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Continued: Minnesota Orchestra meets on a down note

  • Article by: GRAYDON ROYCE , Star Tribune
  • Last update: December 6, 2012 - 8:55 AM

Thursday's annual meeting of the Minnesota Orchestra will be a sober, closed-door affair -- no celebratory videos of the year past, no musical program or upbeat speeches.

It might be the most downbeat meeting in the orchestra's 110-year history: Its musicians have been locked out for 10 weeks in an intractable labor dispute, a record deficit that preliminary reports have put at $6 million will be reported and concerts have been canceled through the end of the year.

At the heart of the labor dispute is this question: Does the Minnesota Orchestra -- its board, donors and patrons -- have the financial wherewithal to pay its players on a scale that rivals the best-funded and most prestigious American ensembles?

The orchestra's board says the deficit and depleted endowment ($90 million below 2007 projections) support its position that it must save $5 million in musician costs. The future of the orchestra, they argue, depends on it.

Musicians say the endowment still is the sixth-largest among American orchestras and that the orchestra has raised $97 million (including $52 million for a building project) during a $110 million capital campaign.

Recently, the musicians -- who last week issued a vote of no confidence in CEO Michael Henson -- have compared Minnesota to Cleveland, Chicago and the National Symphony -- orchestras that negotiated small wage increases in 2012. This is proof, they declare, that the American symphony orchestra is not in peril.

Thursday's account will be for a fiscal year that ended Aug. 31, and will not reflect the labor turmoil that began when the board locked out musicians Oct. 1. If they follow trends from recent years, ticket revenues will be down, contributions will be flat and endowment draws will be higher than average.

Endowment numbers

The orchestra's assets have become a major issue in the negotiations.

To avoid reporting deficits in fiscal 2009 and 2010, the board made draws above the normal benchmark of 5 to 6 percent from its endowment funds. Larger-than-normal draws also were made in 2011, but the orchestra still reported a deficit of $2.9 million. Management says these withdrawals cannot continue.

The orchestra's endowment is made up of various pots of money, with different rules governing their use. The Minnesota Orchestral Association endowment was valued at $61.2 million at the end of July; an Oakleaf Trust was created many years ago and is at $57.3 million.

Think of the Oakleaf as a trust fund, ruled by an independent board, that sends the orchestra a check every year. Then, there is a $7.7 million fund mandated by a 1997 remodeling project, a $1.2 million St. Paul Foundation fund and a new Building for the Future Fund of $8.2 million. Add those up and you get about $135.6 million. A 5 percent draw on that total would add $6.78 million in revenue for the orchestra. Last year, that figure was $9 million, plus another $2.9 million to cover a deficit, for a total of $11.9 million.

The orchestra -- even at a time when it's pointing to endowment falloffs -- has shown amazing fundraising clout, garnering $52 million for the building project and an additional $48 million for a new endowment and artistic initiatives.

Of the $24 million raised for new initiatives, however, all but $1 million has been spent since 2006, on state, national and international touring; commissions for new work; guest artists and conductors, recordings and musician salaries. Of the money for endowment, only $12.5 million has been received (the rest is pledged), and $10.1 million of that was absorbed into the main endowment.

Making comparisons

So what about the comparisons to other orchestras? Minnesota musicians lately have asked why Cleveland, an orchestra in a metro area roughly the size of the Twin Cities, managed to give its players small salary raises in a just-concluded negotiation. They point out that Cleveland's endowment is roughly the same size as Minnesota's.

However, Cleveland has an annual budget of $48 million compared with Minnesota's $31 million. Cleveland's Musical Arts Association owns two significant venues -- Severance Hall and the Blossom Music Center -- and spends weeks touring in the United States and Europe. In fiscal 2011, the orchestra generated $20 million from operations, compared with $9.1 million in Minnesota.

Cleveland reported a small deficit in fiscal 2012, with the help of two extraordinary measures: It sold land around its Blossom Center, and raised twice as much money as usual through special fundraising.

The Cleveland Orchestra also has endowment concerns. The Cleveland Plain Dealer reported its $130.6 million in investments were "$170 million shy of where the orchestra would like it to be -- around $300 million." Board chairman Dennis LaBarre told a recent annual meeting that he hoped the endowment would be large enough in six years to produce the kind of draws that would cover differences between revenues and expenses. Until that time, special fundraising each year will be necessary.

The Chicago Symphony Orchestra also gave its musicians a relatively flat contract this fall, but on financial terms these are vastly different orchestras. Chicago has a $301 million endowment and ticket sales of $28.9 million (compared with $6.9 million in Minnesota), according to its 2011 report. The National Symphony finances are much more difficult to penetrate because the organization is part of the Kennedy Center for the Performing Arts and does not issue a separate annual report, nor does it file its own tax return. The orchestra has an annual budget of about $36.8 million.

Los Angeles, San Francisco and Boston also have orchestras where musicians have done well in contract negotiations. If anything, these organizations demonstrate a stratification in the symphony world. Boston's annual report shows an endowment of $387 million, from which it drew nearly $20 million in fiscal 2011. San Francisco reported $235 million in investments, and concert revenue of $27 million in its 2011 tax return, and Los Angeles had concert income of $59 million -- not to mention a significant stream of revenue from the Hollywood Bowl, which it operates.

So the question facing the orchestra board's 85 members, as they lunch Thursday on sour financial data, is whether the organization can afford itself. Locked-out musicians are wary of how this cold and bitter dish tastes.

Graydon Royce • 612-673-7299

 

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