Even in the arts, we can spend only what we earn.
In 2010, the Minnesota Orchestra traveled to London's famed BBC Proms and gave the performance of a lifetime. For the board members who attended, these were joyful concerts filled with deep appreciation for our musicians, our orchestra and our state.
How does this proud image square with the Minnesota Orchestra that you've seen in the news lately? How can a volunteer Board of Directors that is deeply committed to this orchestra ask its supremely talented musicians for wage concessions?
It is because we are responsible for the future of the Minnesota Orchestra.
The 80 members of the board believe in the orchestra's mission. So do we -- and we are motivated by a desire to do what is best for this great organization and our community.
The board members who served before us brought the orchestra through the Depression and two world wars. Now it is our turn to preserve this cultural resource in the face of a global recession and a societal shift away from classical music attendance. It would be easy to hide from these realities, much easier than facing a labor dispute. But the right thing to do is to make difficult decisions now that prevent our orchestra from dropping off a financial cliff in a few short years.
We are not alone. Major symphonies across the country -- Atlanta, Detroit, Indianapolis, Philadelphia and others -- are struggling with structural imbalances that lead to deficits, debt and labor strife. In Minnesota, we were able to deliver balanced budgets through large, unsustainable endowment fund draws and "bridge-the-gap" fundraising. The unexpected arrival of the recession -- and the subsequent decline in our revenue streams -- exacerbated our issues. It also made plain that we could no longer survive based on optimistic economic assumptions and the hope of limitless benefactor generosity, even in Minnesota.
Our board's solution is straightforward: Even in the arts, we can only spend what we can realistically expect to earn.
We began aligning our revenues and expenses through cuts in every area of our institution except the contract with our musicians. Since 2009, we've reduced operating budgets by $2.3 million, have laid off 20 percent of staff and have asked those remaining for significant reductions in salary, pension and health insurance.
We're also working to bring in every new dollar possible. Our strategic plan calls for $2.1 million in additional net revenue and for orchestra volunteers and staff to bring in $12 million in donations annually. But we recognize that ticket buyers and contributors alone cannot bridge our financial gap. We can't expect audiences to pay twice as much for every ticket sold or donors to double every gift -- which would be necessary to keep musicians' salaries where they are.
The orchestra's endowment, essentially our retirement account, stands at $138 million to date, of which $61 million is under our direct control. It would be easy to see this fund as a quick fix to our financial challenges -- that is, if we planned to support the orchestra only for the next five years. Since our job is to safeguard the Minnesota Orchestra for decades to come, we need to make sure we don't deplete our retirement account now by drawing too great a percentage of investment income each year -- roughly a 5 percent draw is considered a good discipline.
Some argue, legitimately, that endowments should be used to help weather turbulent periods. Indeed, we authorized additional draws to help support the orchestra in the past, and, in particular, to fund the 19.2 percent increase that was contractually obligated to our musicians during the recession. These short-term fixes have long-term consequences, though. Over the last decade, our draw has averaged nearly 10 percent for the funds we control. Last year, it totaled 17 percent. At this rate, our endowment will be depleted by 2018. Our board will not continue on this course. We have to live within our means.
Why not raise funds for more endowment support for musicians instead of for Orchestra Hall? Our $110 million campaign, begun in 2005, does both. The $50 million renovation is part of the solution to our financial challenges and part of our strategy to broaden the orchestra's appeal by improving audience experience. The other $60 million is being raised to support our musicians (through endowment support) and to fund the type of great artistic initiatives (touring, recording) that have made possible the great successes of recent years. Without this fundraising, our financial challenges would be even more serious.
Musicians have criticized orchestra leaders for asking for too many concessions. The reality is that the gap between revenue and expense is widening. Last December, the Minnesota Orchestra posted a deficit of $2.9 million, the biggest in our history. For the fiscal year just ended in August, we expect the audit now underway to show a loss of approximately $6 million. (We are annually audited by an independent firm, and the complete results shared with our musicians.) By fiscal 2013, if we do not implement reductions, the number will climb to $8 million. Our board has a duty to correct this.
We empathize with our musicians over the difficulty of accepting pay cuts, which range from 20 to 40 percent and average around 30 percent, and we greatly respect their talents. However, musician salaries and benefits make up 48 percent of the orchestra's budget.
The time has come to acknowledge the reality of what our community can afford.
We believe a great orchestra can flourish in the Twin Cities for the $26 million a year our community offers vs. the $32 million we now spend. We ask our musicians to negotiate and become partners in charting this course forward. Even though the last six months of negotiations (essentially playing and talking) did not yield a counterproposal from our musicians, we remain committed to a fair process that includes a federal mediator. The musicians have requested that we agree to final and binding arbitration. But as prudent stewards of this organization, we cannot turn its future over to an individual who is not familiar with our business model and artistic aspirations --someone who will ultimately bear no responsibility for the decision once it is made.
A fiscally responsible stance is never easy and not always popular. But in five, 10 and 20 years' time, the Minnesota Orchestra will still be making our community proud, in the refurbished Orchestra Hall and on the world's other great stages, as a result of difficult and necessary decisions we make today.
Jon R. Campbell is Minnesota Orchestra board chair. Richard K. Davis is the orchestra's negotiations chair.