The early 2000s have been difficult for many, if not most, state and jurisdictional arts agencies (referred to as state arts agencies, or SAAs). In fiscal year (FY) 2003, a record 43 of 56 SAAs reported year-over-year declines in the general fund appropriations budgeted to them by their state legislatures. In FY 2004, 34 agencies reported further budget reductions, with nine of them in California, Colorado, Guam, Florida, Michigan, Minnesota, Missouri, Oregon, and Virginia reporting cuts of more than 30 percent. Six SAAs those in Alaska, Arizona, California, Colorado, Missouri, and New Jersey faced serious threats of elimination. The immediate cause of these early-2000s budget problems is a fiscal crisis that, in many states, is unprecedented. However, as this report argues, these cuts to state arts budgets are more than just a one-time response to fiscal crisis by state officials. Findings from in-depth interviews with staff from 13 SAAs and a review of the literature on SAAs and the National Endowment for the Arts (NEA) suggest a growing mismatch between the grantmaking role and structure of many SAAs and the cultural and political realities they face. And even though many SAAs are trying to reach beyond their traditional grantee constituencies, the perception if not the fact that SAAs primarily serve artists and arts organizations rather than the broader public is yet to be overcome. A short review of the history of SAAs helps to explain why this is so.