Orange County Arts Center Fights Deficit : Economics: The 4-year-old performing arts center has lost $1 million in box-office revenues. The facility does not have the financial reserves to continue ‘without basic changes,’ says its executive director.

While economists debate the nature of the recession, Orange County Performing Arts Center executive director Thomas R. Kendrick said the downturn already has hit his 4-year-old hall hard, causing $1 million in losses at the box office and prompting some institutional soul-searching.

Troubles in the economy are “having a combined negative effect on both fund-raising and programming,” Kendrick said, calling 1990 “the most difficult year since the center opened.” He said the Costa Mesa facility does not have the financial reserves to continue over time “without basic changes.”

These will include focusing more attention on those making smaller donations and those occupying the cheaper seats.

In addition, he said, “we have reduced programming. We have cut next year’s budget to this year’s level, and we’ve made changes in our marketing. We’re clearly moving to try to explain our need, and get it out to the public.”

Five of the center’s 65 full-time staff positions have not been filled, and Kendrick said he does not rule out layoffs if the economy continues to sag.

Previously announced plans for a second theater have been moved to the back burner.

Kendrick remains disinclined to broaden center programming to attract a wider audience, saying he does not want to book popular programs at the expense of high-culture events.

The center, he said, “was built to present ballet, opera, symphony and musical theater. It was not built to be an entertainment facility, purely, for pop acts. If it were, it would cost a third or less as much. It should be used for what it was built for.”

Nevertheless, the current tightening clearly represents a turning point for the center, which was hailed at its 1986 opening as a signal that Orange County at last had emerged from Los Angeles’ cultural shadow. The opening also drew national attention to the fact that the county was able to build and operate its $73-million center entirely with private funds.

Several other arts groups in the county do not report signs of a slowdown among donors or at the box office. But Kendrick said recessionary pressures were felt at the Performing Arts Center as early as January, with slower than expected subscription sales for the ballet series.

A hiring freeze was instituted in April. But the real crunch came at the box office in early August, coinciding with the Australian Ballet engagement and running through the autumn with a series of money-losing presentations.

According to Kendrick, these losses totaled $885,000: $400,000 from “A Funny Thing Happened on the Way to the Forum,” $276,000 from the Australian Ballet and $209,000 from the New York City Ballet.

There is a special need to pay attention to small donors now, because a recent survey indicated “a large number of people that we have not contacted who would be willing to donate at least to the under-$100 level.”

As outlined by Kendrick and in documents submitted by the center to the Internal Revenue Service, the center’s fiscal and programming philosophies make it especially sensitive to changes in the economy.

Although construction was privately funded, $2.5 million in construction pledges are still outstanding. After four years of operation there are substantial renovation, repair and maintenance costs looming, Kendrick said.

And of the $65 million pledged to the center’s endowment fund, a mere $3.3 million is in hand, yielding $230,000 per year in interest, the only portion available for use.

At the same time, the center--which, unlike some facilities, has no revenue-producing parking or restaurant--has considerable administrative costs.

Nearly 10% of the center’s $22.8 million in 1989 expenses went to staff salaries, pension-fund contributions and other employee benefits. This includes $309,075 for Kendrick and his wife, Judith O’Day Morr, the center’s general manager, a combined salary/benefits/expenses package that places them among the highest-paid arts administrators in the country.

Twenty-five other employees each were paid more than $30,000. The center also reported $285,049 in professional fund-raising fees.

Even with the extraordinary tickets sales that the center has recorded in the first four years of operation, substantial support from the private sector is needed to keep the facility afloat. In 1989, for example, $2.9 million in contributions, gifts and grants was needed to pay operating costs.

Although the center itself is tax-exempt, and many of the groups that the center presents receive public support, founders frequently boast that the facility has never sought or received any governmental funding.

“It is a point of pride,” Kendrick said.

But in light of recent setbacks at the box office and the tightening economy, even this is changing. Rather than a shift of philosophy, Kendrick said it was “just a recognition of fact” that the center’s executive board discussed.

“The fact that we do not have government funding does not mean that we’re opposed to it,” Kendrick said. “We have no source of government support available to this center. If there were a significant source of government support we would obviously investigate that.”

Kendrick acknowledged that this change in philosophy may have come too late, since there isn’t much public money around these days for new recipients.

On the programming side, “high-culture” events at the center reflecting the tastes of its backers--ballet, symphony music and the opera--often carry built-in losses. In the case of the center’s ballet series, these losses (budgeted as “subsidies”) routinely run into six figures, even when they sell out.

If the center has a “cash cow,” it is its distinctly middle-brow Broadway-musical series. But the number and quality of national companies and proven hits varies from season to season.

Both the ballet and the Broadway series are supported largely by subscriptions. However, single ticket sales--which are sensitive to reviews and other factors--provide the critical margins of profit or, in subsidized performances, what Kendrick calls “positive variances.”

Some patterns in the general economy’s downturn are reflected in the center’s ticket sales. In the residential real-estate market, homes at the upper end of the spectrum have been less affected by the slump; at the box office, the more expensive orchestra seats and those in the first tier continue to sell well to subscribers, while sales in the second and third tier are lagging.

“What you’re talking about,” said Kendrick, “is discretionary spending here,” and as little as a 10-point drop in attendance over a year’s time can translate into a $1- to $1.5-million drop in income.

Nonetheless, Kendrick repeated that he plans no substantial change in the center’s programming mix. One of his strongly held programming philosophies--his antipathy to pop music--has not been affected by the downturn.

In a recent jazz series, Harry Connick Jr. and Michael Feinstein outdrew Ella Fitzgerald, Kendrick said, selling out and producing small profits without any subsidy. Saxophonist Branford Marsalis is also scheduled to appear in this series.

But “there are many, many, pop entertainment facilities in California--more than anywhere else in the country, or the world. It makes no sense for this one to be used that way, and there is a need for what this center is trying to present . . . . It is fallacious to say there is any potential revenue out there for pop entertainment.”