Despite the economy, many large, multi-day music events have fared well this year, bringing millions of dollars to their host communities. The Coachella Music Festival and the Stagecoach Festival in Indio, Calif., and the Bonnaroo Music and Arts Festival in Manchester, Tenn., reported strong ticket sales comparable to 2008. But, smaller festivals, which are more dependent on government funding and sponsorships, have faced greater uncertainty.

Cuts to state arts budgets mean less money for theater, film and music festivals. And, some states are cutting back specifically on events spending, though that may be counterproductive in some cases, says Steve Schmader, president of the Boise, Idaho-based International Festival and Events Association (IFEA). "Small to medium festivals might be making up ground, but larger ones are driving tourism, and cities should be cautious about getting rid of those," he says.

For fiscal year 2010, West Virginia is reducing its Fairs and Festivals budget from $2.83 million to $2.78 million. "There are some that, in their best optimism, say they are going to take a year or two off," Schmader says. "But it's difficult to come back. You don't just start up where you were. Sponsors have moved on to other things."

In some cases, local governments are doing what they can to keep popular local events alive. The Birmingham, Ala., City Council recently agreed to give City Stages, a three-day outdoor music festival, an additional $250,000, bringing total city support to $550,000.

And, earlier this year Canada passed legislation providing $100 million Canadian ($86.4 million U.S.) in stimulus funding over the next two years for "marquee tourism events." The Cisco Ottawa Bluesfest, Stratford Shakespeare Festival and Toronto International Film Festival are a few of the festivals receiving funding.