The Minnesota Orchestra has posted an operating deficit of $8.8 million for fiscal year 2019 — the biggest in its history.
The deficit, which followed four years of small surpluses, exceeds the previous record shortfall of $6 million in 2012, when the orchestra was mired in a contract dispute between management and musicians that resulted in a 15-month lockout. Yet orchestra President and CEO Michelle Miller Burns described the organization's financial position as "strong."
The orchestra also announced Tuesday that it has exceeded its goal for a multiyear fundraising campaign, raising $26.3 million in gifts during the fiscal year that ended in August — an increase of nearly 40% from the year before, when it ended with a slim surplus of $65,000.
So why a deficit? Because most of this year's contributions went to building the nonprofit's endowment rather than covering its expenses.
The annual report is "just a little snapshot in time," said Bill Miller, vice president of the orchestra's board of directors. "We have the financial strength to weather any of these short-term operating issues. … We're looking at the long term."
The nonprofit actually spent less in fiscal 2019 — $35.5 million, or about $1 million less than the year before. But the annual report, presented at a meeting Tuesday evening at Orchestra Hall, shows losses in several categories. Not counting gifts to the endowment, contributed revenue took a big hit — $14.5 million, compared to $22.4 million the year before. Operating revenue also fell, from $11.7 million to $9.6 million, a 19% drop.
At the same time, the orchestra's total net assets remained steady, at $176 million by year's end. Its debt-to-asset ratio hit 6.9%, down a tick from 7% last year and 7.8% in fiscal 2015. And in April, the orchestra made the final payment on the bonds that funded its $50 million renovation of Orchestra Hall, completed in 2013, "leaving Orchestra Hall unencumbered," Burns said.
"Clearly it would be ideal to be reporting completely positive results across the board," Burns said in an interview. "But when I look at this organization, I come back to that underlying strong financial foundation that we have. You could report a balanced budget with no deficit but have a great debt on your books or a very low net asset base and you would not be in the strong financial position that we are in today."
A key to that position is a multiyear fundraising campaign, from 2017 to 2020, that brought in $60 million — $10 million more than it sought.
The goal, however, was to raise $40 million for operations and $10 million for the orchestra's endowment. Instead, $20 million went to operations and $40 million to the endowment. That's because donors pick where their money goes, Burns said, and less money was earmarked for day-to-day operations than expected.
That difference "explains why we experienced a deficit in 2019," Burns said. "I think the really good news there is that our donors who supported this campaign so generously believe in the long-term future of this organization.''
Orchestra leaders shared the numbers with the musicians, whose contract expires in 2020, ahead of Tuesday's board and public meetings.
The musicians were impressed with that transparency and "willingness to tackle challenges in a very open manner," said flute player Wendy Williams, chairwoman of the musicians committee. Musicians support the plan to boost revenue, "not to dig in [and cut expenses] as we might have in the past, but … to grow."
She said that when musicians learned about the year's deficit, the first thing they asked was: "What can we do?"
"When you see numbers like that, you have to pull up your bootstraps and get to work," Williams added. "That's the spirit of the organization right now. It's genuine."
The nonprofit has not budgeted cuts in the coming year, Burns said. "It has taken the organization years to rebound from some previous cost-reduction approaches." Instead, it's counting on increased revenue. Staff and musicians are working to find new ways to make money and encourage donations.
Burns pointed to the orchestra's recently announced partnership with Minnesota Public Radio to host trips for travelers with a musical bent. In October, two violinists will be on board for a Danube cruise. The orchestra also hopes to widen its circle of donors.
More than 12,600 people donated to the organization in fiscal 2019, a bump of more than 30%. That's partly due to a new feature on the orchestra's website: When buying tickets to a concert, patrons are invited to make a donation. Such gifts tend to be small. The average donation to the orchestra in 2019 was $2,086, compared with $2,238 the year before.
When asked whether the orchestra might borrow against its endowment, as it has to grapple with past shortfalls, Miller said: "That's one potential lever."
At Tuesday's meeting at Orchestra Hall, board member Evan Carruthers, chairman of finance, made the case that the organization has greatly reduced its debt. In fiscal 2019, the organization's total borrowed debt was $7 million — down 80% from $36 million in fiscal 2012, according to the orchestra.
Beyond finances, the annual report celebrated artistic highlights, including four recording projects. Among them: the just-released "Sound the Bells" with writer-rapper Dessa, recorded live during a pair of sold-out shows in April at Orchestra Hall. The orchestra didn't tour in fiscal 2019, which kept expenses down, but it's set to perform in Vietnam and South Korea in 2020.
During the meeting, musicians announced that they're starting a program called Hall Pass, inviting young people to attend this season's classical concerts for free. It's paid for by the Bellwether Fund, created in 2015 with the remaining assets from the nonprofit the musicians formed during the labor dispute. That fund regularly brings the full orchestra to perform at high schools.
With Hall Pass, students will go to Orchestra Hall.
"They can hear us play in our home, which is our instrument," said Kathryn Nettleman, acting associate principal bass. The new program is a "thank you" to the community and a response to the news in the annual report, she said. Players kicked their idea over to Burns and the staff, workshopping the details together.
That's how this orchestra works these days, she said. "I approach this moment from a place of confidence and looking at it as an opportunity to grow."