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When Rohan Preston’s article broke last week about the Southern Theater owing the McKnight Foundation $300,000 for artist fellowship dollars that were borrowed to pay for operations, members of the Twin Cities arts community were shocked and saddened, and filled with questions. How could this have happened? Who is responsible? And what is the guarantee that this will not happen again? This is an article that takes a look at the Southern's history—how its current organization was formed, how the Southern got into the predicament that it is currently in, and how it is hoping to get out.
The Southern Theater: Beginnings
Built in 1909, the building where the Southern Theater is now housed was initially a Swedish theater and vaudeville house. According to the Southern’s website, the building became a movie theater in the 1920s—and in the 1930s became a porno house. It was a machine shop for a while, as well as an antique shop, eventually becoming a high-class restaurant called the Gaslight, which closed in the mid-60s. The Guthrie took over the building in 1976 and operated it for less than a year.
When the Guthrie left, the building was going to be demolished to make room for the Holiday Inn, but a collective of artists rallied together to save the building as a performance space. Ben Kreilkamp, who was with Palace Theatre during that time, said, “the building was saved by artists…it’s always the artists that end up saving things.”
Meanwhile, the West Bank Development Corporation, an organization trying to guide the development of the West Bank, applied for a federal grant called the Urban Development Action Grant, according to Lowell Picket, who was on the Minneapolis Arts Commission at the time. $50,000 of the federal grant was earmarked for the Southern Theater, to renovate the building and bring it up to code. The Foundation of Arts Resource Management became the fiscal sponsor. Eventually a board of directors was formed to run the theater, ultimately becoming the Southern Theater Foundation.
The Southern Theater Foundation, made up partially of the theater community members that used the space, applied for a grant from the Northwest Area Foundation, which went to hiring the first staff member of the Southern Theater, Jeff Bartlett. (Bartlett declined to be interviewed for this article.)
Bartlett, who had worked on lights at the theater when the Guthrie was still there, became the Southern’s first artistic director in 1981. Initially, the Southern rented out the space to various performing companies in town, such as the Palace, Theatre de la Jeune Lune, the Illusion, and Brass Tacks. However, Bartlett’s vision was for the Southern to become a presenter, rather than a renter. He wanted the organization to curate programming, and bring in challenging and experimental work.
"Until now we've been a selective, subsidized rental space and our relationship with artists has been just that of landlord and tenant,” Bartlett was quoted saying in a Star Tribune article on June 17, 1988. At that time the Southern began "trying to put together the most interesting and varied seasons possible," Bartlett was quoted as saying.
Art, not profit
From the very beginning, the Southern never was a venue that prioritized selling tickets over presenting important, sometimes challenging work. Robert Hammel, who served on the board in the early 1990s, said that the theater’s transition into becoming a presenter, as opposed to a renter, gave the theater vital energy. Of course, money was always a struggle, he said. Though the Southern at that time was “fiscally responsible,” he said, they would need to take out a line of credit occasionally, and pay it back when money came in.
By 1996, the Southern had an annual budget of $300,000 and had performances 50 weeks out of the year, according to a Star Tribune article on November 24, 1996—which states that about 35 percent of the budget was earned at the box office, the rest coming from contributions and grants.
Over the years, the Southern has relied on foundational support for its survival. Over the years the organization received grants from the NEA, the Minnesota State Arts Board, the McKnight Foundation, the Jerome Foundation, the Bush Foundation, and the Dayton Hudson Foundation, which has become the Target Foundation. The Southern needed this support, because it would not have been able to survive on ticket sales alone.
In 2006, Bonnie Schock was hired at the Southern Theater as interim managing director, replacing the previous managing director, Sandy Moore. At that time, the Southern’s organizational structure was such that the managing director was supervised by the artistic director, Bartlett.
When Schock came on staff, there were few employees and no development staff. During Schock's tenure, the Southern wrote a number of grants that allowed the theater to hire additional staff, including a part-time development director and a database and systems management position. The organization at that time had a budget of about $1 million, with a debt of about $230,000-$250,000, Schock said.
Schock said that when began working at the Southern, she had to do a bit of “forensic accounting” to figure out just exactly what the organization’s financial position was. There were no regular reports to the board about income and expenses. “When the board met, they weren’t getting numbers, they were getting anecdotes,” she said “I don’t know if any people knew the real numbers. People knew there were problems, but there was no systemic process for tracking the accounting. It was more like, here’s my checkbook.”
Schock brought in an auditor to assess the financial situation of the organization, and it became clear to her that there had been a pattern of borrowing from restricted funds.
The McKnight Artist Fellowship grants would come a year ahead. The money would come at the end of spring, and artists were paid in July and then at the beginning of the next year. “They were often up against it,” Schock said—meaning up against the wall, financially.
Schock said she didn’t know when the borrowing started. Gary Peterson, the Southern's current executive director, said he suspected that it was “at first innocuous and fairly innocent.”
“I have no idea if people knew [about the borrowing],” Schock said. “I suspect they didn’t.” When she brought the practice to the attention of the board, they were shocked. "They said, 'Oh my God! I didn’t know how bad it was.”
“There was no evidence of embezzlement,” Schock said. “I would characterize it as financial mismanagement; that doesn’t come with any intent. But it put the organization in jeopardy.”
When Schock brought the practice of borrowing from McKnight funds to light, the decision was made to inform McKnight of what was going on.
During the eighteen months that Schock worked at the Southern, there were structural changes that took place. All of the old board members left, and Bartlett moved from being a board/staff member to just being a staff member. Three new board members were brought on, including Steve Barberio and Susan Lach, who resigned from the board last month; Lach had been chair. (Both Barberio and Lach declined to be interviewed for this article). The new board members were charged with building up the board.
The new board made the decision to change the structural organization of the Southern’s staff. Steve Barberio resigned from the board and in 2007 his organization, the Directors, was hired as a consultant to act as Interim Executive Director—putting them in a position above Jeff Bartlett as artistic director In the summer of 2008, just before the new executive director/CEO Patricia Spielman was about to assume her new position, Jeff Bartlett was fired, creating an uproar in the Twin Cities artistic community. Bartlett was replaced by three curators: one for theater, one for dance, and one for music.
“People were angry about Jeff leaving,” Spielman said. “What that told me was about how important the Southern was to the cultural community in the Twin Cities.”
Speilman said that while she was working at the Southern, the debt would vary from day to day and month to month, depending on when donations came in and what the ticket sales were. “It was roughly in the $300,000 range I believe,” she said. Spielman didn’t have a comment about the McKnight funds specifically.
“We took some pretty drastic steps to remedy the deficit," she said. "We laid off a third of the staff. We cut the remaining staff salaries by 6.5 percent, and my pay cut was a little higher than that. We instigated furloughs. Finally I was laid off as a result of a change-of-operation model I presented to the board.”
Spielman’s model included a leader that knew the local scene better than she did, as she was from several states away. The leader would serve not only as the head of operation but also as the main fundraiser.
“I could write some grants,” she said, “but in terms of local fundraising, it takes time to build connections to raise the amount that the Southern needed. I just hadn’t been there long enough. I just didn’t know the players—either an individual donors or corporate donors. The Southern needs people to say yes."
The line in the sand
Gary Peterson began working at the Southern in January of 2010. “When I was hired I knew it was bad," he said. "I didn’t know how bad.”
Peterson knew that the Southern had a debt of about $200,000 or more. “I didn’t know at the time I started how it was being financed, or what had brought it about.”
After Peterson began at the Southern, the theater borrowed from the McKnight fellowship funds just as it had it past years. But in January, their projected ticket sales were so poor—$100,000 short—that they couldn’t pay the 2010 McKnight Fellows when the second half of their payments were due at the beginning of 2011. “I knew we needed to stop it. I thought we had more time to stop it,” Peterson said.
Vickie Bensen, from the McKnight Foundation, said that when she learned about the situation four years ago, “Jeff and the executive director Steve Barberio said there were some issues, and that they were borrowing against fellowship funds. I stepped in and talked to the board chair, and a couple of board members at that time. I said this was not acceptable. I was assured there were policies in place and that they understood.”
However, when Bensen learned that the 2010 dancer and choreographer fellows had not received their full payment, “that really stopped the conversation for us. The McKnight Foundation arts program says we are supportive of artists and in particular artist fellows. To learn they hadn’t been paid—that had never happened before.”
Bensen said that the McKnight, although they have asked for funds back for the artist fellowships, were not asking for the $55,000 they had given to the Southern last year for operational support.
After the McKnight Foundation informed the Southern that they owed the money back, the Southern’s board held an emergency meeting. “It was a come-to-Jesus moment,” Peterson said. “It was a great awakening.”
In the board’s deliberations, they looked at a number of things, including the fact that occording to bylaws, they were supposed to have elected officers annually each August, which the board had not done, according to Peterson. “There was a collective decsison that a new slate should be voted in,” he said.
“Each person on the board can speak for themselves,” he said. “In discussions I did observe, [it was stated that] for ongoing credibility we needed to change. We have to draw a line in the sand and just stop this.”
An unsustainable model
Peterson said that one of the fundamental issues that the Southern faced was there was no consideration of overhead costs—meaning insurance, electricity, lights, air conditioning, heating, cleaning, plus taxes, staffing, production personnel, administrative personnel, front-of-house staff, marketing. “The structure has evolved over time. To recover that from ticket sales alone can’t be done—let alone have anything left from box office to distribute to artists. This should have changed a long time ago. What’s not working is the notion that you can sustain the level of inrfrastructure we have and that you can have payout to artists and keep ticket prices low—because you have to, because they have to be affordable. Historically we have not had a sustained and effective development program."
“Nonprofits are strapped,” said Vickie Bensen. “They get a government grant…they’re waiting for a government grant and have to pay the bills. Generally organizations know what is coming in—what is coming next so that we can pay this. This just got out of hand for the Southern.”
“It’s becoming clearer and clearer,” said Patricia Spielman, “not just in the arts, but across the nonprofit spectrum, that services nonprofits provide are costing much more than individual foundations and government are willing to pay for them. The result is going to be huge. Unless the funding model changes, there will be a drastic loss of those services.”
Is there hope for the Southern?
Brian Sostek, who has done shows at the Southern, says he doesn’t really care how it started or why it started. “We need to take a step back with a little perspective,” he said. “Everybody makes stupid mistakes. I’m not trying to make excuses for anyone."
“I keep coming to the same analogy that Dante would never had written the Divine Comedy without the patronage of the Medicis,” he said. “As artists, we rely on benefactors.”
The Southern has a plan A and a plan B for proceeding, depending on the outcome of this week’s fundraising drive. Regardless, board members and Peterson say that they are continuing to try to be as transparent as possible, and to develop a sustainable model for the theater going forward.
“Our passion really is make sure this magical place is around for another 100 years.,” said the board’s new chair, Ann Baker, “and to make it a sustainable entity.”
Coverage of issues and events that affect Central Corridor neighborhoods and communities is funded in part by a grant from Central Corridor Collaborative.