Charleston, Virginia, Winston Salem, St Louis, Orlando Ballet, San Francisco Opera, plus many more organizations we don’t know about have financial issues! Millions of dollars have been wiped off endowment balance sheets. These are not rainy day funds, we all tap our endowment interest every year to help defray operating costs and shortfalls. So now what? I want to throw something out there…..Many of the same people who have contributed to the endowments in the first place will be asked to help, but they were in large part doing so with their wealth not their income, and wealth is down everywhere. That well is pretty dry right now.
This is not a criticism of the League of American Orchestras, but I do want to know if their leadership and resources are or will be used to help guide member orchestras through these troubled times. There simply needs to be some kind of a bailout/line of credit established from upon high, but it can’t be done without advocacy for the importance of an orchestra to a community’s quality of life, overall economy and health. We will just be laughed at otherwise.
This is the ultimate challenge=opportunity: In dire times, Orchestras are saved after proving themselves to be vital assets to our nation. If the league can spearhead that effort and succeed, then how powerful and meaningful they will become to all of the arts and the future of advocacy? It would not then be about us rising from the ashes , but rising even stronger than before and more protected in the future.
I suggested a year ago that I would like to see the league put together crisis teams for orchestras in trouble for whatever reason. Well this snowball is too big, as there will many of us in deficit situations if things keep going the way they‘re going. Right now on their home page I see a webinar that is available about guiding the ship through troubled times, but otherwise it’s mostly business as usual announcements, programs and save the date notices. I am hoping there is some kind of war room to deal with the situation. I don’t think there will be too many boards increasing their deficits to send Presidents and CEO’s to conferences unless it is for dealing with the current state of things, with real solutions attached.
There are so many issues to be addressed, from ticket sales to marketing and development but I have a an idea about endowments and specifically endowment protection:
Endowment protection is important not just because of the income it provides an orchestra as they and the endowment grow together . But also, many individuals, groups and foundations will have contributed legacies and savings, so an effort to protect an endowment is in essence a protection of those legacies. This is beneficial for the future too, because if someone knows there is this protection in rough times, then it gives them another powerful reason to contribute.
So in a nutshell: I think there needs to be a national rainy day fund for endowments, acting as a line of credit.
For example: If the economy suffers a huge downturn, investments tank, and an orchestra’s endowment goes from $1 million to $700K and at the time of disbursement the draw is 5%, then instead of $50K, they will only get $35K. The rainy day fund could then provide the $15K that was budgeted and like a student loan, the orchestra would pay it back incrementally when the endowment starts performing above the historically highest amount before the downturn. This is raw and many things would need to be worked out of course such as rules, terms, changes in bylaws, disbursement policies, thresholds etc…but surely it can be worked out creatively if oblivion is the other option! It would have to be an big fund (although relative to other needs the country has right now, a small amount really), probably equal to around 5 % of all endowments to be able to cover the losses for at least 3 years to be safe (formula below), which is why it would need to be done on the federal level with dare I say it bailout money. A group with national stature would need to step up on this one, and they would be heroes if they could get it done. The NEA is in transition, so how about the League? Is this idea too far out there? Is there any advocacy being done on the federal level to help struggling arts groups? I hope so!
Creating this federal fund would be a national investment, and so it would hopefully foster a national consciousness as to the importance and relevance of the Symphony Orchestra, which is why this challenge could equal a real opportunity!
5% Fund Formula (high school math here!)
- On the example above of the $1million endowment amount with a 5% draw, if the fund goes down to $700K, the difference in the disbursement ($50K – $35K) is $15k.
- $15K is 1.5% of the overall endowment amount of $1million, so if the national endowment rainy day fund (NERD fund!) is equal to 5% of all combined endowments, it will cover 3 years (3 x 1.5%) of endowments being down an average of 30%, which even the most gloomy of economists say is unlikely to be the case.
Does anyone know the collective worth (before Sept) of all orchestras endowments? If it was $5Billion, then the fund would need to be $250million, way less than the price of some of the halls that are built these days! It would keep being replenished since the monies distributed are loans and not grants, and it would grow also by combining wise investments and the repayments plus the nominal interest the fund would receive over time.