(('" $((#" $(()" $((+" $((*" $(((" %!!!" %!!$" %!!%" %!!&" %!!'" !"#$+(&*# @A",-./0"

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137 Figure 6.4 Comparing select state exits to national averages The variables significant to the exit of arts and culture nonprofits, in this model, include the following : state population, educational attainment, per capita GDP, the SAA revenue lagged and inflation adjusted, the percentage of seats held by Democrats in the state House and state Senate, and the alternative mechanisms of lic ense plates cultural trusts and endowments, and the combination of two alternative mechanisms. Some of the variables were correlated with a reduction in the number of exits while others actually contributed to an increase in the number of exits. Sta te population is related to an increased number of exits. More populous areas typically have more organizations. The natural result of a larger population is a larger exit count. It should be expected that these more densely populated states are more lik ely to support organizations that vary in age, purpose, size and form. Whether exits are equally distributed along these dimensions was not a purpose of this study but is worthy of future investigation. !I!!J" %I!!J" 'I!!J" )I!!J" *I!!J" $!I!!J" $%I!!J" @A" DH" DK" @,"

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138 Educational attainment, unexpectedly, positively influences the exit of arts and culture organizations. Previous scholarship has demonstrated the influential role of educational attainment in predicting arts participation (A. C. Brooks, 2001; Rushton, 2005) This seems counter to the finding that it is associated with the increased exit of arts and culture nonprofits. Is it that as education increases, new organizations form to satisfy demand? Some survive and some do not, and a certain number of exits are a natural byproduct of evolution in the secto r. However, as education rises, so do professional demands. It has been speculated that with a growth in time spent working and with increased expectations of response time facilitated by new technology, people are experiencing less time free to engage i n other interests (Florida, 2004; Tepper & Ivey, 2007) Furthermore, it has been proposed that educated people increasingly benefit from cultural omnivorousness (DiMaggio & Mukhtar, 2008; R. A. Peterson & Rossman, 2008) Educated workers are increasingly mobile, organizationally and geographically. T his increased mobility demands versatility to engage in multiple settings and with people of varied backgrounds. Past models of elites sharing "highbrow" knowledge has been replaced by the need to be conversant in a diverse spectrum of cultural knowledge, from fine arts and opera to sports and the Simpsons. Changes to long held beliefs about arts audiences and the manner in which they engage may introduce a new condition and better understanding of the ecology of arts and culture organizations. Sources of funding are correlated with a statistically significant difference to the number of arts and culture organizations that exit the environment. Revenue from special taxes and fees, lotteries and gaming, and tax check offs do not have statistical signific ance on the number of exits. Alternative mechanisms are argued to stabilize

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139 funding to arts and culture and provide for a more sustainable sector (Nationa l Assembly of State Arts Agencies, 2012b) They do not do so equally. What is distinctive about the forms of generating stable revenue? It seems that there may be more explanatory capability in why the other forms were not significant in reducing the incidence of exit. There may be significance in the element of choice versus imposition. Individuals who wish to support a specific cause elect to pay additional fees for specialty license plates in support. In contrast, special taxes and fees are impo sed on rather than chosen by the payer. The positioning of these alternative mechanisms may influence consumer choice and behavior crowding in or crowding out support based on how the mechanisms operate. Tax check offs have had limited trial and display lack luster results. California implemented a tax check off but required a minimum for disbursement that failed to be met each year for two years (Nation al Assembly of State Arts Agencies, 2012b) The program was discontinued and replaced with ones that support arts education. Virginia had a tax check off as well from 2004 through 2009. It was discontinued due to poor performance. The system was als o repealed in Alabama in 2006. Tax check offs, one might argue, are a personal election but the timing of the "ask" comes when people may be less inclined to offer additional payments. It is possible that this contributes to an individual's motivation t o give or not. Their discontinuation reiterates the findings that they are likely inefficient or ineffective means of generating support for arts and culture organizations. The insignificant impact of lotteries and gaming is more surprising. The abil ity of taxes from lotteries and gaming to generate much needed tax resources is a claim in their

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140 promotion (Iowa Lottery, 2013; Oklahoma Government, 2013) The transparency of how the revenues are distributed varies among states. It is not clear for all states if revenue from lotteries and gaming are allocated by earmarking or guaranteeing a specific share, or if they go into a general fund with proceeds to be distributed annually. The latter method perpetuates the potential volatility from politics. Furthermore, games have been altered to return bigger jackpots and increase participation. Multi sta te games have also emerged, again, sparking bigger payoffs and higher rates of participation. Research is emerging on how changes in gaming and lotteries are changing the financial benefits to the states in which they operate (Brown & Rork, 2005) Possible explanations of their limited benefits to arts and culture organizations may rest in changes to the structure of these games. If alternative mechanisms, in certain forms, contribute to the reduction of exits, it stands to reason that the use of multiple forms should also be beneficial. The analysis of these data supports this hypothesis. Three states used two alternative mechanisms during the period studied. Alabama used fees from spe cialty license plates and tax check offs. Nevada used fees from license plates and specialty taxes, in the form of an occupancy tax. Texas employed fees from license plates and revenue from a public trust established to benefit the arts. As observed in the last section, tax check offs proved to be ineffective from several standpoints. They failed to generate sufficient revenue, were discontinued in two of the three states using them, and were not statistically significant in the model used in this disse rtation. Specialty taxes and fees were also not significant. The taxes and fees take a variety of forms and collect revenue from diverse places hotel occupancy taxes, a tax on income of visiting entertainers and athletes, and fees for filing required

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141 bu siness documents, to name a few. This study did not delve into the distinctions between these but treated them as a categor y i n accordance with the NASAA policy brief on alternative funding mechanisms. It is possible that the category belies a more diver se collection of tools, rather than a single tool of government. License plates and cultural trusts or endowments were statistically significant These are, perhaps, the most narrowly defined tools and may be more consistent across state lines. Addition al exploration may seek to assess diversity and variations of forms, the levels of funds generated, and the uses of these funds by state arts agencies. Exits among nonprofit arts and culture organizations increased between 1965 and 2004. This is natur al byproduct of the increase in entries. Not all organizations that form survive. As density and competition increase, organizational ecology asserts, weaker organizations will exit. However, the possibility that exit is driven only by chance seems unli kely, as exit rates vary with time and state, thus supporting the influence of the environment on the population of arts and culture organizations. The second research question asked whether alternative mechanisms funding state arts agencies reduce the number of exits. I hypothesized that they all would. This was not supported by the model employed. Several of these alternative mechanisms (license plate fees, cultural endowments/trusts, and the combination of two alternative mechanisms) are associated with a reduction in the number of exits. Specialty taxes and fees, tax check offs, and revenue from lotteries and gaming are not significant variables in reducing the number of exits. Studying an entire population of organizations and their exits offers a macro look at a sector. There is value, too, in observing the changing patterns in one, geographically bound area. Doing so provides the opportunity to see how a unique context contributes to

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142 shaping the population, as seen in the following example. An Example Nevada stood out as both a boom and bust state that employs two alternative mechanisms license plates and a hotel occupancy tax. The case of Nevada highlights how other changes in the ecology can prompt a rise in both entries and exits. Further more it demonstrates the influence of metropolitan statistical areas on state level vital rates. When one hears the name Las Vegas, images of gambling, the mob, and celebrities come to mind. However, in the late 1990s and early 2000s, citizens in Las Vegas attempted to rebrand the city as a family destination with entertai nment, dining, and fine art (Friess, 2009) In 1997, the Las Vegas Museum of Art, the oldest art museum in Nevada, moved into a new building, shared with the Sahara West Library (K. Peterson, 2009) In 1998, the Gallery at the Bellagio Hotel opened, showcasing casino owner Steve Wynn's private collection (K. Peterson, 2009) In October 2000, New York's Guggenhei m, Russia's Hermitage, and the Venetian Hotel of Las Vegas announced a partnership bringing two museums, the Guggenheim Hermitage and the Guggenheim Las Vegas, to the strip (Ouchida, 2000) They opened in October 2001. The Smithsonian was affiliated with the Las Vegas Art Museum during this era (Radke, 2000) In 2007, the affiliation ended with the Smithsonian and rumors of the end of the Guggenheim residency began to circulate (K. Peterson, 2009) In May 2008, the Guggenheim Foundation announced the end of their agreement and the decision to leave (Ennis, 2008) In February 2009, the Las Vegas Art Museum announced it would close as a result of falling donations (K. Peterson, 2009) Former director, Libby Lumpkin was

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143 quoted, "It's just a lesson in the fact that no serious museum will be possible without public support" (K. Peterson, 2009, p. 1) More importantly, it illustrates that the decision to develop the arts can prompt a boom and that the decision of influential figures to withdraw support can cause a bust, drastically altering the landscape. Figure 6.5 Number of arts and culture nonprofits entering/exiting Nevada Large quantitative studies provide the opportunity to identify patterns and trends and to find relationships. They do not, however, provide the opportunity to explore the spectrum of environmental variables as one might with case studies. While the purpose of this study was to observe these patterns and to explore how alternative mechanisms contribute to sustainability, the case of Nevada sho ws the opportunity to be found in exploring patterns at levels lower than the national and more deeply through case study methods, such as offered in research question 4. !" #" $!" $#" %!" %#" $((!" $(($" $((%" $((&" $(('" $((#" $(()" $((+" $((*" $(((" %!!!" %!!$" %!!%" %!!&" %!!'" DK"B:.9425" DK"BC4.5"

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144 Niches It is possible to extend our understanding of exits and relate the data pr esented in this dissertation to that of Bowen and his colleagues. They tabulated the number and rates of exit of six sub populations of arts and culture organizations. These included ballet s opera s dance companies theater s museums, and historical soc ieties for the period from 1981 1991, and producing an implied annual rate of exit. The data presented in this dissertation were subjected to the same formulae to connect to this past work and are presented in Table 6.1, below. Table 6.1 Rates of exit among sub populations of arts and culture nonprofits Sub pop 1981 1991* Implied Annual Rate* 1992 2004 Implied Annual Rate Ballet 21.1% 3.0% 45.11% 3.47% Opera 22.7% 2.7% 51.67% 3.97% Dance 22.3% 2.7% 68.75% 5.29% Theater 20.3% 2.4% 55.61% 4.28% Museums 9.8% 1.1% 48.93% 3.76% Historical Societies 6.9% 0.8% 32.17% 2.47% (Bowen et al., 1994b) The rates of exit for the first period raised concern and were viewed as indicators of vulnerability. The unusually high rates of exit reported by Bowen et al. (1994), compared to other forms of organizations, prompted the authors to conclude that the arts were more vulnerable to failure and exit than organizations in the private sector. They are even more vulnerable than other nonprofit organizations. Since then rates have continued to rise, al though some caution in interpreting the change should be used. This dissertation relied on core data files of the NCCS rather than the Business Master Files (BMF). The BMF capture all active organizations that have registered for tax exempt status. Howev er, presence in the BMF "active" file is far from confirming an active

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145 organization (Bowen et al., 1994b) Furthermore, sources of revenue are not separated by source. The Core Financial Files, in contrast, include approximately sixty financial variables from the Form 990 series, including the source o f revenues: contributions, program revenues, dues, and investment income. This level of detail provides better understanding of individual organizations and patterns within each state but is only available from 1989 forward. The change in data, from BMF to Core Financial Files, may have contributed to the observed variations. Other explanations undoubtedly include competition, changes in revenues and expenses, and economic conditions. The presence of alternative funding mechanisms offers some explanatio n for exit figures. Ascertaining the other environmental conditions that are driving the rise in exits will be important to supporting sustainability in the arts sector. Changes in cultural participation have been noted and integrated into research for a better understand of participation (DiMaggio & Mukhtar, 2008; Florida, 2009; Jackson, 2008; K. F. McCarthy & Jinnett, 2001; National Endowment for the Arts, 2013; Schuster, 2000; Tepper & Ivey, 2008) These studies cast doubt on the ability of education and income to prove equally capable of predicting participati on across all forms of arts and culture and geographic areas. Arts and culture participation is an important element of the environment for arts and culture nonprofits and a better operationalization of participation may contribute to a better understand ing of population dynamics. Philanthropic behavior varies with a person's age, education, income, and gender. As these also influence participation in the arts and culture, an exploration of the ir intersection may identify additional forces shaping the po pulation of arts and culture nonprofits.

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146 Finally, the nonprofit arts organization is a relatively modern form. Before its invention and development, artists and performers were entrepreneurs working in the private sector (Ellis, 2007) In many creative industries, such as films and popular music, a private enterprise is still the more common organizational form. The overlap, competition and division of resources between arts and culture organizations may be an interesting variable. What is the environmental influence of the density of private arts and culture enterprises on shaping the nonprofit population of arts and culture organizati ons ? Comparing Entries and Exits Comparing patterns of entry and exit of arts and culture organizations also enriches understanding of the population dynamic. As seen in Figure 6.5, entries and exits moved roughly parallel to one another between 1990 and 1994. Entries then remained fairly stable while exits continued to increase. This period coincides with the Culture Wars, during which controversy surrounded the government funding of the arts and significant reductions in NEA spending were imposed. S tate and local level funding were not universally reduced in the same fashion. On the contrary, many state and local arts agencies were able to increase revenue during this period (Stubbs, 2013) This suggests that there is a variable besides government funding in the arts and culture ecology that is influential on the vulnerability and sustainability of arts and cul ture nonprofits.

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147 Figure 6.6 Number of arts and culture nonprofits entering and exiting the US market The intersection and interaction among federal, state and local funding on the population of arts and culture organizations may warrant examination usi ng hierarchical linear modeling (HLM). Arts organizations receive approximately 3 percent of their revenue from the federal government, 2 percent from state government, 4 percent from local government, 31 percent from foundations, corporations, and indivi duals, and 60 percent from earned income (Americans for the Arts, 2012b) Furthermore, aggregate arts spending by state governments is approximatel y twice that of the NEA and local spending is approximately five times that of the NEA, as illustrated in Figure 6.6 (Americans for the Arts, 2013) !" #!!" $!!!" $#!!" %!!!" %#!!" $(*(" $((!" $(($" $((%" $((&" $(('" $((#" $(()" $((+" $((*" $(((" %!!!" %!!$" %!!%" %!!&" %!!'" @A"B:.9425" @A"BC4.5"

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148 Figure 6.7 Twenty years of government support for the arts: Federal, state, and local (1994 to 2013) (Americans for the Arts, 2013, p. 1) Twenty nine states and eight metropolitan areas have established alternatives to supplement traditional appropriations to the arts (National Assembly of State Arts Agencies, 2012b) Organizational ecology argues that selection of the level of analysis should be done by determining at what level they are competing for resources. While there are exceptions, most arts organizations derive the majority of their resources from the local environment (Americans for the Arts, 2012a) Ho wever, there is still a hierarchical structure in the US that positions the NEA at the top, at least for their symbolic power, followed by state arts agencies, then local arts agencies, with the organizations themselves forming the base of the pyramid. Th e organizations at the bottom of the pyramid are competing for resources at the local level, the state level, and even the national level. Using HLM will allow for the nesting of national, state, and local

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149 data. It will be possible to consider the local environment within the state environment within the national environment. Future research with this approach might manifest as an exploration of several states. Nevada provides an interesting example because it experienced a boom bust cycle for its arts and culture sector in the first decade of the 21 st century and utilizes two alternative mechanisms. Indiana did not stand out as a state for high entry or exit rates and the state arts agency is supported by a public trust. Colorado does not have an alternative mechanism at the state level. As presented, an MSA within Colorado does benefit from a special tax to support arts and culture within the state. Narrowing th e sample to organizations from these states allows consideration of additional ecological variables, such as cohorts of organizations, and clustering organizations for institutional size. The theory of organizational ecology stresses that analysis should occur at the level from which resources are obtained. Arts organizations receive resources from all levels. This supports the use of HLM. Direct B eneficiaries The reputation of NEA grants as an endorsement has been well circulated. While stu dies have undertaken research to answer how private donors react to public support for arts organizations, they have not been able to conclusively report whether government grants to the arts crowd in or crowd out giving and charitable donations from indiv iduals. This dissertation posed the question: Do organizations that receive grants from a state arts agency experience a different rate of exit than those that do not? If government grants serve as an endorsement with the potential capability of leveragi ng private donations, endorsed organizations should have a greater incidence of survival and a lower incidence

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150 of exit. The analysis of data, limited as described earlier, does indeed support this hypothesis. This finding is unrelated to the intrinsic or instrumental value created by grant recipients. If a goal of public art agencies is to foster sustainability of the sector, there may be value in analyzing this relationship Clarity in interpreting these findings is essential. First, limitations from the methods used necessitate caution. Second, the findings indicate correlation, not causation. While my findings indicate a positive relationship between receipt of state arts agency grants and a reduction in the likelihood of exit they do not show th at the grants are the reason for reduction in exits. An exploration of additional variables is warranted. Lower incidence of exit among grant recipients may rest with the process by which grants are awarded. The application, requirements, review, and sele ctivity may serve as vetting process. Researchers should establish any requirements, the review process, and if financial health is a consideration in grant awards. Requirements and standards may eliminate newer, smaller, or weaker organizations from the pool of candidates. Additionally, grants are not limited to nonprofit arts and culture organizations. These organizations must also compete with educational institutions, religious organizations, and community groups. A competitive process for grants s hould arguably yield high performing recipients. Grant awards are associated with the financial benefit. Consideration should be given to whether organizations receiving grants benefit in additional ways. Workshops, training, and support provided or f acilitated by the SAA might also contribute to a reduction in occurrence of exit. Organizations may benefit through association and networking that takes place, prompting the discovery, identification, or connection with

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151 additional resources to benefit th e organization. The possibility of these should be given fair consideration. There are ample research opportunities in better understanding the relationship between SAA grants and exit counts of arts and culture nonprofits. The exploration of the se questions provides an opportunity to better understand and leverage government grants to arts and culture organizations. Levels of Analysis: State and Local Interactions The case of Colorado allowed for examination of a state in which an alternative mechanism, a specialty tax, has been in place at the metropolitan level for the entire period of time studied in this dissertation, 1990 2004. Are the rates of entry and exit of nonprofit arts and culture organizations in a metropolitan statis tical area (MSA) with a special funding district significantly different than national and state rates? I hypothesized that a stable source of funding would encourage new entrants and reduce the number of exits when compared to the population of organizat ions in the rest of the state. Specialty taxes benefitting the arts did prove statistically significant as a contributing variable at the state level. Their failure to be significant at the MSA level is cause for consideration and additional research. P ossible explanation may lie in the quality and caliber of arts organizations and programming outside of the Denver MSA. Colorado has cultivated high end tourism to resort communities such as Vail, Beaver Creek, Aspen, and Telluride. The arts are integral parts of these communities, for example the ski resorts hosting symphonic orchestras during the summer, and their ability to attract visitors. Future examination of the ecology of arts and culture nonprofits

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152 may seek to include a variable that captures the degree to which the arts and culture has been integrated into the community identity. The Contributions of Alternative Funding Mechanisms to Sustainability State environments vary along many dimensions. The size and educational attainment of the po pulation, the economic conditions in the state, the density of the population of organizations already in existence, and state policies undoubtedly influence the vital rates of populations. A previous section described the formation of the NEA and the emu lation by most state arts agencies to use appropriations for funding. This was considered an important advance in American support for the arts. However, time revealed that appropriations are subject to volatility from changes in the economy and politica l power (Martell, 2004 ; National Endowment for the Arts, 2012b; Wallis et al., 1999) The interaction of these shifts in support and the rising costs of delivering arts and culture programming prompted many advocates in arts communities to demand a more reliable system for supporting arts and culture in the United States. Between 1975 a nd 2004, 21 states responded with the creation of alternative funding sources. These alternatives to legislative appropriations generate revenues for the state arts agency (National Assembly of State Arts Agencies, 2012b) This dissertation was undertaken to examine the relationship between alternative funding mechanisms and the vital rates of the arts and culture nonprofit population. The data includ e 750 observations. Of these, 551 observations were of states and years in which there were no alternative mechanisms in place. In 44 states, there were no alternative mechanisms in place for at least one year of the period. Twenty one states had at lea st one observation in which an alternative mechanism was present. Taxes and

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153 fees were used in six states. Lotteries and gaming were used in two states. License plate fees generated revenue in six states. Two states used tax check offs to generate funds Public trusts were present in eight states. Three states (Alabama, Nevada, and Texas) used two alternative mechanisms for at least one year in the period observed. State arts agencies had different resources at their disposal and discretion as a resu lt of legislative appropriations. These ranged from $0 in Louisiana in 1994 and Missouri in 2004 to $68,063,400 in California in 2001. These figures averaged an annual amount of $5,639,796.07. Comparing the state arts agency revenues of New York or Cali fornia, locations with highly dense populations of residents and arts and culture nonprofits, to states such as Alaska and Wyoming present s challenges, as occurred when comparing the raw numbers of entries and exits. A measure that has been used to compar e U.S. support for the arts to other countries is to look at spending per capita. For all states and all years, these values ranged from $0 in Louisiana and Missouri to $25.68 in Michigan in 2001. State averages for the period ranged from $0.21 in Texas to $6.36 in Hawaii. The national average for the period was $1.14. These figures conform to common practices on per capita spending but do not capture total revenues supporting arts and culture nonprofits. These organizations also draw benefit from priv ate contributions, corporate donations, foundation grants, and earned income (Americans for the Arts, 2012b) Alternative mechanisms have been prof fered as potential tools to reduce vulnerability in the arts and culture sector. Before pursuing the adoption of an alternative mechanism, proponents need to consider what they hope the alternative mechanism will achieve and the past performance of mechan isms under consideration. Not all

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154 alternative mechanisms are created equal, nor are they equally influential to the survival of arts and culture nonprofits. Fees from license plates and public cultural trusts are associated with reduce d e ntries, or forma tions. License plates, cultural trusts, and the combination of alternative mechanisms were statistically significant regarding exits in a negative direction. Just two categories of alternative mechanisms and the combination of alternative mechanisms are c onsistent with lower exits. Reductions in exits may stabilize the arts and culture sector, improve efficiencies, and strengthen the synergies when working to reach goals shared across policy areas. However, proponents need to also be aware of a potential disadvantage of these same alternative mechanisms. They are also associated with a reduction in entries. If alternative mechanisms contribute barriers to new programs, innovation in the sector may diminish and the field may stagnate. Researchers may s eek to test the relationship in the future. It has been contended that grants from the NEA serve as endorsements and leverage, or crowd in, additional funding. This argument has been extended to grants from other government agencies but has not been em pirically tested. Within the limitations described in Chapter 4, the incidence of exit among a sample of grant recipients was compared to the incidence of exit among the entire population in the NCCS data for this period. While previously untested, the r eceipt of grants does appear associated in a statistically significant way. Cultural economists have tested the extent of benefit or the power of an endorsement in the form of a grant to leverage private giving with crowding studies (Andreoni & Payne, 2003; Borgonovi, 2006; Borgonovi & O'Hare, 2004; A. C. Brooks, 2000c, 2003; Dokko, 2009; Schiff, 1985) Scholarship has not tested for links between the receipt of grants and the risk of exit, failure, or organizational death.

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155 According to the findings here, the grants are correlated with increased organizational survival. Government grants may signal a level of quality, artistic achiev ement, or service to an objective of public policy. The ability of grants to serve as an endorsement was not tested here. However, these findings demonstrate an increased likelihood of survival. Direct government support of arts and culture in the Unit ed States is linked to the formation of the NEA in 1965. While state arts agencies existed before this, they were relatively few in number and limited in scope (Binkiewicz, 2004; J. Lowell & Ondaatje, 2006; J. F. Lowell, 2008) The National Endowment for the Arts is funded via legislative appropriations. As state arts agencies for med and emulated the NEA, they were also typically funded via appropriations. Alternative mechanisms made limited appearances in the early history of state arts agencies. The tourism tax in Nevada was established in 1955. A portion is now dedicated to t he arts (National Assembly of State Arts Agencies, 2012b) Montana established a public trust in 1975 (Schweitzer, 2012) The early formations of these alternative mechanisms are outliers. Alternative mechanisms were developed in eight states between 1985 and 1994. They were established in eleven more states between 1995 and 2004. Alternat ive mechanisms come in different forms among which additional variations occur and contribute to diversity of ecologies. Taxes may be collected from hotel occupancy taxes income tax es on athletes and performers who come to the state for work, or busines s filing fees. These variations undoubtedly lead to variations in the amounts collected. Alternative mechanisms may also be established to benefit specific subpopulations of arts and culture nonprofits. For example, Nevada license plates fees are dedica ted to funding arts in education. The tax check off in California has been

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156 revised to specifically benefit arts education. Capturing these differences may bring additional explanation. Alternative mechanisms to generate funds for arts and culture nonprofits have a limited occurrence and history. Further subdividing them may prove interesting for case studies but would lack the size to be valuable for quantitative analysis. It is unknow n whether alternative mechanisms may contribute to crowding, either of private donations or government appropriations. Mechanisms have been created in some places as a supplement and in others as a substitute for government funding (National Assembly of State Arts Agencies, 2012b) How the revenue generated from these sources is perceived is unknown. If alternative mechanisms are established as a suppl ement to legislative appropriations, it is essential that politicians understand this and not seize an opportunity to re allocate funds. Further more if private individuals believe the alternative mechanisms meet the needs of the nonprofit arts and cultur e community they may diver t their charitable gifts to other areas in the sector. SAAs must continue to communicate with shareholders regarding the benefits and limits of the funds. Denver and Colorado again provide a case study that may or may not extend beyond geographic boundaries. In the early 2000s, the state of Colorado faced an economic shortfall. Gov. Bill Owens, a Republican, drastically cut funding to the state arts agency. It was reduced from $1,886,452 in 2001 to $1,860,417 in 2002, $ 963,863 in 2003, and $200 000 in 2004 (National Assembly of State Arts Agencies, 2012a) The state arts agency was further order to reduce overhead to less than $40,000 (College Art Association, 2003) The National Endowment for the Arts threatened to withhold $614,000 because funds may only be dispersed to an operational state arts council (College Art Association, 2003) The NEA did provide $613,600 and permitted use of

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157 some funds for operations with a stern warning that federal standards needed to be met for Colorado to continue receiving funds (College Art Association, 2003) Fu nding was increased the next year but has not returned to the same levels (National Assembly of State Arts Agencies, 2012a) Alternative mechanisms are emerging as a pol icy tool of state and local governments. Breaking from the tradition established by the NEA to rely on legislative appropriations, states and municipalities are adopting alternative mechanisms to fund arts agencies and arts programs and organizations in t heir communities. Alternative mechanisms are varied. The ability of these to reduce the number of exits is not consistent across forms a nd those associated with a reduction in exits are also associated with a reduction in entries. Furthermore, this sys tem of funding the arts may crowd the behavior of politicians and state residents. Residents may believe that by paying a sales tax, buying lottery tickets, selecting specialty license plates, or merely having a public trust will produce sufficient revenue to meet the needs of arts and culture organizations. Government funding from all levels contributes, on average, just 9 percent of revenue for arts and culture organizations (Americans for the Arts, 2012a) Arts advocates and administrators need to continue efforts to educate and inform the public of the benefits and limitations of government funding. This dissertation presents an explor ation of alternative mechanisms as an ecological variable of interest in th e p opulation dynamics of arts and culture organizations. This study was limited in a number of ways, as addressed in the next section.

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158 Organizational Theory and Arts and Cult ure Nonprofits Organizational ecology seeks to answer which forms of organizations survive and which become extinct and why (G. R. Carroll & O. M. Khessina, 2005) The theory relies on the understanding of the influence of the environment on distributions of organizations over time (Hannan & Freeman, 1977) Organizations persist through a process similar to natural selection, where the fittest adapt and evolve and the weak do not survive. This theory formed the methodology of this dissertation. Using it required some modifications and offers opportunities for additional development and research. Organizational ecology uses longitudinal vital statistics to observe population patterns. Is the organizational form of interest expanding or contr acting? Population counts answer this and served as the dependent variables in the four research questions of this dissertation. The theory assumes an entire history for the population in order to capture the lifecycle of the organizational form. Data a vailability proved an obstacle in satisfying this assumption. It is possible to find the year an arts and culture nonprofit organization enters, granted nonprofit status by the IRS longitudinal data via the NCCS Core Data Files is available beginning in 1989. While this truncates the history of the organizational form it is still possible to observe trends and emerging patterns in the population. Organizational ecologists are attentive to geographically bounding the population at the level of competit ion for resources. In this dissertation I used the state as the level of analysis because mechanisms for funding the SAA are the variable of interest. The implied assumption, then, is that all nonprofit arts and culture organizations are competing within the state for audience, donors, and state grants. This may or may not

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159 be the case. Are smaller arts organizations competing for state grants? Additional work might explore this and improve the models presented here. An organizations age is a contrib uting factor to survival. As organizations age, they typically acquire resources necessary to survive environmental shocks. These resources contribute to organizational inertia, a resistance to change. In aggregating organizational data to the state lev el this study did not include a variable for age. Using an average or a mean seemed misleading for states that support older, established institutions as well as new, emerging organizations. Researchers may seek to develop a variable to capture the age d istribution within the population. Density, competition, resource partitioning, and niche also contribute to organizational ecology. Density did not prove to be a statistically significant variable in the models tested in this dissertation. Limited ex ploration of niche development was conducted in this dissertation but warrants additional investigation. As competition for resource continues to increase, population density and niche development are likely of increasing interest. Examining the distribu tion of state funds in light of organizational age, size, and specialty may enhance the findings presented in the third research question. Organizations are a powerful force, purported to be the engines of civilization (Hannan & Freeman, 1989) Nonprofit arts and culture organizations are being used to drive economic and social changes. Understanding the health of the population should increase the success of programs which integrate arts and culture to serve public goals. Organizational ecology provides an appropriate theory with which to undertake this exploration and evaluation. Adva ncing the application of organizational ecology to nonprofit arts and culture organizations offers promising opportunities.

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160 Limitations Understanding changes in the population of arts and culture nonprofits is of importance in contemporary society. These organizations still provide education and entertainment to the public. Nevertheless the i r contributions are more diverse and substanti ve than that. Bowen et al. (1994) produced a demography of the nonprofit population that included detailed information on subsectors, including arts and culture. This dissertation has attempted to pick up where they left off, extending the analysis to 20 04. However, Bowen et al. (1994) relied on the IRS Business Master Files that contain all active organizations that have registered for tax exempt status. These data are now electronically available from NCCS from 1995 forward. The Core Financial Files include financial variables and go back to 1989 (Urban Institute, 2013) Using the Core Financial Files provided more detail about each organization and allow observation of entry and exit beginning in 19 90 This choice, however, may lead to i nconsistencies between the two studies. This was visible in and noted in the discussion of Figure 6.1. The operationalization of exit deviates as a result of the different data. Bowen et al. (1994) calculated exit based on absence from the list of activ e organizations. The approach here follows Hager (2001) who used NCCS data and operationalized exit as failure to file for several consecutive years. This is consistent with IRS policy that now revokes nonprofit status from organizations that fail to fil e an annual return or notice for three consecutive years (Internal Revenue Service, 2013) Data availability limits the years included in this study. NCCS Core data files are available beginning in 1989. The variables make it possible to identify organizations that filed in 1989 but it is not possible to identif y tho se that exited in 1989. I begin counts

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161 with 1990. Similarly, exit is determined by an organizations failure to file for three consecutive years. The availability of data determined that the last year for which exit counts could be established was 2004. The National Endowment of the Arts has conducted the Survey of Public Participation in the Arts (SPPA) since 1982. It was administered in 1982, 1985, 1992, 2008, and 2012. The SPPA is one of the best sources for data on participation in the arts but incl udes certain limits. One barrier is the geography of respondents. State location is a more recent addition but did not fit with the needs of this study. Education and wealth proxies were substituted. Better capture of the geography of participation wou ld offer a richer context of arts and culture nonprofit populations. Alternative mechanisms are not new and are emerging as an important tool of government in providing support for arts and culture. But there are limited observations and this is further divided when separating by category. This may influence the significance of the relationships in the present analysis. Additional observations of alternative mechanisms will increase the reliability of statistical analysis. Organizational ecology assume s access to the entre history of a population. Data availability limits the history and population available to researchers. NCCS Core data files are available beginning in 1989. Small organizations (those making less than $25,000) were not required to file and are absent from the data. Reducing the geographic area of study, narrowing the population studied (i.e. ballets, theaters, museums), and finding additional records through communities or national associations of smaller organizations might yield an complete history and population of an arts and culture

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162 nonprofits and present the opportunity to examine the life cycle of the sector in a particular area. Data compatibility produced important limitations for the third research question. The lack of a unique identifier, such as employer identification number, increased the challenge of matching data between the NCCS and NASAA files. Both files are rich with valuable information. The process of combining files significantly reduced the number of obser vations. The fourth research question is also limited. It used the same data as research questions 1 and 2. Therefore the time period is bound by the same parameters and small organizations are excluded from the population. Furthermore, while unemploy ment is available for the state and the MSA, educational attainment was not available in a matching form. The data were analyzed statistically in parallel to the first three research questions. Findings were not significant. This is unsurprising in ligh t of the small sample. Arts and culture organizations are not limited to the nonprofit sector. Studies of the economic impact of arts and culture organizations have pointed to the cross sector population. Bowen et al. reported on arts and culture as a s ubpopulation of the nonprofit sector. Much of the literature that has focused on the economic vulnerability of the arts has also isolated the nonprofit arts and culture organizations from those in the private sector (Bille Hansen, 1997; A. C. Brooks, 1999, 2000a, 2000b, 2000c, 2001, 2003, 2004b, 2007; Hager, 2001; Throsby, 2003) Bowen et al. identified the vulnerability of nonprofit organizations by reporting patterns of entry and exit in the nonprofit sector. Co nsidering the same population was a logical choice for this dissertation. However, consideration

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163 needs to be given to the trends among private sector arts and culture organizations such as, but not limited to, films, popular music, and Broadway theatrica l productions Examination of the population across sectors may enhance our understanding of population trends. Organizational ecology is applicable regardless of sector and should make an expanded analysis informative. Implications The population of arts and culture nonprofits was observed to be declining in 2003 and 2004. It is not known yet whether this was temporary or the start of a downward trend, based on the methods employed here. Contemporary accounts suggest that it is the beginning of a trend. The great recession forced many arts and culture organizations to operate in survival mode charging additional fees for special exhibitions, reducing performances, canceling productions, and furloughing or eliminating paid staff p ositions (Stone, 2009) Others suggest that these changes are corrections. Much emphasis has been placed on the ability of arts and culture to lead th e economy. Viewed as essential ingredients to innovation (Florida, 2004) the arts have been positioned as beneficial to the economy. Arts and cultural amenitie s are used to attract businesses to locations to strengthen the economy (Florida, 2004) Arts and culture organizations have been used to change the hours of use of a location making the downtown area an attraction during evening and weekend hours to benefit restaurants and retailers and increase tax revenues (Rosentraub, 2009) Have arts and culture nonprofits been overbuilt without proper consideration given to the patterns of attendance and support of today? If this is the case, the decreasing numbers may be interpreted as a correction of supply and demand.

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164 Patterns of consumption are also changing. There was a tradition, among the well educated, to attain a level of accomplishment in the arts to recite poetry, to play an instrument, or to draw or paint (K. D. McCarthy, 1991) This behavior was supplanted when part icipation in the arts meant attending performances, exhibitions, and readings (Tepper & Ivey, 2007) The tendency was reinforced by the preferences given to 501(c)(3) organizations through grants from the Ford Foundation and the National Endowment for the Arts (K riedler, 1995) The National Endowment of the Arts Survey of Public Participation in the Arts was implemented in 1982 and was designed to capture attendance at nonprofit arts and culture events (Tepper & Ivey, 2007) The benefit of this has been that there is a consistency of data and the abil ity to observe patterns across time (Tepper & Ivey, 2007) However, patterns of consumption have changed and past surveys failed to consider participation and engagement in the arts that took place outside of the nonprofit arena (Florida, 2004; Markusen & Gadwa, 2010a; Markusen & King, 2003; Tepper & Ivey, 2007) The era of the 9 to 5 job is past. Household configurations have changed. Income, education, and mobility have all changed significantly with the advance of time and advent of technology. Putnam (Putnam, 1995, December, 2000) documented the decline of bowling leagues while identifying that the number of bowlers was in fact increasing. Tepper and Ivey (2007) similarly identif ied that patterns of participati on in the arts are changing. No longer must individuals visit a museum to see great works of art. They can search the internet for images. People do not need to go to the opera; they can digitally download files or watch performances at the local movie theater. The most recent Survey

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165 of Public Participation in the Arts has broadened the operationalization of participation beyond the traditional benchmark activities (National Endowment for the Arts, 2013) The ecology of the nonprofit arts and culture population must expand to capture these changes. Conclusion Organizational ecology seeks to explain how conditions in the environment influence a population's vital rates. This dissertation has presented the size of the nonprofit population and explored the influence of alternative funding mechanisms and the direc t receipt of grants from state arts agencies on the population of arts and culture nonprofits. This analysis produced a partial explanation for the vital rates of nonprofit arts and culture organizations. Additional benefit will be derived from continued observation of vital figures. Extending the approach to private sector arts and culture organizations will complement our knowledge. Do vital rates for the two move in tandem or asynchronously? Further research and understanding of how the public consu mes and participates in arts and culture will also contribute to a deeper understanding of environmental influences.

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166 CHAPTER VII CULTURAL POLICIES BOON OR BUST Introduction The merits of arts and culture have been documented and promoted as means to improve modern life. They are linked with education, economics, social capital, and the wellbeing of people (Belfiore, 2002, 2004; Colorado Department of Education & Colorado Council on the Arts, 2008; Florida, 2004; Mark usen & Gadwa, 2010a; Markusen & King, 2003; Rosentraub, 2009) They are perceived by the majority of the populace to be a good indicator of the quality of life (DiMaggio & Pettit, 1999; Tepper & Ivey, 2008) The associated benefits and general support have increased the practice of leveraging arts and culture organizations to contribute value to m ultiple areas of modern public policy (Belfiore, 2004; Jackson, 2008) The arts have a position in the policy field. This is embraced by arts advocates as endorsement of the value and necessity of arts and culture in contemporary civilization. However, there may be unintended consequences. Scholarly research has repeatedly examined the vulnerability of arts and culture organizations. They are more likely to experience financial hardship and face failure or exit than private sector organizations and many other non profits fields (Bowen et al., 1994a; Hager, 2001; Harrison & Laincz, 2008) In engaging with a population that has a heightened exposure to environmental and market risks, arts administrators and government should develop policies with consideration of this vulnerability and the goal of sustainability. Multiple states have implemented alternative mechanisms to generate funds outside of legislative appropriations for the state a rts agency, which in turn provides grants to artists and organizations presenting the arts to the public (National Assembly of State Arts Agencies, 2012b) The alternative mechanisms are intended to

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167 reduce or buffer financial risks that result from political and economic volatility (National Assembly of S tate Arts Agencies, 2012b) This dissertation tested how the presence of these mechanisms correlates with the population of nonprofit arts and culture organizations, particularly their entry and exit. Certain mechanisms are correlated with a decrease in entry and exit of nonprofit arts and culture organizations. Not all alternative mechanisms contribute to reduced incidence of exit and greater sustainability of the population. Government grants have been purported to endorse arts organizations and le verage private contributions (National Endowment for the Arts, 2005) This argument lacks sufficient evidence (Borgonovi, 2006; Borgonovi & O'Hare, 2004; A. C. Brooks, 2000c, 2003; Dokko, 2009; Hersey, 2009) However, grants do decrease the incidence of exit, as demonstrated by this dissertation. The layering of policies from the national, state, and local governments in the United States further complicate interpreting the implications of government gra nts for nonprofit arts and culture organizations. This closing chapter examines the policy implications of vulnerability and questions of sustainability for arts and culture nonprofits raised by the findings of this dissertation. It reviews cultural poli cies as an environmental force influencing the entry and exit of arts and culture nonprofit organizations. Then, it revisits the issue of exposure for arts and culture nonprofits. The significance of population sustainability is presented before consider ing the significance of support from state arts agencies. The practical implications of this work and opportunities to further advance the understanding of the sustainability of arts and culture are presented before the conclusion.

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168 Policy Influen ces on Populations Population changes reflect multiple environmental forces. According to organizational ecology, the behavior of populations of organizations is influenced by age, size, density, inertia, and niche (Carroll & Hannan, 1989b; Freeman et al., 1983; Hannan & Freeman, 1977, 1984, 1989) O rganizational ecologists have also considered the influence of public policy on populations of organizations. While Carroll and Delacroix (1982) found that public policy was a market force in generating newspaper sales and the expansion of the population, Delacroix and Solt (1988), Swaminathan (1995) and Swaminathan and Wiedenmayer (1991) explor ed how policy influenced the population of wine and beer producers. Arts and culture organizations were, for the majority of their history in the United States, the result of private efforts to create and promote access to the arts (Kriedler, 1995; L. B. Miller, 1974) The Ford Foundation strategically target ed arts organizations for grants between 1957 and 1976 to eliminate debts and establish endowments for existing organizations, to form new regional nonprofit arts organizations, and to increase the number and quality of conservatories and service organizat ions supporting the sector (Kriedler, 1995) The NEA was heavily influenced by the Ford Foundation's example and advocacy (Kriedler, 1995) The NEA extended its influence to enco urage the establishment of state arts agencies, where they did not already exist, and supported the expanding role for nonprofit arts organizations (Baurelein & Grantham, 2009; Binkiewicz, 2004) As a result of these efforts, arts and culture nonprofits were increasingly subjected to the influence and agenda of government and politics.

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169 The influence of government on the arts sector and its environment continues to rise as governments rely increasingly on nonprofits and private industries to produce goods and deliver services. Arts and culture now serve multiple policy goals through instrumental attachment, including economic developmen t, urban revitalization, improving educational performance, and building social cohesion (Belfiore, 2004; Ellis, 2007; Jackson, 2008) In pursuit of these goals, is there the possibility that the endorsement of arts and culture as a cure to so many social ills has led to an over population that is unsupportable with current resources? The number of arts and culture organizations rose steadily since 1965 a nd the creation of the National Endowment of the Arts (Bowen et al., 1994b) This dissertation contributed that the number of entries appeared to have dipped around the time of the Culture Wars of the late 1980s and the 1990s, recovered, and stabilized until 2003 and 2004, following the economic recessi on of the early 2000s. The number of exits, as reported in chapter five, has risen since 1990 with spikes in 199 9 and 200 2 While the total number of arts and culture nonprofit organizations has grown federal funds have not. Between 1992 and 2012, Congre ssional appropriations to the NEA declined by 49 percent when adjusted for inflation (Stubbs, 2013) State and loc al funding rose between 1992 and 2001 but has been decreasing since 2008 (Stubbs, 2013) Does this increased empha sis on the power of the arts sector combined with inadequate resources to meet the myriad of expectations increase, rather than reduce, the vulnerability of arts and culture organizations? Alternative mechanisms have been implemented as vehicles to secure public money for arts and culture and to protect these funds from sudden reductions. This study

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170 began the exploration of alternative mechanisms as an ecological variable contributing to population dynamics of arts and culture nonprofits. There is ready o pportunity for additional research and the advance of our understanding of arts and culture funding mechanisms. Some mechanisms are rather narrowly prescribed and easily fit within a category. Specialty license plates are an example. Other mechanism ca tegories are broad. Specialty taxes and fees include taxes and fees on a variety of groups, for a variety of reasons, and these may be distribute d in differing ways. Understanding the distinctions within these categories and assessing the value in groupi ng them as one category versus sub dividing may contribute better understanding why these mechanisms were not statistically significant. Finances play an important role in organization survival. However, there ar e a dditional organizational and community variables that contribute. Deeper case evaluations could illuminate the characteristics of geographic areas with high entry and low exit, low entry and low exit, and low entry and high exit. This dissertation identified North Dakota, Nevada, Wyoming, an d Utah as outliers in this study. Possible variables of interest in these in depth analyses include the role of social capital and the presence or absence of policy entrepreneurs. Arts and culture participation is changing. Facilitated, in part, by techn ology and media, audiences are engaging with the arts in different ways from the past. How are technological advances and changing audience expectations shaping sub populations of the arts and culture nonprofit sector ? Have different classes of NTEE orga nizations evolved similarly or differently? Does organizational age or size contribute to these

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171 changes? To survive, organizations must attract the necessary resources. In order to attract/retain resources, nonprofit arts and culture organizations must be aware of the ecological opportunities and threats and respond appropriately. Vulnerability Revisited Organizational vulnerability is the increased threat to survival. The rising size and density of the population, shrinking government spending, an d changing patterns of philanthropy have increased competition among nonprofits for a decreasing pool of resources (Prochaska, 1993) Scholars of nonprofit management have identified numerous implications of these conditions (Salamon, 2012) While many organizations possess the resources to insulate from unanticipated changes in the environment, many do not (Greenlee & Trussel, 2000; Hager, 2001) Elevated vulnerability, or risk of organizational failure and exit, poses consequences to communities, stakeholders, and those who depend on nonprofits to deliver services and programs. Inability to meet environmental challenges may drive nonprofits to reduce services or programming (A. C. Brooks, 2000a; J. Lowell & Ondaatje, 2006; J. F. Lowell, 20 08) to draw from reserves and assets (Freeman et al., 1983; Hager, 2001; Tuckman & Chang, 1991{Freeman, 1983 #671) and potentially to surrender due to the inability to continue serving their stakeholders (Carroll & Hannan, 2000; Freeman et al., 1983; Hann an, 1998; Hannan & Freeman, 1984) Unfortunately, limited information about nonprofit vulnerability is publicly available (Tuckman and Chang, 1991). Population vulnerability presents often over looked issues to policy makers. The vulner ability of arts and culture organizations has been proven by different scholars and measures. Bowen and his co authors (1994) reported the heightened

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172 incidence of exit among arts and culture nonprofits. A mong these, ballet, opera, dance, and theater are significantly more likely to exit than museums or historical societies. Hager (2001) selected arts and culture nonprofits as a population on which to empirically test Tuckman and Chang's ratios, in part due to the findings of Bowen et al. (1994). This di ssertation presented exit rates among arts and culture nonprofits between 1990 and 2004 ranging from 0.97 percent to 5.89 percent for the Unit ed States as a whole and from 0 percent to 11.59 percent at the state level. Average annual exit rates for the pe riod were as low as 1.78 percent and as high as 2.85 percent All the implied annual exit rate s for sub sectors investigated increased for the period 1992 to 2004. The findings of this dissertation demonstrate that vulnerability and the threat of organiz ational exit have not diminished for arts and culture nonprofits. Meanwhile, the promise and use of the arts to serve an array of policy goals has increased. Research needs to continue exploring organizational ecology to identify sources of threat and me chanisms for increasing stability and sustainability. Advocates and policymakers need to understand how policy selection may benefit or damage, even unintentionally, the organizations they leverage in service of the public good. Arts advocates have re cognized the vulnerability posed by financial issues such as the increasing costs of production, an income gap, and changes in private support for the arts (H. Baumol & Baumol, 1985; A. C. Brooks, 2000a, 2001, 2003, 2004a, 2007) They have looked to increased government funding to stabilize the environment and neutralize the th reat. Direct government support of the arts has always been, on average, a relatively small portion of total revenues (Americans fo r the Arts, 2012a; Cowen, 2006, 2007) Arguments against government funding the arts voiced fears over the possibility

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173 of crowding out private donations (Bo rgonovi, 2006; Borgonovi & O'Hare, 2004; A. C. Brooks, 2000c, 2003; Dokko, 2009) and initiating support of programs that would multiply and prove unsupportable. Counter arguments articulate the symbolism of the endowment as endorsing and le gitimizing the arts as a valuable component of civilization (P. N. Hughes & Lukestich, 1999; P. N. Hughes & Lukestich, 2004) Debates continue with recurring disagreements on re authorization of the NEA, amount of appropriations, and rules stipulating the content and quality of work supported (Moen, 1997b; Wallis et al., 1999) Sequestration reduced the 2013 budgets of the NEA, th e Smithsonian, and Corporati on for Public Broadcasting by 5 percent (Rao, 2013) In January, Congress approved the Fiscal Year 2014 Omnibus Appropr iations bill awarding $146.02 million, $253,000 less than the 2013 pre sequestration amount (Americans for the Arts, 2014) The financial support of the arts continues to be a target for fina ncial cuts (Rao, 2013) Legislative appropriations are subject to sudden changes resulting from turns in economic and political tides. Relying exc lusively on legislative appropriations from the state to fund state arts agencies was demonstrated by this dissertation to be an environmental condition associated with higher rates of exit than states that have diversified sources of funding. More than h alf of US states have instituted alternative mechanisms to augment and, in one case, replace legislative appropriations to the state arts agency (National Assembly of State Arts Agencies, 2012b) However, the current research reports that not all alternative mechanisms reduce the incidence of exit. While states that benefit from using revenue from license plates and cultural trusts experience lower exit counts, states that us e revenue from specialty taxes and fees, lotteries and gaming, and tax check offs do not. Additional work is warranted in understanding

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174 selection of an alternative mechanism. There are many questions that could be answered by explo ring the policy process for alternative mechanisms to fund arts and culture nonprofits. A better understanding of the mechanisms and their function can be gained from understanding the selection and implementation of these tools. Questions include the following : What prompted the consideration of alternative mechanisms? Were multiple alternative mechanisms considered? If so, what variables drove the decision? What roles did key community leaders play in the process? Evidence from the states that hav e adopted and implemented alternative mechanisms to support arts and culture nonprofits adds knowledge about the ecological environments as well as provid es resources for states evaluating adopting or modifying use of alternative mechanisms. Organizational vulnerability is commonly defined in terms of financial conditions. Tuckman and Chang (1991) defined nonprofit organizations as vulnerable if they were likely to immediately reduce services after a financial shock. Using equity balances, r evenue concentration, administrative costs, and operating margins, Tuckman and Chang (1991) defined an organization as severely at risk if all four of these measures were in the lowest quintile of their study sample. Organizations were at risk if any one of these measures was in the lowest quintile (Tuckman and Chang, 1991). Greenlee and Trussel (2000) built on this by constructing a model to predict financial vulnerability. Greenlee and Trussel's model controlled for the sector to which the organization belonged. Financial vulnerability is a significant concern among arts and culture nonprofits. While looking at financial conditions of individual organizations is a common approach it was not used in this dissertation. This dissertation used the state as the unit of analysis, rather than individual organizations. Aggregation of the ratios of individual organizations to the

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175 state level would not necessarily capture vulnerability accurately. Future research may seek to examine this in several states, e xploring correspondence between the distributions of strong or vulnerable organizations and the incidence of exit as well as the use of any alternative mechanisms. Do arts and culture organizations benefit universally from alternative mechanisms or do sys tems prefer organizations of particular types, sizes, and ages? Selecting two comparable states with diverse arts and culture nonprofit populations, based on representation of a variety of NTEE classification codes, provides the opportunity to compare a p opulation where an alternative mechanism is an environmental variable to one where it is not. Arts and Culture Sustainability Vulnerability of the arts has been noted and explored by researchers and scholars (W. J. Baumol & Bowen, 1966; Bowen et al., 1994b; DiMaggio & Pettit, 1999; Hager, 2001) Discussions and research need to move beyond vulnerability to an exploration of sustainability. Organizational ecology poses a method by which to examine how environmental influences, including the economy, shape the size and diversity of the population. It can be used to determine if the population of organizations is growing, stable, or contracting. It identifies not only the number of organizations in the population but also demographics on age, size, and location. It is a useful approach for examining threats to survival and indicators of change, as well as a tool facilitating conversation and policy advances. It also provides a holistic approach to understanding sustainabil ity of populations of organizations. This dissertation examined how the presence of alternative mechanisms impacts the entry and exit of arts and culture organizations at the state level. To strengthen the

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176 ecology of arts and culture organizations, advoc ates, administrators, and policymakers need to advance discussion on sustainability. What does sustainability mean for arts and culture? While funding remains inextricably linked to survival, we also need to be attentive to other sectoral conditions. Th ese include diversity the private sector entities, nonprofit organizations, and government agencies that compose the arts and culture sector the consequence of instrumental attachment of the arts to other policy objectives, and changing trends in arts participation and engagement. The environment is full of hazards for organizations of all varieties and forms. Financial conditions are not the only threat to the survival of arts and culture nonprofit organizations. Researchers, policy makers, administ rators, and advocates need to give sufficient attention to the non financial hazards and dedicate necessary resources to promoting sustainability of the sector. What Does Sustainability Mean for the Arts? Sustainability is a concept used in an array o f contexts and applications. A sustainable organization is one that can continue to deliver value by sustained action (Weerawardena et al., 2009) Among nonprofits, sustainability is the ability to "outlast the inevitable close ended nature of many charitable contributions" (Frumkin, 2002) Nonprofit sustainability is an important issue in contemporary society (Bell et al., 2010; Besel, Williams, & Klak, 2011; Bowman, 2011; Frumkin, 2002; Salamon, 2012; Weerawardena et al., 2009) Challenges to nonprofit economic sustainability manifest in different forms. Nonprofit organizations must establish t he value of services and respond to increased demand for these services (Salamon, 2012) Decentralization and reductions to

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177 government spending have resulted in increased use of nonprofits to provide services and programs (Salamon, 2012; S. R. Smith & Lipsky, 2009) In the past, nonprofit have been slow to expand capacity, raising questions about their ability to reliably provide essential services (Salamon, 2012) Furthermore, adaptation of nonprofits to the market requires additional resources for technology, marketing, fundraising, and m anaging government reimbursements (Salamon, 2012) This places additional pressure on smaller organizations (Salamon, 2012) Additional barriers to formation and survival endanger the tradition of the nonprofit sector as laboratory for the development and advancement of new methods (Salamon, 2012). Economic contractions are a source of concern for nonprofit arts and culture organizations, but as a group, their sources of revenue have been relatively stable with little change in the past twenty years (Toepler & Wyszormirski, 2012) Contrary to predictions of mass organizational closures in the sector following the finan cial crisis of 2001, Toepler and Wyszomirski (2012) reported limited evidence of large scale organizational deaths. The findings presented in this dissertation did include an increase of 2.42 percent in the aggregate rate of exit between 2000 and 2001. A fter returning to near 2000 levels it increased again by 2.37 percent in 2004. While this is an increase, it did not prompt the large scale exodus that was feared. Significant attention has been dedicated to the manner in which the arts are funded. The United States system has been both condemned for its limits and praised for its diversification (Cowen, 2006) It is a mature system that has been in place, with evolutionary adaptations, for some time. Ivey (2010) former Chai r of the NEA, has argued that the nonprofit arts and culture sector is overbuilt, forcing organizations to

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178 abandon their mission in pursuit of survival. As old paradigms are in decline, it is essential to consider what advances can be made to build a more sustainable arts and culture sector (Toepler & Wyszormirski, 2012) Today the challenge for nonprofits is not to expand seasonal offerings or build new arts centers but rather to facilitate the downsizing or even the graceful demise of some instituti ons on the edge of survival in order to free up resources to allow stronger museums, orchestras, and dance companies to exercise greater creativity. The nonprofit sector has begun to acknowledge the challenges of downsizing and demise step one of a mult istep recovery program aimed at securing a community of cultural organizations strong enough to serve the public (Ivey, p. 269 270). This may be viewed as a revolutionary concept when arts advocates have fought for the expansion of the field and applaud ed the increase of individual organizations. Furthermore, Salamon (2012) opined that sustainability of nonprofits, specifically social service agencies, could be improved by greater transparency and more extensive civic engagement to broaden support. Th is assertion is equally applicable to arts and culture nonprofits. Moore and Whitt (Moore & Whitt, 2000) and Ostrower (2003) describ ed the closed networks of boards of arts organizations. This has perpetuated the notion of nonprofit arts organizations as serving the elite and not the broader public. As measures of arts participation and engagement have broadened to become more inclus ive, nonprofit arts and culture organizations would be well served by embracing Salamon's recommendations. Cultural economists have made substantial contributions to understanding the economic impact of arts and culture organizations, the potential inter actions between funding sources, and the threats to sustainability of arts and culture organizations. Researchers recognize that these organizations may operate as private enterprises, government agencies, or nonprofit organizations (Kriedler, 1995) Cultural policy, and

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179 research on it, has focused on nonprofit arts and culture organizations (Ellis, 2007; Kriedler, 1995) The size and scope of the nonprofit sector, in part, justify this focus. As a group, nonprofit arts generate more revenues than sales by art dealers, the sound recording industry, or artists, writers, and performers operating independently (Toepler & Wyszormirski, 2012) Economic impact studies have cast a broader net, receiving some criticism for being too inclusive (Markusen & Gadwa, 2010a) To advance understanding of the environmental threats to arts and culture organ izations, researchers need to look at population changes to nonprofits, private organizations, and government agencies together and over time. What environmental conditions foster and which stunt growth? Do these have similar impact across sectoral divid es? The arts, for a significant part of the US history, relied on the entrepreneurial model for survival (Kriedler, 1995) The implementation of grants benefitting arts and culture nonprofits by the Ford Foundation a nd the NEA altered the environment. The stagnation of these funds and expansion in funds from state and local arts agencies, and the policies on which distributions are made, may prompt changes to the sectoral distribution of arts and culture organization s. State Arts Agency Support and Sustainability The National Endowment for the Arts has been the embodiment of arts policy in the United States since its founding. However, there are flaws with conceptualizing it as the arbiter of policy and artistic taste. At the time of formation, policymakers created a system that would distribute funds and decision making to the states (J. Lowell & Ondaatje, 2006) This was inten ded to better facilitate the support of artists and arts organizations in small towns and rural areas (J. Lowell & Ondaatje, 2006) as well as

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180 allocate financial resources to the geographic territory of elected politicians (Moen, 1997b) SAAs maintained a low profile for nearly two decades after NEA establishment (J. Lowell & Ondaatje, 2006) SAA advocacy efforts centered on increasing funds for the NEA and receiving returns in thei r own allocations from the NEA (Netzer, 1978). In the 1980s, SAAs began to shift efforts to building support in their state (J. Lowell & Ondaatje, 2006) Now, approximately 10 percent of SAA funding comes from the NEA and approximately 8 0 percent comes from state appropriations (Noonan, 2007). Nearly half of all public sector grants to the arts are directed by SAAs (J. Lowell & Ondaatje, 2006) SAAs are playing a critical role in American arts policy and their position within the arena ca lls for improved understanding. This dissertation advances the discussion and understanding of nonprofit arts and culture organizations in several ways. It changes the level of analysis from national to state, tests the effectiveness of alternative mec hanisms as a tool for organizational sustainability, analyzes the benefit of government grants as a form of endorsement to organizational survival and the way ecologies nest an MSA within a state, and considers the implications of these findings on advan cing discussions and development of cultural policy attentive to sustainability. Many studies advertising the concerns, needs, and performance of arts and culture have used a national level of analysis (Schuster, 2002) As early as 2002, Schuster advocated changing to the state level. The rise in influence of states on cultural policy has not been matched with a similar evolution in research, with a few excepti ons (Schuster, 2002) The significance of state and local ecologies continues to gain power when one considers sources of public funds and policy developments. This dissertation

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181 adopted this recommendation for a more nuanced approach to the ecology of organizations. A notable variation in environments derives from sources of government funds provided to state arts agencies (SAAs). Arts advocates have noted the val ue/benefit in remaining part of budget negotiations and appropriations process es but have sought relief from economic and political precariousness by instituting alternative means for generating financial support (National Assembly of State Arts Agencies, 2012b) While there are five broad categories (taxes and fees, lotteries and gaming, license plates, tax check offs, and public trusts), variations exi st in each category. Variation also exists in the effectiveness of these tools in increasing survival. Revenue from taxes and fees, fees from license plates, and interest from public trusts are associated with lower rates of exit. Additional exploration of reduced organization exits and sustainability is needed. Sustainability has been defined as the ability of an organization to persist in service of mission. The definition of sustainability for a sector needs to be applied to the arts and culture s ector. While several alternative mechanisms are associated with a reduced number of exits, this needs to be translated into sectoral sustainability. In addition to association with lower rates of exit, taxes and fees, license plate fees, and public trust s are also associated with lower numbers of entries. The nonprofit sector has been recognized as an arena for innovation and advances (Salamon, 2012) It has been argued that innovation comes, in part, from competition and the entry of new organizations (Pink, 2006) We need to ask: Can a reduction in entries ultimately harm the sustainability of the field?

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182 The ability of grants to leverage additional support for arts and culture organizations has a long tradition. Budd Schulberg, of Writing Out the Ashes: The Watts Writers' Workshops, said of a 1966 award, "The NEA provided tremendous assistance, no questio n about it. It was like the Good Housekeeping seal of approval, and it helped us gain additional private support and also obtain help from the film industry" (National Endowment for the Arts, 2005) Since then, the leveraging power of government funds has been used as an important raison d'tre and to, in part, justify continued funding (Kriedler, 1995) Th e veracity of the claim has been tested with economic crowding studies that have proved inconclusive (Andreoni & Payne, 2011; Borgonovi, 2006; Borgonovi & O'Hare, 2004; A C. Brooks, 2000c, 2003; Dokko, 2009; P. N. Hughes & Lukestich, 1999; P. N. Hughes & Lukestich, 2004) Trying a new a pproach in this dissertation, I asked, "Do recipients of state grants have any different probability of exit or, conversely, survival?" The analysis completed here supports the claim. Arts and culture organizations and their position in society have changed dramatically in the forty e ight years since the assertion was initially made. Government arts agencies at all levels provide advocacy for the arts, provide education for artists and organizations, and act as facilitators between producers and curators of arts and culture and a broa d variety of shareholders from audiences to government agencies. Now that the assertion has been tested, it is time to explore the situation for explanation of why organizations that receive government grants are less likely to fail. Research Opportu nities The ecology of arts and culture organizations is complex and layered. Organizations are nested within local, state, regional, and national environments. Even

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183 with controls for variations between educational attainment, income, political ideology, and sources of arts agency funding the models used in this dissertation yield limited explanatory capability. Additional work needs to be undertaken to better understand variables influencing the ecology and the extent of their strength and influence. Scholars of and advocates for the arts and culture sector need to move discussions of sustainability beyond the economic and financial. Participation has also received important attention and been the subject of scholarship (Arthur C. Brooks, 2002; DiMaggio & Ostrower, 199 0; Jackson, 2008; K. F. McCarthy & Jinnett, 2001; National Endowment for the Arts, 2013; Ostrower, 2002; Schuster, 2000) The integration of both into sub national studies may yield a more complete understanding of environmental variations and implications. Arguments have been made that the arts and culture se ctor has demonstrated evidence of being over built (Ivey, 2010) Ivey (2010) postulated the most significant challenge facing the sector is how to facilitate downsizing or exit. By moving the level of analysis sub nationally, there is the prospect of understanding whether this assertion is universally true in the United States or subject to local variations. The conscious developments of cultural policies in the United States are a modern phenomenon. The establishment of the NEA in 1965 and the expansion of a system of state arts agencies that followed forever changed the relationship between government and the arts. While an important body of research has developed, much still needs to be done to understand the sustainability of individual arts and culture organizations, as well as of the sector as a whole. The findings of this dissertation do not apply past 2004. Applying the methods of this dissertation to data from 2004 will allow the opportunity to study the impact of an economic crisis that was global.

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184 Arts and culture organizations do not exist in a vacuum, devoi d of cross level interaction. The application of statistical models, such as hierarchical linear modeling (HLM), that will allow organizations to be nested within their local environment, their state, region, and nation promise a deeper and more nuanced u nderstanding of the interaction between sources and levels of funding and policies. While financial circumstances are an important ecological condition that contribute s to an organization s ability to survive and continue, they do not fully explain organi zational exit. What additional elements of the environment influence the survival of organizations? The d efinition of arts participation changed during the twentieth century. At the start, people were encouraged to engage in the arts through practice a nd observation (Tepper & Ivey, 2008) A shift towards professionalization of the a rts discounted amateur participation and placed a greater emphasis on engagement through observation (Tepper & Ivey, 2008) Debate has once again expanded scholarly definitions of participation to include art making and observation at arts outside the traditional nonprofit, Fine Arts (National Endowment for the Arts, 2013) The role of education and income as proxies for arts participation and predictors of support for government funding for the arts may change. Th is prospect needs to be explored and integrated in improved models. The instrumental attachment of arts and culture to other policy areas is a nother variable of possible influence to sustainability. These attachments may change the objectives and missions of state arts agencies as they are expected to deliver economic, educational, and social benefits. This dissertation did not capture state and longitudinal changes in mission of state arts agencies. As arts agencies serve as educators and

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185 advocates for the benefits inherent i n the arts, their own missions may influence the environment and entry and exit of organizations. Conclusion The position of arts and culture as public assets used for a variety of social goods warrants effort to understand, foster, and support a sustai nable environment. Diversity between and within states creates many ecologies in which arts and culture organizations operate. While the NEA poses a central image, it is incorrect to think of a single model for funding the arts being used in the United S tates. Each state has responded to the needs and potential returns of arts and culture nonprofit organizations differently. Budgets for state arts agencies are not uniform. Nor are the policies for funding them. Organizational ecology provides a the ory with which to explore the environmental influences that shape a population of organizations. An important source of vulnerability issues from financial conditions (Hager, 2001; T uckman & Chang, 1991) This dissertation asked whether alternative sources of funding to state arts agencies influence the entry and exits of arts and culture organizations, whether the receipt of grants from state arts agencies reduces the incidence o f exit, and whether alternative mechanisms in place at the local level produce differen t vital rates than those of the state in which it resides. Analyses demonstrate that not all alternative mechanisms are equally beneficial. While taxes and fees and l icense plates are associated with a reduced number of exits, revenue from lotteries and gaming tax check offs and cultural trusts are not. Moreover, in addition to being associated with a reduction in the number of exits, specialty taxes and fees and cult ural trusts are associated with a reduction in the number of entries. This

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186 warrants care in balancing the protection of existing organizations with facilitating the entry of new organizations that may bring innovations and adaptation to changes in the mar ket. Government grants to arts and culture have been positioned as an endorsement and benefit to recipient organizations almost since implementation (National Endowment for the Arts, 2005) Economists have tested whether these grants leverage private donations, producing inconclusive results (Borgonovi, 2006; Borgonovi & O'Hare, 2004; A. C. Brooks, 2000c, 2003; Dokko, 2009; Hersey, 2009; P. N Hughes & Lukestich, 1999; T. M. Smith, 2007) Instead, I posed the question, "Are grant recipients less likely to exit or fail?" The findings here show that they are. State arts agencies provide valuable services to arts and culture organizations and the broader community. Organiza tional ecology directs attention to the powerful influences of environment and context on populations of organizations. Much research on arts and culture has centered on the NEA. Embracing Schuster's (2002) challenge to explore sub national cultural polic ies, this dissertation adopted a state level approach. This was guided by availability and access to data with the understanding that significant variation can occur within states. Denver, Colorado, for example, is home to a local level tax that funds a special district supporting arts and culture. It was expected that rates of entry and exit within the district would differ from state averages. In fact, they did not. This underscores the importance of understanding the environmental layering that occu rs. Policies influence populations of organizations. Arts and culture organizations are firmly embedded in the policy arena through public support and their instrumental attachment to an array of public objectives. Examination s of the vulnerability of arts and

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187 culture have often centered on financial and economic threats. These provide limited explanatory capability, capturing only part of the environment. To support arts and culture as public goods, discussion of sustainability needs to advance. Multiple research opportunities exist. The findings of this research highlight the need to extend the investigation, exploring the ramifications of a global economic crisis. The application of hierarchical linear modeling promises to improve modeling of environmental influence. The definition and operationalization of arts engagement has shifted in recent studies (National Endowment for the Arts, 2013; Tepper & Ivey, 200 8) The influence of this on the population of arts and culture organizations needs to be considered. Additional work needs to be done in integrating policies as variables of interest in the environment of arts and culture organizations. Arts administ rators and advocates have secured a position for arts and culture in the policy field. Having accomplished this, the need and opportunity for advanced scholarship is even more vital.

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