Photo credit: Cathy Cheney | Portland Business Journal
Today at a lunch meeting with the musicians between our morning and afternoon rehearsals, OSO President Elaine Calder gave a short, no-nonsense talk on the state of the OSO’s finances in light of the stock market crash, bank credit crisis, and other such ominous events.
The word? In short, we’re doing o.k. We’re well ahead on ticket sales compared to the same time last year, and those don’t look to be lagging at this point. Individual giving remains the question mark. As Elaine put it, “it’s not the few people that give $250,000 a year that you worry about – they’ll be just fine – it’s those who give $250 a year that we just don’t know about yet.”
Most interesting to me was that the unique nature of Portland has possibly put us in a better situation than orchestras in other, larger cities. Again, as Elaine put it, “New York and Detroit are the last places you want to be running a major arts organization right now – the financial services industry and the auto industry are in crisis mode, and [those orchestras] rely upon a lot of major corporate donors who are not doing well right now”. Here in Portland, we have a few generous corporate sponsors, but most of our giving comes from the small donors: people giving between $50 and $250 a year, and buying subscriptions. That insulates us from the major economic cycles that might cause a large corporation to pull the plug on series underwriting, for example. So, like a political candidate that has outstanding grassroots support from many smaller donors (such as Barack Obama), we also benefit from our diversity of funding. The lesson of this: your gift counts, no matter what its size!
Also of note was the state of the endowment. We have lost around $4 million (or 15% since the beginning of 2008 to the end of September) of valuation from the endowment, but the finance committee is going to take money out of income-only funds and put it into cash which will serve as collateral for our line of credit with US Bank. That way, instead borrowing on the unrestricted fund in the endowment (which is limited to 70% of their daily cash value), we can borrow up to 100% against the amount that we have in the bank in cash, which will be immune to the effects of stock market fluctuations. A wise move on the part of the finance committee. The account structure will also take into account the $250,000 limit in FDIC coverage per account so we won’t be exposed to any loss if US Bank has some sort of unforeseen meltdown.
All in all, it was an interesting meeting, and I think it’s fair to say that most of us left the meeting feeling a bit better about the financial health of the orchestra, and very confident in the hands of our leadership team of Elaine Calder and Walter Weyler.
3 replies on “symphony finances – the obama effect”
Thanks so much for the update! It’s great to know that folks are really putting their heads together to figure this out.
– James
Your updates are appreciated. Endowments are meant to be invested for the long term, and as such go up and down with the markets. They were never meant to be collateral for loans. Why don’t they just take the cash they are setting aside for collateral and pay off the debt. You will save $400,000 per year in interest costs, which if reinvested, will replace the cash spent to pay the loan off in 10 – 15 years. Your annual draw from the endowment will be less, but the $400,000 saved is probably more than the draw amount from that portion of the endowment. I may be wrong. Last point – putting money in cash at the bottom of the market cycle simply means that one will miss out on the upswing when it occurs. And nobody can time the market. I realize this is not your job to do, but I just thought I’d share my thoughts.
Leo – the decision to use the unrestricted assets of the endowment as collateral was made years ago, and anyway, it’s better than actually raiding the principle to pay off debts, and the unrestricted funds wouldn’t nearly cover the accumulated debt.