Three-quarters of all U.S. state and jurisdictional governments cut their arts budgets in fiscal year 2003, and more than one-half imposed further cuts in fiscal year 2004. In this first of a series of reports commissioned by The Wallace Foundation, the author argues that these state arts budget cuts reflect more than just a one-time response to fiscal crisis. That is, they reflect the political weakness of state arts agencies, a weakness stemming from the growing mismatch between the agencies' grant-making roles and structures and the cultural and political realities the agencies face. One promising solution may be for state arts agencies to shift their focus and funding from bolstering arts providers to serving people and communities. But before this shift can take place, some important conceptual as well as practical issues must be addressed. The monograph includes 6 chapters: (1) Introduction; (2) The Early Years: SAAs and the NEA Model of Support for the Arts (Children of the NEA; A Supply-Side Approach; and Elite Pillars of Support); (3) The 1970s: Populist Cracks in the Pillar (SAA Responses to Populist Criticisms); (4) The 1980s: A Widening of the Cracks (Breakdown of the Quid Pro Quo; and Straddling the Gap); (5) The 1990s to the Present: A Watershed for SAAs? (Budgetary Woes and Political Turmoil; A Different Sort of Crisis?; and Cash Machines Without Clout); and (6) Looking to the Future: The START Initiative (Evolution of the START Program; Public Agencies: Public Servants; and Conclusion.) Two appendices are included: (1) Summary Information for the 13 START Agencies, FY 2001; and (2) Summary Information for 43 Non-START State and Jurisdictional Arts Agencies, FY 2001. Preface, RAND Quality Assurance Process, Summary and Bibliography are also included. (Contains 56 footnotes, 3 figures and 1 table.) [For other reports in the series, see ED502643, ED503325 and ED503336.]