Even though a majority of Americans claim to support public funding of the arts, state government spending on the arts is minimal--and may be losing ground relative to other types of state expenditures. Moreover, most state arts agencies, or SAAs, have not succeeded in convincing state government leaders that the arts should be integral to their planning for their states' futures. This report, the second in a series commissioned by The Wallace Foundation to cover the findings of a multiyear RAND Corporation study of SAAs' changing roles and missions, examines SAA leaders' efforts to more firmly establish their agencies' value to state government in a changing political and fiscal environment. Case studies of two SAAs are used to illustrate a more strategic approach to public management, and to clarify some of the risks and rewards of bringing the arts and political worlds closer together. The monograph includes 7 chapters: (1) Introduction (Research Approach; and Report Overview); (2) At Arm's Length (SAA Governance Structure and Decisionmaking Processes; Advocacy; and Insulation and Isolation); (3) Catalysts for Change (Budgetary Trends; and Political Developments); (4) Making the Case for the Arts in Montana (Brief History of the Montana Arts Council; and Montana's New Strategy: Marketing the Arts and the Agency); (5) New Priorities for Public Arts Funding in Maine (Brief History of the Maine Arts Commission; and Maine's Strategy: Strengthening Communities, Strengthening Alliances); (6) Strategic Management of State Arts Agencies (Public-Value Framework; Lessons from Montana and Maine; Relevance of Lessons to Other States; and Arm in Arm with State Government Leaders?); and (7) At Arm's Length .... But Dancing (Risks of Arm-in-Arm Approaches; and Rewards of Arm-in-Arm Approaches). Two appendices are included: (1) Some Facts About State Arts Agencies; and (2) Montana Arts Council's Listening Tour. Preface, Summary and Bibliography are also included. (Contains 56 footnotes and 9 figures.) [For other reports in the series, see ED502643, ED503325 and ED503335.]