Low on money, Petaluma Arts Center lays off staff

The Arts Center let go all paid staff, including the executive director, as a major fundraising challenge looms.|

There was a time late last year when Delfin Vigil was enamored with the idea of running the Petaluma Arts Center.

That enthusiasm and admiration carried him through three rigorous rounds of interviews, eventually earning the job as executive director in December 2017. But it also blinded him to a stark reality.

After he was hired, the Petaluma resident discovered the PAC’s unstable financial footing and its subsequently bleak future, which recently culminated in the entire staff succumbing to sacrificial layoffs – an idea Vigil proposed just so the nonprofit could keep the lights on.

If Vigil had looked closer, he would’ve discovered he was being courted by a nonprofit that had been skirting a fiscal cliff for years, wrought by an unhealthy dependency on its original $1.5 million endowment when the PAC first opened its doors at the Railroad Depot in 2008.

“You want to believe. You want to be idealistic. This is a common thing with nonprofits,” Vigil said. “But there’s a difference between being a hero and a leader and, while I wish I could’ve been the hero to save the day and come through with another big donation, it was more important to be a leader who’s honest and saying this model wasn’t sustainable.”

Over the last decade, that seven-figure buffer became the means of survival for the arts center. The PAC was ambitious with its offerings, highlighted by world renowned exhibits like Edgar Degas or vibrant celebrations of El Dia de los Muertos. But it was also marred by waning membership, a donor base that was too small, and an ever-changing board that failed to find a sustainable business model that could properly address those dynamics.

Rather than undergo the kind of drastic overhaul needed to generate new sources of revenue, the arts center continuously leaned on events and exhibits, hoping to increase sponsorship dollars while reeling in new members that could eventually become donors.

That model forced the PAC to tap its endowment year after year, averaging about $102,000 in withdrawals each fiscal year from 2010 to 2017. According to tax filings, despite relatively stable operating costs, the nonprofit’s net assets steadily declined from $787,274 in 2012 to just $249,281 in 2016.

“All the signs were there that the business model we were using was not working,” board vice president David Powers said. “We were running at a deficit, and I have not seen the books before my time … but I’m almost positive the arts center never did run at a profit.”

Vigil said he inherited a “crumbling infrastructure” that had been functioning with a roughly $300,000 per year budget. Once he became wise to the inner-workings, with $70,000 of the original endowment left when he was hired, the focus became less about the arts center’s offerings and more about finding money, quickly.

In January, the board and executive director determined a point in the year when “drastic measures” would have to be taken if the cash they needed never materialized, said board president Sandy Rozmarin, the former director of ambulatory care at Stanford who joined the PAC board in July 2017.

If they could locate a cornerstone donor or quickly raise six figures, the PAC could hold its rescheduled “Frolic” fundraiser, which netted about $40,000 in 2016, fulfill its obligations for the rest of the year, and start turning the corner toward Vigil’s “long-term” vision for the arts center.

“I got off to a pretty good start,” Vigil said. “The goal was to not use the rest of the endowment as a crutch and I did pretty good for a couple months. I was writing successful grants and meeting with key donors. … But it’s one thing to fundraise to sustain a budget and another thing to fundraise to create a budget.”

As the year went on, finding a cornerstone donor eventually became the only viable strategy, Rozmarin said.

“We identified some sources that could have done that,” she said. But they were unable to get a check cut, and they were forced to call off the Frolic event altogether. The donor that initially provided the $1 million endowment in 2008, which was a match of $500,000, no longer lived in the state.

“I ended up calling it a dangerous luxury,” said former executive director Val Richman, Vigil’s predecessor from 2014 to 2017. “I’ve been the head of nonprofits and, if you were five years into formation and had all sorts of operational things and fundraising in place, then you get that gift, that’d be a far different scenario than having that at the beginning.”

Once the 2018 calendar reached the tipping point, with $40,000 left, the board began the process of laying off its employees one by one. Including Vigil, four staffers were dismissed, leaving behind just the unpaid board.

“It’s always extremely difficult to come to that,” Rozmarin said. “I’ve been involved in layoffs before in my career in healthcare. It’s one of the worst things you can do.”

Report signals trouble ahead

In late 2014, the PAC board hired an outside consulting firm to audit the organization and help it chart a path to a more sustainable business model. The company they hired specializes in helping nonprofits become better at fundraising.

At that time, fundraising “wasn’t on the forefront of anyone’s mind,” said Richman, who joined the PAC in July 2014, three years removed from her 10-year tenure as executive director of Mentor Me, a local nonprofit that helps at-risk youth.

She was tasked with improving the arts center’s presence in the community and creating a fund development team that could eventually transform into a self-sufficient machine.

“(If successful), the organization would be able to stop drawing down from that endowment,” Richman said. “The writing was on the wall. It was going down every year.”

Once the study was completed, the board was given a report with findings and recommendations on how to proceed.

According to the author of the report, who lives in the community and requested to remain anonymous, the PAC had several structural, operational and cultural flaws in place, but there were changes that could be enacted to make the arts center financially viable.

Some of the major findings revolved around its ability to effectively add new members and acquire donors. The donor data management system was a “terrible system at that time,” the author said, and there was little stewardship of that donor base, or adequate opportunities to recognize and acknowledge them.

“That’s been an ongoing problem,” Rozmarin said of the donor management system. “It’s still a problem.”

For art centers, donors are far more valuable than exhibits and events, the author said. The logic is that members lead to donors and donors - if fostered properly - eventually can lead to the type of larger legacy gifts Vigil was tirelessly looking for this year.

Another directive was to establish earned income opportunities, like renting out parts of the space or offering it up for events as a means to generate revenue. Holding events that didn’t generate any profit - something the arts center had done in the past - needed to be stopped altogether.

But perhaps the most glaring discovery of the study, revealed through a series of interviews with staff and key donors, was the board’s unwillingness to accept that they were in a “crisis.”

Even with this knowledge, delivered in early 2015, the drastic changes the nonprofit was seeking never came at the level it needed. With declining funds, a small staff and a wide scope of deficiencies, progress in one area sometimes led to atrophy in another, like a sinking ship with too many holes to fill.

“The arts center was not able to meet the challenges,” said Powers. “That’s the best thing that I can say, despite all the efforts of everyone involved.”

Ambitious exhibits continued to be a mainstay, but if they didn’t carve out a large audience or earn the right sponsorship, they also became be a perilously wobbly pillar.

“Operating costs were fairly stable all the way through,” Powers said. “What was the variable was the exhibitions. The exhibitions cost money, and the money that could be raised for exhibitions might not appear. Sometimes they made money, sometimes they didn’t.”

As net assets continued to decline, promotional efforts were drastically cut from $24,097 in 2012 to less than $3,000 in 2014 and 2015. Membership fluctuated between 250 and 350, and yearly contributions only exceeded $100,000 once after the study was completed.

The PAC finally saw its total contributions exceed $200,000 in 2016, a year Powers highlighted at emergency town hall meetings last week. The arts center had $4,400 in profits, but - in addition to the Frolic fundraiser - the key to that blip in the black was Richman’s decision to not take a salary in 2016.

According to the PAC’s tax returns, Richman went from earning $69,154 in 2015 - some $22,000 more than her predecessor Virginia May’s highest salary based on the documents available - to $0 for her final year-and-a-half until her retirement.

Richman asserted it was the only way to avoid layoffs from happening even earlier, and was something she also did at Mentor Me. Vigil, a father of two, declined to say how much he was paid, but the salary range from his job posting was $55,000 to $65,000.

“It was budgeted as temporary,” Richman said. “We were in a place where either we were going to have to lay off or quite significantly reduce the hours of our admin and exhibition managers, or keep me paid in full. In my perspective, I was in a fortunate enough position to do it and I would rather keep that staff in place.”

Richman felt the PAC “got some great traction” during her tenure, but was still unable to steer the nonprofit clear of the cliff, and was forced to pull from the endowment just like each of her predecessors.

To keep the PAC solvent, Richman and Vigil both made sacrifices as executive director - she went nearly two years without pay; he cut his own job.

“It’s probably human nature in some respect,” Richman said. “Sometimes, even when you’ve talked and thought and imagined, it’s hard to summon the will and the organizational strength.”

Workshopping a solution

In a showroom fittingly adorned with white walls, about 100 community members attended two town hall meetings at the arts center last week. After a brief presentation from the board about recent programing and the budgetary woes that prompted the layoffs, the meeting took an interactive turn as everyone in attendance was directed to break into groups.

In a moment of capitulation, unsure of what could happen but unrelentingly optimistic that a solution may present itself, organizers asked attendants to come up with suggestions on what to do next.

Most responses were about the content, and the perception that maybe the PAC hadn’t hosted the right exhibits or had alienated potential visitors. PAC founder Gail Wilson wanted to see it “reinvent itself completely” with “funkier” events. Others wanted to see interactive exhibitions for children or called for deeper support of local artists, requesting the PAC provide more opportunities to showcase creative Petalumans.

But only a handful of suggestions were actionable directives that could drastically alter the business model that led the PAC to this low point. Some said the arts center should turn to other museums in neighboring communities to see how they manage to stay afloat.

The next step for the PAC is creating an eight-person steering committee “that meets regularly and probably frequently,” Powers said. They are hoping to attract arts organization professionals and community members driven to see it continue.

Powers said the near-term goal is to get to the end of November when “Renewal Through Art,” a commemoration of last year’s deadly firestorms, wraps up. By then, he hopes the steering committee will have distilled all the input from the town halls and formulated a plan to carry it through this budget crisis.

Until then, the endowment will be used to honor the PAC’s remaining commitments, which includes summer camps, the popular Idea Lounge series and several pop-up exhibits over the next few months. The staff will be made up solely of volunteers so the board can keep making its $500 rent payment. The depot building is owned by SMART, which the city subleases to the arts center.

At the end of the town halls, attendants turned in handouts indicating if they could donate time or money to help the nonprofit transition forward. Powers said he has been moved by the response from the community.

“I was gratified that everyone used the word ‘we’ and not ‘you should,’?” he said. “There’s a tremendous amount of support from a core group of people to see this work.”

Still, the search for a cornerstone donation continues. With the last few dollars of the initial endowment nearly spent 10 years later, it may require a similar gift to see the arts center out of the crisis. Otherwise, their wildfire exhibit “Renewal Through Art” might be a harbinger for their demise into the ashes, rather than the recovery that came after.

“Where we are now,” said Rozmarin, “I think that is a pretty accurate title.”

(Contact News Editor Yousef Baig at yousef.baig@arguscourier.com or 776-8461, and on Twitter @YousefBaig.)

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