Nonprofits on Notice: Arts, tourism industries face budget cuts, tighter scrutiny

It's unlikely to be a good year for Connecticut nonprofits that receive state contracts and grants, as tax averse lawmakers seek to balance a nearly $570 million fiscal 2017 budget deficit with steep spending cuts. Those sweating the outcome of the legislative session run the gamut, but Gov. Dannel P. Malloy's budget proposal singles out funding for 53 arts, tourism and labor programs, which face steep cuts and competition for a smaller pool of money. His budget proposes a 25 percent cut to $21.2 million in funding for performing arts centers like The Bushnell, the Connecticut Science Center, Mystic Aquarium, arts councils and festivals, and various other programs. Money to support an incumbent worker training program is also at risk. But the concern for nonprofits is not just about reduced funding. Malloy also wants to consolidate oversight of that shrinking pool of money, which would be reduced to $15.8 million, from several state agencies — including the Department of Economic and Community Development (DECD) and the Department of Labor — to the Comptroller's office, tightening scrutiny over the funding to ensure grants go to organizations that deserve it. “One of the key principles of this budget is that recipients of state funds must demonstrate that their outcomes merit their funding,” his budget reads. “Governor Malloy believes that state funding commitments to outside agencies, nonprofits, community organizations, and special events should be limited to a finite time period and should be re-examined regularly.” Accountability vs Earmarks A number of the organizations and programs on the funding chopping block have been virtually guaranteed money in the past through sometimes controversial earmarks, or “designated” funding from the legislature. A 2012 attempt to reduce those earmarks was met with fierce nonprofit resistance, forcing Malloy to retrench and give back 80 percent of prior-year funding levels. The remaining 20 percent of funding was left to a more competitive bidding process. In a speech last month, Malloy's budget director, Office of Policy and Management Secretary Benjamin Barnes, revived the concept. “I want a broader discussion about accountability,” Barnes told an audience at CT Voices for Children's annual budget forum. Asked to elaborate on the proposal, Barnes said in an interview last week that the administration would like organizations that have received earmarks to compete on a level playing field with all other nonprofit programs. “The amounts they get ... is a result of a historic artifact and not a reflection of any kind of rational approach on how we should spend the money,” Barnes said. Comptroller provides protection Barnes noted that moving the arts and tourism funds to the Comptroller could also protect that money, if the legislature approves Malloy's proposal to give agency heads more leverage over how to spend their budgets in the year ahead. There's already language in the budget implementer bill regarding the arts and tourism funding. It calls for the Comptroller to work with several agencies to develop an annual grant program for arts, tourism, and community, workforce, and youth development programs. Nonprofits receiving state funds would be required to submit their goals and outcomes to the Comptroller, who would provide a report to legislators to better inform their spending priorities. A holistic view Many nonprofits already submit such reports to the agencies that fund them, but Barnes said he wants to ensure that legislators get a holistic view of how programs are performing. The proposal also allows the legislature to set up timelines for annual application processes for each program. Cause for concern Frank Tavera, CEO of the Palace Theater in Waterbury, said there is much uncertainty about the proposed change in the funding process for his organization and the three other theaters, including the Bushnell, that fall under the state's “performing arts centers” line item. That $1.2 million, split equally among the four venues, would be reduced to around $900,000, if the legislature approves the proposed 25 percent cut. “The 25 percent reduction and the idea it would be consolidated under the Comptroller's office … those are all triggers for us that cause alarm,” Tavera said. “Everyone has planned or built budgets around the anticipation of that dollar amount.” He said the theaters typically use the money to help fund operations. If the Palace Theater receives 25 percent less funding next year, Tavera said it will spur a fundraising push among donors and may require higher ticket prices, but core programs would likely survive. But what if the state decides that the Palace deserves less money? “We might have to eliminate non-self-funding programs,” he said. “We might lose audience participation. See less staff.” Years of erosion Jeffrey Walter, interim CEO of the Connecticut Community Nonprofit Alliance, which counts arts and tourism organizations as well as health and human services nonprofits among its 600 members, said the proposed 25 percent cut comes after years of nonprofit funding erosion. “It flies in the face of comments that have been made over the years by this governor and previous governors about the importance to the economy of the [arts and tourism] sector,” Walter said. He conceded that the state may benefit from reevaluating its list of earmarked funds. “There probably needs to be an overall review of how the state wants to support this sector of the nonprofit world,” he said. “But it's hard to do that at the same time you're cutting the funding so significantly. It's really two different things. I don't know if it's disingenuous or just poor timing to say we're going to do both at the same time.” Comptroller Kevin Lembo said he has reservations about the consolidation proposal. Lembo said monitoring and transparency are vital, but he wants to ensure that the most appropriate arms of state government handle that oversight. “Agencies like DECD and [OPM] currently perform many of the functions being discussed, including evaluating competitive grant proposals and overseeing grantee performance,” Lembo said. “Placing the administration of this new program in an agency that already has a track record of performing these functions would improve efficiency by avoiding the need for my office to create duplicative administrative capacity.” He added that if the legislature and governor ultimately decide on who receives funding, they should also be the ones doing the monitoring. 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