[Dixielandjazz] The trouble with endowments for the "Arts"

[Steve Barbone]

Not OKOM, but it does illustrate a point about Arts Funding. When we insist
upon financial assistance as a "right" and reduce our commitment to making
"Art" self supporting, does it result in such stupidity as below?

Cheers,
Steve Barbone   

Rare Instruments Purchase Causes Symphony¹s Deficit

NY TIMES - By DANIEL J. WAKIN - July 19, 2006

Dogged by missteps in its acquisition of 30 rare string instruments, the New
Jersey Symphony Orchestra says it expects to report a six-figure deficit for
last season and is dipping significantly into its endowment to cover costs.

The orchestra borrowed heavily to pay for the instruments in 2003, expecting
to raise money from private donors to help repay the loans. But bad
publicity over the deal has scared away donors, Stephen Sichak, the
orchestra¹s interim president, said yesterday.

Paying off the debt for the instruments, which stands at about $12 million,
has prevented the orchestra from dealing with an accumulated operating
deficit of $4.2 million, he said. The endowment draw and some intricate
financial restructuring will reduce the debt payments to $1.1 million a
year, from $1.8 million, the orchestra said.

The deficit and the endowment maneuver were first reported on Friday by The
Star-Ledger of Newark, which said the maneuver would allow the orchestra to
sell three instruments to donors who could then lend them back to the
musicians.

Mr. Sichak said on Tuesday that the orchestra had no intention of unloading
any of the valuable violins, violas and cellos.

³We thought about selling the instruments,² he said. ³The down side is, if
we sell the instruments, we¹d potentially lose the right to play them. We do
not have plans to sell the instruments.²

The symphony, which is based at the New Jersey Performing Arts Center in
Newark but plays around the state, has often found itself in financial
straits. Smaller and less prestigious than its neighbors, the New York
Philharmonic and the Philadelphia Orchestra, the New Jersey Symphony has
struggled to find an identity.

So the purchase seemed like a godsend. Among the 17th- and 18th-century
pieces are Stradivari and Guarneri instruments. They were bought from
Herbert Axelrod, a philanthropist and pet-care magnate, who was later
sentenced to prison on unrelated tax-fraud charges.

An internal report faulted orchestra officials for deceiving the board and
the public over the instruments¹ value, failing to push for more precise
evaluations and not telling the board about rumors that Mr. Axelrod was
under investigation for inflating the value of other rare instruments given
as gifts. The New Jersey instruments were publicly valued at $50 million
before the sale, although the orchestra¹s appraisers put the value at
between $15.3 million and $26.4 million. The orchestra paid $17 million, all
borrowed.

Mr. Sichak said that the orchestra believed the taint had been expunged, and
was preparing a long-range fund-raising campaign tied to the instruments.

³The instruments undoubtedly will be part of the story we tell potential
donors,² he said. ³So the negative image that the instruments had, we think,
has been replaced by what we¹ve been striving for, which is the fact these
instruments sound unique and marvelous in performance.²

The orchestra set up a conservancy to tend to the instruments, and placed
them under its technical ownership. In a complicated arrangement, three
instruments were transferred back to the orchestra and classified as
physical assets in the endowment. In turn, $3.1 million in endowment money
will be placed at the orchestra¹s disposal to cover costs during the season,
acting in effect as a line of credit.

³It¹s a pile of cash that I have available to use if I need cash,² said Mr.
Sichak, an orchestra board member and a top executive of Becton Dickinson, a
$5.4 billion global medical-device manufacturer based in Franklin Lakes,
N.J.

Another maneuver involved Commerce Bank, a major lender for the instrument
purchase. The bank was holding $1.8 million in orchestra money as collateral
for the loan. It allowed the orchestra to use that money as a loan payment,
Mr. Sichak said.

The symphony reported a small surplus in 2005, but an $897,000 shortfall the
previous year. Mr. Sichak said that once results for last season were
audited, the orchestra expected to record a deficit of several hundred
thousand dollars.