Minnesota Orchestra risks big losses: season, Vänskä, Carnegie

Showing a grim resolve in the face of worsening financial projections, Minnesota Orchestra leaders Tuesday conceded that the ongoing dispute with union musicians could cost the orchestra its renowned conductor and prestigious performances at Carnegie Hall.

Richard Davis, chairman of the orchestra's negotiating team, said management will stand firm in the 11-month lockout, despite the looming prospect of outcomes once deemed unthinkable — including the departure of Music Director Osmo Vänskä, the cancellation of key concerts at Carnegie Hall and delaying the start of the 2013-14 season in the newly remodeled Orchestra Hall.

"Osmo may have to leave," Davis said in a meeting Tuesday with the Star Tribune editorial board. "The board is resolved to know that that is a risk. Carnegie, the opening of the hall. All three may have to fall."

Davis, board chairman Jon Campbell and CEO Michael Henson gave the bleak assessment on the same day that they released an analysis by AKA | Strategy of New York that said the orchestra may face budget shortfalls even worse than those already cited by management.

The musicians called for renewed efforts to reach a settlement.

"What we don't need right now are threats; we need solutions," said Blois Olson, spokesman for the musicians.

"A studied and careful solution by an esteemed mediator was put on the table and rejected by management," Olson said.

Davis said it is "incumbent on both parties" to reach a settlement of the contract dispute, which has become the longest at a major U.S. orchestra.

He said that if no deal is reached by "the end of the year," there would be permanent damage to the orchestra.

The board has said the Orchestra cannot continue to operate with structural deficits. In order to balance budgets, unusually large withdrawals were made from endowment funds, until the past two years. Even in those years, however, the organization drew more than the recommended 5 percent of assets.

In his analysis, AKA | Strategy's Anthony Knerr wrote that he believes it is "unrealistic to think the Orchestra can fund-raise its way out of its current financial difficulties."

Campbell said Tuesday that a feasibility study commissioned by the orchestra board "made it very clear we could not raise another $6 million a year," which he said is the figure the board needs to address its deficits.

Knerr's report largely mirrored what annual independent audits have revealed about the Minnesota Orchestra. However, in addition to operating deficits, the report found troubling a "severely underfunded" defined-benefit pension and a $9.3 million taxable bond due in April 2015.

That money was part of $11 million in debt assumed in 2005 to help balance budgets from 2002 to 2005.

"Meeting those obligations will result in draws from endowment above the five percent level," Knerr wrote.

Musicians first called for a joint, independent financial analysis last September. In January, the board agreed. Knerr was selected, although musicians asked that another firm also be involved.

The joint effort faltered last spring when the sides could not agree on the scope of the analysis.

"Management's bought-and-paid-for analysis did not include the musicians' input," Olson said, "nor did it compare the Minnesota Orchestra to other comparable world-class American orchestras."

The board has offered a contract that would cut average compensation by 24 percent, to $102,000 annually. Musicians rejected the proposal in late July, and have not offered a counterproposal.

The study noted that from 2008 to 2013, the orchestra eliminated 12 full-time and seven part-time administrative positions, reduced or froze non-union salaries and cut pension and health insurance benefits. Those cuts resulted in annual savings of about $1.5 million.

Musicians also gave back, in 2010, with a wage freeze and a reduced pension contribution that totaled $1.4 million.

The cost-cutting did not stem growing operating deficits, which reached $8.7 million in fiscal 2012, Knerr stated.