Cost-cutting and layoffs
at the city’s museums and full-time orchestra haven’t brought many visible changes so far.
The scenario could darken considerably in 2010, 2011 and 2012, as cultural institutions fully account for devastating investment
losses in their endowments — a key source of income.
"It’s a bigger problem than what most people think," said Andy Bawel, chief financial officer at The Children’s
The Children’s Museum has not laid off employees, but it’s preparing for big changes. A "recession task force" is
figure out how to bring future budgets in line with an endowment that lost $90 million, or 29 percent of its value, in 2008.
"Where can we reduce that’s not going to affect our mission?" Bawel said. "Fifty percent of the budget is salaries
It’s going to be tough not affecting those."
Conner Prairie, the Indianapolis Symphony Orchestra, the Eiteljorg Museum of American Indians and Western Art, and Indianapolis
Museum of Art all cut staff this year because their endowments plummeted in 2008 and continued to drop in value through February.
The downsizing will rein in expenses for 2010, but the financial challenges won’t end next year.
Not-for-profits typically spend a set percentage of their endowments. Rather than base that calculation on the endowment’s
value at one point in time, they use a 12-quarter average. Averaging cushions the blow from market fluctuations, but it also
means that losing quarters stay rolled into budgets, even after the market begins to rebound.
Averaging "doesn’t really make up for this kind of precipitous drop, but it does help," said John Hirtle, CEO of
& Co. in Philadelphia. The firm provides investment advice to several not-for-profits, including the Indiana Historical
Hirtle cautioned against assuming the market will continue its slide. At the same time, he’s managing the expectations of
clients who ask, "How do we get back to normal?"
Hirtle said, "Normal is not a set of asset values that are pumped up by inappropriate lending."
Market losses combined with annual withdrawals depleted local cultural organizations’ endowments 29 percent to 36 percent
The endowments have dwindled at the same time outside providers of funding, such as Lilly Endowment Inc. and wealthy patrons,
suffer their own market losses, shrinking the amounts they are able to give.
The investment losses have continued into this year. After ending 2008 at just under $281 million, the Indianapolis Museum
of Art’s endowment, for example, dropped another 5 percent through February, ending the month at $266 million.
The IMA derives 70 percent of its operating revenue from the endowment. Other local museums rely on endowments for more than
50 percent of their income.
"We’ve felt the impact of two quarters of depressed market value," said Anne Munsch, chief financial officer at
Museum of Art. "Even our best scenario — we’re going to have less money in 2010-2011."
How much less? An endowment that lost $100 million over 12 months would see endowment income for the following year decline
$1.67 million — assuming the endowment value stayed flat and the group drew 5 percent of the 12-quarter average.
Bawel at the Children’s Museum is using that model to project into 2012.
"When you take all this into play for us, it could be close to $4 million, if the market doesn’t turn around by March
That means the current budget of $25.4 million, which includes a hiring freeze and other expense reductions, would drop to
$21.4 million over three years.
Children’s Museum CEO Jeffrey Patchen wants to avoid covering those losses solely through downsizing.
"Can we continue to generate more memberships, more earned revenue during these difficult times?" Patchen asked.
Attendance was up early in the year, and Patchen thinks that trend might continue as families turn to local attractions, in
lieu of more costly vacations.
The Eiteljorg Museum began trying to draw more families before the recession hit. Now, CEO John Vanausdall is counting on
that strategy to sustain operations.
"We’re not free, but we’re an incredible value," he said. "It costs less to go to the Eiteljorg than to take
your family to
the movies." Adult admission is $8, while the cost for students is $5.
The hard times for cultural institutions follow years of aggressive expansion.
The art museum’s $74 million expansion in 2006, for example, led to higher utility costs and more personnel. The IMA covered
increased operating costs in part by drawing as much as 8 percent from its endowment, which ended 2007 at a healthy $393 million.
Munsch said the museum intends to pull its draw rate down to the standard for museums, 5.5 percent, by 2012.
"It’s really the worst possible combination to try to reduce your spending rate when the market is declining dramatically,"
The Indianapolis Symphony Orchestra has been drawing more than 5 percent of its endowment for several years. Trustees realized
the situation was unsustainable long before the recession hit. Now they’re trying to figure out how to avoid killing off the
proverbial goose that laid the golden egg.
CEO Simon Crookall said the endowment, which shrank to less than $80 million by February, is so low that trustees are considering
figuring their draws in a different way.
"We’re meeting more regularly with the endowment trustees to work out what the future draws should be," Crookall
Sticking with a 5-percent draw takes discipline, said John Guy, president of Wealth Planning & Management LLC in Indianapolis.
"There is a huge temptation to take a bigger paydown," Guy said. "The entities that are over-drawing are going
to be hurt
in the long run. Their very existence could be in question."
Any spending plan that exceeds 5 percent is a "major red flag," Hirtle said. Sustaining that level requires aggressive
or a generous donor base to replenish the foundation, he said.
"Somebody that’s been spending 8 percent and now gets hit with this tsunami of events, I would think would be suffering
than someone spending 4 percent," Hirtle said.
The losses have wreaked havoc on long-term plans.
The Indiana Historical Society is preparing to launch a set of new attractions called "The Indiana Experience" in
CEO John Herbst said he still intends to unveil the interactive programs for visitors next spring, but he’s stretching out
the schedule of renovations at historical society headquarters. That will bring the startup cost down from $15 million to
Herbst is pressing forward because he thinks attractions such as "Destination Indiana," which uses three-dimensional
to simulate bygone eras, will generate much-needed ticket revenue. Herbst has been trying to diversify the historical society’s
income sources, but the endowment still supports 69 percent of the budget.
That level of dependence was fine until the society moved into its own building, overlooking the Central Canal, in 1999, Herbst
said. "Having opened the building — it’s been open 10 years now — the endowment is just not sufficient."
The Eiteljorg relies on an endowment for less than 17 percent of its revenue, but that didn’t keep the museum from cutting
its $6.2 million budget 9 percent. That included eliminating six of 60 staff positions.
"Even supplies and minor maintenance costs have been dramatically reduced," Vanausdall said.
Like his peers in the museum world, Vanausdall hopes casual visitors won’t notice small changes. The research library will
open at noon, instead of 10 a.m., and exhibits will rotate less often. "Facing West," which opened March 14, will
for six months.
The Eiteljorg put off indefinitely its plan to add an authentic teepee. The exhibit was intended to be another draw for families.
But it would have cost $160,000, and Vanausdall said there’s no room for even that amount of spending.
Vanausdall said the $533,000 downsizing should carry the Eiteljorg through the next three years.
"Now if things go much further south in the economy, it’s possible we may have to revisit all of this," he said.
The historical society revised its 2009 budget in January, a few weeks after it was approved by the board. Herbst trimmed
7 percent, or $500,000, from the $6.9 million plan, mostly by freezing open positions, but also laying off two people who
worked on a contract basis.
Executives said the next round of cuts, if necessary, will require more difficult decisions. The historical society employs
"It’s a unique staff," Herbst said. "They have knowledge that is irreplaceable about our collections and about
We have an intellectual reservoir that you don’t fill up again easily."
The IMA, which has 300 full- and parttime employees after eliminating 21 positions in February, faces a similar challenge,
Some museums are using furloughs or pay cuts. The IMA is first asking department directors to find ways to boost revenue.
The IMA won’t deviate from its free general admission, and might even drop prices on special exhibits, if that would mean
a gain in revenue, Munsch said.
The heart of the Indianapolis Symphony Orchestra is its 87 full-time musicians. The ISO in February cut eight employees, or
10 percent of the non-musician staff, to shave $600,000 from its $29.5 million budget.
The 2010 budget will be even smaller, Crookall said. He declined to elaborate on where else he’ll find major savings, but
the union-represented musicians’ contract, which expires in September, is an obvious source.
Longtime not-for-profit managers have dealt with market setbacks in the 1980s, 1990s and early 2000s, but none were quite
Vanausdall, who worked at The Children’s Museum from 1978 through 1996, remembers hearing how much value the endowment lost
on Black Monday in 1987.
"I was shocked. But it came back very quickly," he said. This time, "No one’s sure if we’ve hit the bottom