Joseph Papp Steps Down at N.Y. Shakespeare Festival : Stage: In ill health and distraught over the death of his son, the 70-year-old founder names JoAnne Akalaitis artistic director.

New York Shakespeare Festival founder Joseph Papp, ill with cancer and distraught over the death of his son, has relinquished his administrative duties effective immediately, the festival said Wednesday.

A spokesman said Papp had appointed JoAnne Akalaitis, a prominent stage director and Papp’s artistic associate, to replace him as artistic director. It remained unclear whether the naming of Akalaitis will signal a change in the creative direction of the Shakespeare festival or other programming at New York City’s Public Theatre, which Papp also headed.

Papp will retain his position as producer. He has been known to be in ill health for several months and action to designate a successor had been anticipated for some time. In June, Papp’s son, Tony, 28, died of AIDS.

Papp, 70, founded the Shakespeare festival 37 years ago. Akalaitis, 54, was reliably reported to have been preparing for her new assignment for several weeks and sources familiar with the Papp operation said she had already positioned associates to form a new management team.

The Shakespeare festival confirmed the designation of Akalaitis, effective immediately, but said that neither she nor Papp was available to comment on the announcement.

“Mr. Papp is 70 years old,” said James Morrison, a press spokesman. “He feels, for health reasons, that it’s time to pass (the leadership reins) on to a successor.”

Akalaitis is known as an avant-garde director who has been involved in critically acclaimed reinterpretation of classics, but not the presentation of new works by contemporary playwrights. Recently, she has directed new productions of Shakespeare’s “Henry V,” parts I and II, Jean Genet’s “The Screens” and John Ford’s “ ‘Tis a Pity She’s a Whore.”

Akalaitis serves on the board of the Theatre Communications Group, the leading service organization for stage companies. Peter Zeisler, executive director of the TCG, said he was uncertain what implications Akalaitis’ appointment had for the direction of the Papp organization.

“JoAnne’s work has been very focused in one direction so far and this is going to release other energies in other directions,” Zeisler said. Also, he noted, “she’s never been in charge of anything this large before. It’s impossible to tell in what direction the Shakespeare festival is going to go. It’s a very challenging choice (of Akalaitis) because of JoAnne’s extraordinarily brilliant mind.

The situation at the Papp organization is seen as an especially daunting for Akalaitis because the Public Theatre and Shakespeare festival have lately been mired in financial red ink. Part of the problem stems from Papp’s well-publicized decision to reject National Endowment for the Arts funding last year to protest NEA handling of a political controversy that stemmed from disputes with conservative politicians led by Sen. Jesse Helms (R-N.C.)

But a great part of the money difficulties, New York stage sources said, represent financial woes that cut across most of the American theater. These sources said the financial quagmire in which the Papp organization finds itself is similar to a financial crisis that has threatened to shut down the Los Angeles Theatre Center in recent weeks.

Both companies have experienced difficulties in raising private foundation and corporate funds. Papp’s company has also been hurt by huge cuts in the budgets of the New York State Council for the Arts and New York’s city arts agency.

The closure of the long-running Broadway production of “A Chorus Line,” produced by Papp and which had been a major source of cash for his nonprofit theater company, is also believed to have played a role in the fiscal crisis.

“You don’t really see very many truly artistic types like JoAnne” taking key administrative roles, said one playwright familiar with the Papp organization but who declined to be identified. “Administrative roles are almost antithetical to the artistic spirit. Today is really an accountant’s time. It’s a time for left-brain types and JoAnne is a right-brain type. It will be interesting to see what happens.”