Trouble ahead?

(On my book outline, what follows would come in chapter three, Falling Behind: The Problem of Funding. Why money for classical music will be harder to raise.)

I’ve been hearing from many people about trouble ahead on the financial side of classical music. In the background of this — at least in my view; I’m not going to say that everyone I talk to shares it — are some long-range troubles, as I’ll explain in the funding chapter of my book. If the classical audience is shrinking, then money should be harder to raise, because the first people any institution raises money from are the people in its audience. Fewer people, less money.

But then if classical music — speaking more broadly — is retreating from our culture, than again money gets more difficult, because fewer people will want to give money to classical music. I think we’re already seeing this (correct me if you think I’m wrong) with younger donors. They’re more likely to support social causes, and may not be inclined (or at least not as inclined as a previous generation was to give money to the arts). A friend in her forties, who says she’s normally the youngest person at classical concerts she goes to, also says that people her age won’t give money to classical music.

And then there’s Baumol’s Dilemma, an economic principle I’ve written about here before, which shows why classical music institutions, over many years, need to raise larger and larger amounts of money. To see this principle in action, look at the proportion of orchestra budgets that comes from ticket sales, which has steadily declined from 70 to 90 percent in the 1930s to around 30% today.

But this is all in the background as institutions try to deal with the current problem, which is the recession. I hear from many people that ticket sales and donations are down, and projected deficits for this season loom rather high. Endowments, too, have fallen (can you spell “stock market”?), and the impact of this hasn’t yet fully hit. That falling endowments would affect current budgets is inevitable, since organizations typically take a fixed percentage of their endowment income, to use for current expenses. A smaller endowment means less income, and thus less money available for this year’s budget.

But the “draw” — the amount taken each year for current expenses — is calculated from a three-year rolling average of what the endowment has been. That’s to even out pesky year to year fluctuations.

But now we’ve had a really large fall in the stock market, and thus in the value of endowments. The immediate impact of the fall was pretty bad, but it was cushioned in the first year, because the three-year rolling average would have included the two previous good years. Now that’s not true, and the rolling average includes more bad years than good. Thus endowment draws will be even lower than they were, which puts pressure on everybody’s budget.

And the draw will take a while to return to normal, if it ever does. That’s because of that three-year average, again. Even if the stock market goes way up, it’ll take a year or two for that to be fully reflected in endowment draws. So the budget pressure could continue for the next couple of years.

But will the stock market return to its previous highs? Nobody’s betting on that. Or at least not for it to happen in the next couple of years. And that brings me to the main point of this post. What if there are long-term structural changes in our economy? There’s plenty of suggestive evidence, possibly showing that structural changes really will occur, or have happened already.

For instance, a New York Times piece about women reentering the workforce, because their husbands are unemployed, or because their families have lost their investments. One woman is described:

She pointed to investment losses “in the healthy six figures,” along with “some very high medical expenses for a family member and having two daughters in college. And then the value of our home and pension plan has taken a tumble.”

Does a family in this condition have money for concert tickets (or at least for as many as they might have bought in the past), or for donations to the Metropolitan Opera? When will the value of the family’s home — and their investments and pension plan — come back?

Another story, for which I don’t have a link, talked about fashion designers no longer being able to sell much in the highest price brackets, and therefore retooling their lines, to sell less expensive clothes, and even sell more to mass market retailers. This would be new, because normally luxury goods do well even in recessions.

But then another recent Times story said that even multimillionaires are putting themselves on budgets. Here’s an excerpt:

The Boston Consulting Group predicted this week that worldwide wealth would not return to 2007 precrisis levels until 2013. It also said it found that the number of millionaires was down 18 percent and that, across the board, clients of wealth management firms had lost trust in their advisers.

“There is a shattered confidence we haven’t seen in a long time,” said Bruce Holley, senior partner at the firm. “The wealth management business is a very emotional business, and people can react in kind to that.”

This explains how someone with more than $100 million in assets can ask her adviser to put her on a budget. As far-fetched as it may sound to someone struggling to make a mortgage payment, such a request reflects the changes in attitudes about wealth in the last year.

If this comes even close to describing the current climate, of course there’ll be less money for classical music. Until 2013, if we can believe the projection. And of course reality might be different, and of course people panic or exaggerate in the middle of a crisis, but on the other hand, haven’t people been saying in the past month or so that the recession may be ending? Maybe it is, but many people think that structural changes will persist.

What will this mean for big classical music institutions? Almost certainly it means cutbacks. Shorter seasons, smaller staff, less ambitious programming. That, at least, is a sampling of what people talk about. If things don’t change, that is. But will they?

We’re also seeing some major donations from wealthy donors. The Philadelphia Orchestra got one, and so did the Charlotte Symphony. (These are only the most recent examples, of course.) But these donations are both good news and bad news. They’re good news, because they’re big donations. But they’re bad news, because they’re emergency donations. The Philadelphia donation, in fact, is mentioned deep into a story about the orchestra’s current crisis. An emergency donation wouldn’t happen if there weren’t an emergency.

And yes, these donations do show that there are still some people willing to give lots of money to classical music. What they don’t — and of course can’t tell us — is how many such people there are, and (most important) what happens in future years if the emergency persists, and all major donors are tapped out?

A structural crisis, perhaps, in classical music funding. Not a surprise, unfortunately, if you know how vulnerable classical music budgets are, how hard it is for even the biggest institutions, even in more or less good years, to raise the money they need.