The Minnesota Orchestra on Tuesday reported the largest annual deficit in the organization's 109-year history.
The shortfall came to $2.9 million on a budget of $30.4 million, for the year ended Aug. 31, breaking a streak of four years of balanced budgets.
It is far from alone among U.S. orchestras facing financial troubles. The Philadelphia Orchestra filed for bankruptcy in April, citing a structural deficit of $14.5 million. Detroit's Symphony Orchestra posted an $8.8 million shortfall in fiscal 2010, and news reports from the Dallas Symphony Orchestra mention a $6 million deficit for 2010-11. Dozens of others are in the same boat.
The Minnesota Orchestra plans to balance its budget in 2013 by attracting new audiences, reducing the number of concerts and making major expense cuts while increasing earned and contributed income, said Michael Henson, president and CEO.
"Excellence is not enough," Henson said at the company's annual meeting Tuesday. "We have to find another way to work."
Minnesota has operated in the red for all but a half-dozen of the past 25 years, but the shortfalls usually have been less than $1 million. Though this year's deficit is the largest dollar amount, a $2.5 million shortfall in 1992 was a bigger share of the orchestra's then-smaller budget.
A key factor in the deficit was that the orchestra chose to rely less on endowment funds to close the financial gap, drawing down $1.8 million less than last year. Henson and outgoing board chairman Richard Davis said Tuesday morning that was a strategic decision.
"We need to grow revenue and cut expenses outside the amount we draw from investments," said Davis. "We need to show a structural deficit because these draws on the endowment are not sustainable. We are beginning the trip toward discipline."
Labor talks ahead
Tuesday's news came as contract talks loom between management and musicians. The players' current contract expires next September. Salaries and benefits for the players consume 48 percent of total expenses, and orchestras nationwide have reduced musician numbers or cut salaries.
Here, nonunion staff salaries have been cut, and the musicians agreed to concessions in 2009. Scheduled pay increases this year and next helped drive up overall expenses.
Davis said on Tuesday that he and Henson have met with the musicians three times to discuss the deficit and that the board of directors intends to ask the union "for the same expense commitments that we've asked from the staff." He said he did not believe any measure taken would affect artistic quality.
"Over the last few years, under a very austere budget, they have performed at the highest levels they've ever played in the history of this organization," Davis said of the musicians. "But everyone has to participate in that balancing."
Clarinetist Tim Zavadil, a member of the musicians' newly elected negotiating committee, said the group has received some financial information and expects discussions to begin early next year.
Pay cuts for musicians
Nationally, the news has been tough for musicians negotiating new contracts. A recent three-year deal in Pittsburgh cut wages 9.7 percent in the first year with a freeze in the second. Musicians ended a six-month strike in Detroit in April and took a 23 percent cut in salary.
Henson said Tuesday that strict wage concessions are only one way to address costs. Total numbers of musicians is an issue also on the table.
Even as the orchestra reports this high deficit, it is embarking on a $45 million renovation of Orchestra Hall. That project will continue unabated, with groundbreaking set for next June, Henson said. There will be a one-year "away season" in 2012-13 at the nearby Minneapolis Convention Center.
"Money that was contributed to that project is completely separate from the structural issues," Henson said.
Meanwhile, the St. Paul Chamber Orchestra reported that it balanced its budget -- $10.9 million in fiscal 2010-11 -- for the eighth year in a row. The good news is unlikely to last. The organization said it anticipates a deficit of $750,000 to $1 million for the current fiscal year, which ends June 30.
Graydon Royce • 612-673-7299