The announcement last week by Mayor Bloomberg and the City Council that cultural program funding will in the future be awarded through a competitive process, replacing a system in which a small number of groups got the lion’s share of support through line items and member items, is being greeted with praise by cultural leaders all over the city — including some whose organizations may see their funding diminish.

“I applaud the system,” the president of Creative Time, Anne Pasternak, said. In the past, Creative Time, a non-profit organization that commissions and presents public art projects, received over $120,000 annually through a line item in the city budget; under the new plan, it will have to compete for funding with hundreds of other groups. “It is the right thing for New York’s cultural institutions. It is the right thing for the people of New York City,” Ms. Pasternak said. “How will it impact Creative Time? I’m not optimistic.”

Those representing groups who stand to benefit were generous in their praise for the Mayor and Council’s decision. In an e-mail to members of the dance community, the director of Dance/NYC, a service organization for professional dance, Robert Yesselman, called the announcement a “miracle.” “Not only do we have a 25% increase in funding available,” he said later in an interview, “but every grant coming out of the Department of Cultural Affairs will be on a competitive basis and determined by peer panels, just as is done at NYSCA [the New York State Council on the Arts] and at the NEA [National Endowment for the Arts].”

“Rationalizing the system is something we’ve been looking to do for a long time,” New York City’s cultural commissioner, Kate Levin, said. “It was time to move to a different basis of funding that allows us to reward excellence and give all organizations access according to reasonable principles.”

Last week’s announcement was complex, with implications both for groups eligible to receive program funding and also for the 34 arts organizations housed on cityowned property, which constitute the Cultural Institutions Group. Organizations in the CIG — such as the Metropolitan Museum of Art, the American Museum of Natural History, and the New York City Ballet — receive portions of their operating budgets from the city.

For the first group, there will be an overall increase in funding, to $30 million in fiscal year 2008 from $23.9 million in fiscal year 2007. The entire $30 million will be distributed based on a competitive process of peer review — at the citywide level for larger organizations, and at the borough level for organizations with annual operating budgets of less than $250,000. In the past, more than 80% of the funding went to a small number of groups that, through their lobbying power, had secured member items or line items in the budget. (This year, to ease the transition, though all groups will be evaluated through the competitive process, groups like Creative Time, which in the past had member or line items, will be given the higher of the two awards – their competitive award or their past entitlement.) Because of the end of the “budget dance,” arts organizations will know their level of funding much earlier than in the past – by the beginning of their fiscal year in July.

Groups in the CIG, which in the past had to go through an annual ritual of seeing their funding cut by the mayor and then restored by the City Council through member items, will also now have their funding level secured at the beginning of the year. Under the new plan, $115.3 million is base-lined in the budget for 2008, while another $4.4 million is available as a New Needs fund, to address changing need levels among these institutions. Also — to encourage good governance and counter the common complaint from other institutions that the CIGs receive their generous levels of funding without being held to any standards — the new program includes an element of accountability. Ten percent of an institution’s operating support will be dependent on a performance-based review process called CultureStat.

Several cultural leaders expressed surprise that the City Council would, in the interest of a more transparent and fair system, relinquish its power over the cultural purse strings. “I am really impressed that [City Council Speaker] Christine Quinn would, in a day and age when people need to raise money for their campaigns, take her member item allotments and give that to the peer review panel process,” Ms. Pasternak said.

“The cultural community for a long time was advocating for changes to create a process that was fair and transparent,” the president of the Lower Manhattan Cultural Council, Tom Healy, said. “I don’t know if this could have happened before the current speaker and mayor.”

The impact of the reform is hard to predict at this point, but it could be sweeping. Not only will many small groups have a better shot at funding, the chairwoman of the New York City Arts Coalition, Norma Munn, said, but large institutions could find themselves getting significantly higher levels of support, too. For example, the Whitney Museum of American Art, which is not in the CIG and traditionally has received little money from the city, “will now have an opportunity to apply and receive funding at a different level,” Ms. Munn said. “I think people will be pleasantly surprised in the non-CIG community by the favorable impact this will have,” she added.

As for the CIGs, representatives of several said they welcomed accountability through the Culture-Stat process and expected that they would fare well.

There is a fly in the ointment, however: The total amount of money allotted for the CIGs for 2008 is about $4 million less than what they received in 2007 between their baseline amount and the added member items. Are the time and energy saved in avoiding the budget dance worth giving up some of their funding for? Some aren’t sure.

“The idea of base-lining is great, [but] we’re concerned about the total amount of the allocation to the CIG institutions,” the president of the Brooklyn Academy of Music, Karen Brooks Hopkins, said. “We want to make sure that, with the good news of ending the dance, we don’t lose any ground on the other side.” Ms. Hopkins said the CIGs are all talking and that they hope to convince Ms. Quinn and the DCA to raise the funding to at least its previous level.

The current chair of the CIG, the director of the Queens Museum of Art, Tom Finkelpearl, declined to comment before an official statement by the CIG is released.