Corporate recruiters rightfully crow about the heavy hitters of the local arts scene: the Guthrie, Walker, Minneapolis Institute of Arts, Minnesota Orchestra, Ordway Center and the Children's Theatre Company.

Even after four years of confidence-rattling economic malaise, the Twin Cities' reputation as a cultural mecca that punches well above its weight class remains intact.

But a game-changing dynamic emerged in the past half-decade that could challenge our future bragging rights as an Athens on the prairie.

The big arts institutions are confronting the quadruple whammy of challenged endowments, flat revenues, increased fixed costs and donor fatigue leading to reduced philanthropy. Treading water creatively is taking a lot more effort. Here, as elsewhere in the country, high fixed costs, shifts in donor priorities and changed buying patterns among patrons have conspired to make life at the top difficult.

As if that weren't enough, a flock of smaller, more nimble rivals is nipping at their heels. In the next few years, it may be these groups and not the big-budget pillars of culture that initiate the most interesting, vital developments in the arts.

"The arts tend to be driven by entrepreneurial attitudes," said Kate Barr, executive director of the Nonprofits Assistance Fund. "It's harder to do that in an institution. Small organizations that are led by artists say, 'I'm going to do this work, and figure out how to pay for it later.'"

The greatest success story in the Twin Cities theater world during the past decade -- after the Guthrie's gleaming midnight-blue palace on the Mississippi -- is the Minnesota Fringe Festival. The ragtag 10-day gala of unjuried performing arts has seen attendance rise 400 percent in 10 years, and has become the largest nonjuried Fringe in the United States.

Signs of this shift are visible well beyond the Fringe:

  • Mixed Blood Theatre has launched an experiment in free admission that is being watched nationally.
  • The St. Paul Chamber Orchestra, a big organization, is taking a small approach to reaching more audiences. After cutting prices to $10, the SPCO now has a season pass that lets patrons see unlimited concerts for $5 a month.
  • Once-tiny Park Square Theatre in St. Paul has methodically bulked up, is building a new stage and could afford a major musical ("Ragtime") this season.
  • The chamber ensemble Accordo has established itself, pulling its musicians from both the SPCO and the Minnesota Orchestra.
  • Money from the state Legacy Amendment has spread hundreds of grants under $100,000 to arts groups throughout Minnesota.

"Many younger artists don't form organizations," said Sue Gens, executive director of the State Arts Board. "They use fiscal sponsors to obtain grants and then do individual projects. That allows them to work and not get bogged down with infrastructure."

Grass-roots funding

As big arts groups wrestle with the costs of maintaining expensive new buildings, individuals and smaller arts groups have enjoyed fresh infusions of money from such grass-roots sources as the social-network funding tool Kickstarter and the Legacy Amendment.

"It's a better scene, and much of it has to do with the Legacy Amendment," said John Heimbuch, 33, artistic director of Walking Shadow Theatre. "The Fringe Festival is a low-barrier way for artists with no resources to create art. Most theater artists of my generation rose through the Fringe."

Welterweight arts groups are multiplying, despite the poor economy. A study by AMS Research, which analyzes the arts and entertainment industries, showed that between 1998 and 2008, the number of arts organizations in the Twin Cities rose by almost 25 percent, from 77 to 96.

Big arts groups, meanwhile, have faced an exhausting and surprisingly uniform series of challenging developments on the financial front -- reduced budgets, layoffs, program reductions, pay cuts.

The Minnesota Council on Foundations reported a 10 percent drop in arts giving by corporations and foundations between 2008 and 2009. The trend is continuing as a result of both the economy and, more important, a shift in priorities -- away from the arts and toward social issues and education.

"The priorities of institutional funders have moved on," said Sarah Lutman, who recently left as president of the SPCO. "You have a really interesting time for big, nonprofit cultural institutions."

After the building boom

Size and prestige ruled the Twin Cities cultural community from 2000 to 2006. Star architects with French and Swiss names descended on Minneapolis with sky-high visions. An unprecedented building boom at the Walker Art Center, the Guthrie, Minneapolis Institute of Arts and Children's Theatre Company came with a total price tag of nearly $350 million.

Six years later, the fruits of this spree illustrate the sobering pressures the big institutions face. At the Guthrie, four expense categories -- facilities, administration, marketing and patron services -- totaled roughly $4.4 million (25 percent) of the budget in 2000. A decade later, in a bigger building that requires more upkeep, those expenses almost doubled to $8.4 million, or 35 percent of the theater's larger annual budget.

Meanwhile, artistic and production costs -- outlays closely related to what you see on stage -- consumed a slightly smaller portion of the budget, falling from 57 percent to 54 percent.

One way the Guthrie has helped fill the bigger space is by presenting smaller companies on its three stages, rather than shouldering full productions of its own. In 2010, the large thrust stage hosted five productions -- all originated by the Guthrie -- but only two of six productions in the proscenium were exclusively Guthrie shows. In the smaller Studio, just five weeks of programming were originated by the Guthrie.

"The budget has been able to increase due to box office and fundraising, and also due to presentations of other companies and commercial producer partnerships," said Trish Santini, director of external relations at the Guthrie.

Some observers criticized what they saw last season as a financially motivated uptick of populist fare designed to pack in crowds -- "Arsenic and Old Lace," "Charley's Aunt" and "Hay Fever" -- at the expense of Shakespeare, modern classics and more creatively challenging plays.

"We have learnt a great deal in the six years since moving into our new building," wrote Guthrie director Joe Dowling in an e-mail. "In spite of a period of economic downturn, we have seen our box office numbers grow steadily, reaching in excess of $13 million for our 2010-11 season."

The Guthrie's 2012-13 season shows far more ambition, with a festival of works by playwright Christopher Hampton, a new work to be created by Mark Rylance and productions of Tony and Pulitzer winners "Clybourne Park" and "Other Desert Cities."

"These were the things we pledged to do when seeking funding for the new theater, and so far we have delivered on our promises," Dowling said.

Budget cuts, empty stages

At Children's Theatre Company, the new Cargill Stage, a 300-seat theater designed for flexible programming for preschoolers and teens, was described as a vital part of the theater's $27 million expansion. It largely was shuttered three years ago as CTC rang up huge deficits. The Cargill is slowly being brought back, with two productions scheduled for next season.

"One of the questions that will be addressed is how to best utilize the Cargill going forward," said Peter Carter, chairman of the CTC board. The nationally recognized children's theater posted a 2010 deficit of $3 million. After significant trims, it reported an operating surplus of $240,000 in fiscal 2011. The biggest hit of 2011 was the crowd-pleasing "Annie."

Walker Art Center experienced a delayed but serious hangover from its 2005 expansion, made more painful once the recession hit.

In 2009 it balanced its budget only after a 9 percent overall trim. In 2010, Walker director Olga Viso took her third consecutive pay cut as she announced the layoff of nine staff members and a further reduction in the art center's annual operating expenses.

Plans for expanding the popular Sculpture Garden have been on hold for years. Last year, the center's high-profile Wolfgang Puck restaurant downshifted to a lunch-only operation run by D'Amico & Partners. Its landmark Gallery 8 cafe, closed in 2010, remains dormant.

"We changed the model," said Viso. "It's not a destination-dining model anymore, and it's much more of a catering-driven model."

At the Minneapolis Institute of Arts, the budget was cut and 10 people were laid off in order to balance the budget, which also got a boost from endowment income. Attendance has dropped off, and membership is at its lowest number since 1995.

The classical-music challenge

The great musical organizations -- the Minnesota Orchestra and the St. Paul Chamber Orchestra -- did not conduct building programs in the past decade, but have raised money for expansions to their concert halls. The Minnesota Orchestra will break ground this month, but the SPCO recently delayed its project.

Each has responded to serious financial strain by cutting pay for musicians and staff as well as trimming programming. The Minnesota Orchestra reported a record deficit in its 2011 fiscal year, and the SPCO has forecast a deficit for next year. Both orchestras are currently in tense contract negotiations that may produce watershed agreements with their musicians.

The news elsewhere is much worse. The great Philadelphia Orchestra just emerged from bankruptcy, and Detroit recently saw a disastrous strike in which musicians lost 33 percent of their base pay. Orchestras across the country have canceled seasons or gone out of business.

Jesse Rosen, president of the League of American Orchestras, told a national conference in Minneapolis last year that orchestras must become nimble, flexible and versatile. He cited national studies that show audiences have dropped 29 percent from 1980 to 2008.

In Minnesota, the figures are better than in other states, but attendance is decidedly down, as is ticket revenue.

Small groups set agenda

How do the best efforts of small arts groups influence the culture, including large institutions?

The Guthrie Theater next season will present Pillsbury House Theatre's production of "Buzzer," a play by Tracey Wilson Scott. The work resulted from a commission to which both theaters contributed, and the Pillsbury staging received rave reviews and enthusiastic audiences. The Guthrie Studio, in fact, has been defined largely by productions from small theater groups in the past six years.

The Fringe Festival is a theater and dance event each summer that puts on more than 800 performances over 11 days. Even though it owns no venue and has a small infrastructure, the Fringe sells more than 50,000 tickets and has become the major theatrical event each August in the Twin Cities.

The Workhaus Collective is the single greatest source of new-play production in the Twin Cities. Playwrights formed the group in 2008 for the strict purpose of writing and producing new work. History Theatre in St. Paul also consistently commissions new work -- usually historical dramas, such as the "1968" project early this year and "Coco's Diary." Both productions were sell-out hits.

In dance, the Cowles Center signals a $42 million commitment to a dance scene that has no single dominant company, such as the Houston Ballet. Instead, the new venue presents mostly local troupes, many with budgets well below $1 million.

The SPCO, with an annual budget of $11 million, hired producer Kate Nordstrum to program new classical work and small ensembles -- much as she did at the tiny Southern Theater. The results of that initiative will be visible next season in the SPCO's Liquid Music series, curated by Nordstrum. Accordo, the group made up of musicians from the major orchestras, has just finished a third successful season with a higher profile.

The downsizing of classical music reflects a national trend. Le Poisson Rouge in New York has become an "arts" club in a former rock 'n' roll bar. There is a burgeoning alternative classical scene in Portland, Ore.

The gallery scene does not have the high-profile weekend crawls that once drew folks to Minneapolis' Warehouse District. The visual-arts crowd has moved on Northeast's Art-A-Whirl and First Thursdays and the St. Paul Art Crawl. The art-centric, all-night Northern Spark fest in June draws thousands to various locations.

The film community doesn't see the big Hollywood projects that distinguished the 1990s, but more films are being made on small budgets. Brady Kiernan's "Stuck Between Stations" was a good example last year.

In a way, the ferment in smaller groups highlights the divide in the Twin Cities arts identity: institutional power, or creative vitality.

"Minnesota supports culture, and that gives us an arts advantage, no doubt," said Alan Berks, a playwright/director who founded the theater website Minnesota Playlist. "But the support for the arts is largely intended to make this a 'nice' place to live.

"The audiences take their cue from large institutions, and large institutions are almost never edgy creatively," Berks continued. "Being on the edge creatively isn't always 'nice.'"