Minnesota Orchestra declares a 'remarkable year' after posting small deficit

A budget deficit generally means bad news, but the Minnesota Orchestra's report Tuesday that it finished the fiscal year $650,000 in the red was greeted with relief.

It's a sign that, after a devastating labor dispute, the state's largest and oldest performing arts organization is emerging strong and stunningly resilient.

"A remarkable year of rebuilding" was how board chairman Gordon Sprenger described the fiscal 2014 results, shared at Tuesday evening's annual meeting in Orchestra Hall. The gathering was the first public annual meeting in two years, during which musicians had been locked out.

The orchestra opened its performance year in February after a contract settlement ended the 16-month battle. Since then, Osmo Vänskä was rehired as music director, Kevin Smith was hired as CEO and president, extraordinary donations were made primarily to endowment funds and community groups helped raise more than $300,000 in collaboration with board, administration and musician representatives.

Artistically, the orchestra won its first Grammy and hosted a September gala that brought star soprano Renee Fleming to Orchestra Hall.

"When you get good operating results, a lot of good things have to happen," Smith said before the meeting. "Expenses were under control, we came out well on contributed and earned income, and as ticket sales came in through June and July on Sommerfest, we exceeded our goals."

Tuesday evening, a brass quintet played as about 150 people — board members, donors, musicians, community activists — assembled in the concert hall's Target Atrium.

Management, for one, has embraced the musicians as partners in artistic planning.

Revenue in the year ending Aug. 31 reached $20.8 million and expenses totaled just under $21.5 million. Smith said the budget for the current fiscal year is about $29 million, compared with several years in the recent past when expenses reached as high as $32.4 million (in 2009). The decrease in musicians' compensation accounts for $1.7 million, he said. Musician salaries and benefits represent 34 percent of expenses, the single largest component.

The health of the orchestra's investment funds — a key point in the labor negotiations — has rebounded, both through contributions and market growth. Investments totaled just under $164 million, compared with about $147 million in 2013. Some extraordinary gifts — totaling $13.2 million — were made at the end of the fiscal year. Of that amount, $8 million was put into the Building for the Future Fund, an endowment fund begun in the past five years.

The orchestra drew 5 percent from its investments across the board, treasurer Patrick Bowe reported. That contrasts with some years when the draw on the orchestra's endowment reached double digits — far higher than the norm for nonprofits.

Smith said the orchestra will tour domestically this fiscal year and is exploring international engagements for the following season.

If there is any area of concern, it might be ticket sales. Despite robust business following the February return, paid capacity was 78 percent — about the same as the 2011-12 season. There was a dip in sales this fall, but Smith pointed out the new fiscal year is only three months old.

Allen Lenzmeier, a retired Best Buy executive, is the new board chairman-elect. Sprenger will continue to lead the organization until Lenzmeier, who served as Best Buy president from 2002 to 2005 and joined the orchestra's board in 2010, finishes personal business. He said Tuesday he expects to take over in February.

"The last fiscal year was an extraordinary one and I can't give enough credit to everyone involved," Smith said. "It took a tremendous amount of leadership just to get an labor agreement. Everyone showed a willingness to compromise and then they clearly rallied."