The business of art: financially burdened, nonprofit institutions struggle to make dreams come true.

WALTER TURNBALL WATCHED helplessly as the legacy that took him more than 30 years to build was ripped from him. In 2004, the number of appearances by the New York City-based Boys Choir of Harlem was cut back dramatically, and earned revenues from their performances dropped from more than $1 million to half that amount by the end of that year. Unearned income from philanthropic sources (foundations, corporations, the government, and individuals) totaled $1.6 million, not nearly enough to cover the nonprofit organization's $2.5 million budget.

The financial shortage forced the organization to develop anew budget of $1.8 million, which required laying off half the choir's employees. Payroll taxes went unpaid, which led to an IRS audit. Half of the organization's board members deserted, grants the organization had applied for were denied, and the choir's 19-year relationship with the New York City Department of Education was compromised. And then there was the scandal that almost ruined the nonprofit single-handedly. The city was calling for Turnball's resignation.

As the founder and artistic director of the choir, Turnball was devastated. The pain of the experience still haunts him, and his booming, musical voice becomes low and almost inaudible when he talks about it. "It was such a dark time and had such a profound effect," he murmurs, shaking his head. "As a matter of fact, it still does." Two years ago, Turnball and his brother, Horace, who was a top executive within the organization, reportedly ignored child molestation accusations that had been brought against an employee who was subsequently convicted of sexually abusing a 13-year-old choir member.

Since that incident, the choir has been struggling to maintain its artistic vision and manage its business responsibilities, including erasing debt, increasing marketing efforts, building a functioning board, increasing fundraising amid negative criticism, and cultivating longevity. The organization has been minimally successful with these goals. It's working to elect a new board chairman, negotiating a payment plan with the government to repay what could amount to $3 million to $5 million in back taxes, and slowly resuming performances.

Many of today's African American, arts-related nonprofit organizations have a hard time striking a balance between their art and business. Among them is The Dance Theater of Harlem, which was once forced to close the doors of its school and lay off its main company, and the Alvin Ailey American Dance Theater, which ran up a $1.5 million deficit. Nonprofits often suffer from poor money management, which leads to financial shortfalls that can eventually tarnish the product that makes these organizations so valuable to the communities they serve. At one time, the American Ballet Theater had accumulated a deficit of $5.5 million and the Royal Opera House had racked up $30 million in debt.

One problem, according to Michael Kaiser, president of the John F. Kennedy Center for the Performing Arts, is that once nonprofits rack up large debts, it's often handled inefficiently--by cutting back appearances, for example, which is a revenue stream. Instead, there are proven, strategic steps that will help any nonprofit organization become more financially sound, increase marketing, woo qualified board members, pay down debt, and put a succession plan in place so the organization's legacy survives its founder.

BRICK FROM STRAW

The basement of Ephesus Church on 123rd Street and Lenox Avenue in New York City is where Turnball started his Boys Choir of Harlem in 1968. With money from Turnball's own pocket, the choir grew into an internationally acclaimed choir and a landmark school called The Choir Academy of Harlem. The academy serves more than 500 boys and girls, ages 8 to 18, through a partnership with the New York City Department of Education (DOE).

Yet, in many ways, the nonprofit organization is still being run the way it was back in 1968. "The struggle has always been enormous, robbing Peter to pay Paul," says Turnball. But times were not always so bad. At the choir's peak in the late 1980s and early 1990s, its performances were bringing in up to $3 million per year, more than enough to cover the choral curriculum, which cost $691,000. The choir performed in Europe, Japan, and Turkey and dined with several U.S. presidents.

A Memorandum of Understanding was signed with the New York City DOE in 1986 that stated that the city would provide the academy with a building, teachers, and the teachers' salaries. So the $3 million the choir was bringing in would go toward the choir's expenses, instructors and other supervisors, after-school programs, and performance expenses that were not covered by the host, explains Barbara Ranta, a member of the choir's board.

Things took a turn for the worse after 9-11 when contributions dropped off and the economy began to tank. Then the molestation scandal occurred in January 2004 and had a reverberating effect on the organization. The city called for both Turnball and his brother to resign but settled for the removal of only the brother. Turnball was forced to give up his position as CEO and take the title of artistic director.

Compounding matters, the choir may owe about $5 million to creditors, including the IRS. Turnball says the choir produced only about $1 million in 2005 but has been able to survive because it laid off more than 20 employees. Alicia Maxey, spokesperson for the DOE, affirms that the city had been engaged in ongoing discussions with the choir about a new Memorandum of Understanding. But on Dec. 22, 2005, the DOE officially terminated its contract with the choir, evicting it from its home effective Jan. 31.

THE TURNING POINT

In the fall of 2004, the choir called in Deryck Palmer, an attorney from Well, Gotshal & Manges L.L.P., to help negotiate a 10-year payment plan with the IRS. Negotiations are still underway to determine the amount the choir owes in back taxes.

One strategy Turnball says will help overcome the obstacles facing the choir is rebuilding of the board, which has been undergoing major changes, including the addition of six new members and a new chairman. One prospective chairman has plans to roll out a huge fundraising campaign that will connect the choir with several private, individual donors who will make sizable donations--enough to cover the salaries of a new executive director and chief financial officer. "The board is putting several financial controls in place to ensure that the choir never operates in a deficit again, and to ensure that the legacy of this institution exists into the future," says Palmer. Some of these financial controls include being more selective when choosing performances, eliminating programs that are too costly, and managing direct and indirect expenses, such as the cost of music easels, which was ignored in past budgets.

Kaiser, who has worked to make both The Dance Theatre of Harlem and the Alvin Ailey American Dance Theater more financially stable, agrees that an effective board of directors is a necessity for any nonprofit organization. "I suggest working very hard to strengthen your board and being very clear in what you ask your board for. I also suggest being very aggressive with respect to building an individual donor base," he says. As it's the individual donors who make up the vast majority of contributions to the arts in this country, African American nonprofits are missing out on a very large source of funding that doesn't depend so much on the economy. Kaiser says a tremendous amount of marketing must precede the efforts to build a productive board as well as an individual donor base.

THE LAST STRAW 

The Dance Theatre of Harlem is one organization that has managed to overcome fiscal obstacles. After having to close the doors to its school and lay off its main company in September 2004 because of a $2.3 million deficit, it only recently began putting measures in place to secure financial success for the future.

Marketing is the strategy Executive Director Laveen Naidu has used to revive the financial life of the nonprofit organization. "Not-for-profit does not mean running at a loss. It simply means that the aim of the institution is not primarily financial profit," shares Naidu, who joined the organization as a dance student in 1989 and replaced Arthur Mitchell as executive director in October 2004. Mitchell's reassignment to artistic director was one of several strategic moves meant to create a superior business structure and alleviate the financial problems from which the Dance Theatre is still recovering.

The Dance Theatre's tribulations began after the company's peak in the late 1980s and early 1990s, when its unearned income dropped off because foundations and corporations had begun to shift their money toward other priorities such as healthcare, cancer research, AIDS, and education. Donations and income from company performances used to amount to $6 million, which adequately covered the organization's $3 million to $6 million in expenses.

Although revenues increased slightly over the next decade, expenses also grew, leaving no money to contribute to an endowment, which Naidu says would have helped sustain the company after 9-11. Nevertheless, post 9-11, the company continued to accept children and perform, embarking on a 22-week tour of the United Kingdom in September 2004. The Dance Theatre's school trains between 800 and 1,000 young people each year.

Though still impressed with the company, investors became wary that the Dance Theatre suffered from a case of founder's syndrome--what happens when someone with wonderful talent and a strong commitment to his or her community starts a wildly successful organization and doesn't know when to pass the reins. A former board member told the New Fork Daily News that investors were right to be concerned: "The problem we had was Arthur himself. Arthur wants to control everything. He's not a manager." Naidu says investors became concerned about the longevity of the organization and the poor management of its funds.

"So we complete this amazing tour of the U.K. and then find ourselves completely cash poor, with an accumulated deficit--over 36 years--of $2.3 million, which, in the scheme of things, is not a lot of money. But it is a lot of money when you have none," says Naidu. The Dance Theatre was forced to place its main company and board of directors on hiatus indefinitely. Many of the administrative employees and instructors who ran the youth dance programs at the school were laid off, though several continued to volunteer. Funding from the Tsorchiemer Foundation allowed the organization's summer program to continue.

But the Dance Theatre still had not faced the worst of the storm. The very next month, two weeks into the fall semester of the dance program, the company's liability insurance was canceled because of late payments. On the same day, the organization's insurance broker, Marsh McClennan, was indicted by New York State Attorney General Eliot Spitzer. "That was the straw that broke the camel's back," Naidu says, recalling the surreal scene around the conference table when board members were discussing what to do about the canceled insurance and a colleague ran in with the morning paper, which featured the story on the front page. "That was the first time in its history that the doors to The Dance Theatre of Harlem were closed."

DANCING THROUGH BARRIERS

The turnaround came almost as soon as the doors of the school slammed shut. According to Naidu, an e-mail began to circulate stating that "there are 30 million black people in America. If every one of them sent a dollar, The Dance Theatre of Harlem would be out of trouble." Envelopes containing dollar bills and even pocket change began pouring in from around the nation. "That was the beginning of the rebirth," enthuses Naidu. "We began to talk to folks, rebuild our board." The company brought in strategists like Kaiser to hammer out a recovery plan to leverage its internationally revered dance company.

The first step was to restructure the Dance Theatre's management. Naidu became executive director and Mitchell was named artistic director, relinquishing a significant amount of control over financial decisions. Philanthropist Catherine B. Reynolds agreed to be the new chairman of the board. Those three positions create a traditional, not-for-profit management system, where the artistic director and executive director positions are parallel. There's a clear division of responsibility and investors can rest easy knowing that the business will survive its founder.

Step two was to clear the $2.5 million debt the company was carrying. Cash injections from several donors, which totaled $1.6 million, in addition to a $1 million pledge from the Catherine B. Reynolds Foundation, put the Dance Theatre back into the black and brought it closer to the $4 million required to bring the main company back to the stage. The company hopes to have it back at the beginning of fiscal year 2006, which starts July 1. Step three was to build new audiences by continuing to diversify the main company, which already represents dancers of African American, Latino, Russian, Japanese, French, and Portuguese descent.

A REVELATION

The Alvin Ailey American Dance Theater, like the Boys Choir of Harlem and The Dance Theatre of Harlem, had humble beginnings. It gained wide acclaim over the decades but experienced a financial rough patch in the early 1990s. Sharon Gersten Luckman, the company's executive director, recalls not being able to mail fundraising letters because there was no money for postage. "We were having cash-flow issues at the time," she says.

The Alvin Ailey company had a great touring schedule but its fundraising was weak. There were very few individuals of means on the board and the organization was carrying an accumulated deficit of $1.5 million, notes Kaiser, who was hired by the board in 1991. "It was pitiful. Individual donors were only giving $165,000 per year toward a budget of $6 million," he says. "We had to radically change the board to include people that could raise and give more money."

The organization's strategy was to launch an exhaustive marketing effort, with the company giving small performances all over New York City, including at the Smithsonian and in Central Park. Artistic Director Judith Jamison oversaw each production. The exposure attracted to the board individuals with abundant revenue streams, among them Chairwoman Joan Weill (philanthropist), Vice Chairman Chris Williams, President Henry McGee (president of HBO Home Video), Vice President Bruce Gordon (president and CEO of the NAACP), and Debra Lee (president and CEO of Black Entertainment Television). These efforts doubled the organization's fundraising from $1.7 million in 1992 to $3.4 million in 1993.

Before leaving the Alvin Alley company in 1993, Kaiser aligned the organization with the National Arts Stabilization Fund, which offered to match the amount of money the Alvin Ailey company saved, in an effort to erase its debt. And the Alvin Ailey company has not only stayed in the black but it's been able to build a $54 million permanent home at 405 West 55th Street in New York City, named The Joan Weill Center for Dance, as a result of a fundraising effort that raised $72.5 million. The leftover $18.5 million was the foundation for the company's endowment fund. The company's U.S. tour was launched in January and will visit 23 cities ending in May.

Despite the difficulties these organizations have faced, they continue to persevere. The founders of these institutions were brave enough to take the steps necessary to save their organizations, even when it meant relinquishing responsibilities.

Knowing when and how to surrender power is the ultimate lesson in the business of fine art. "I think that if we have survived all of this, there is very little that we can't do," Mitchell says. "It is kind of awe-inspiring when you see someone who had almost nothing and what they did with it. Can you imagine what they could have done if they had something?"