By Sam Levin
By Jessica Lussenhop
By RFT Staff
By Keegan Hamilton
By Gavin Cleaver
By Sam Levin
By Sam Levin
By Sam Levin
By 2000 the orchestra's ribs had begun to show. A $10 million "bridge fund" established in 1995 petered out ahead of schedule, prompting then-executive director Don Roth to embark on very public examination of finances. What Roth found was alarming: On top of the endowment-raiding, auditors discovered that conservative investment strategies had caused the symphony to miss out on the economic boom of the 1990s. Nearly $1 million in pledges, meanwhile, had gone uncollected. Arch Media, the symphony's recording label, had sucked away another $500,000.
In response, Roth scaled back the symphony's touring schedule, raised ticket prices, reduced staff through attrition and shuttered Arch Media.
But those were temporary measures. Real relief did not arrive until December 2000, when Enterprise Rent-A-Car founder Jack Taylor stepped forward with a $40 million grant. Worried his gift might be squandered, Taylor stipulated that the orchestra would have to match his funds by the end of 2004. The lion's share of $80 million would be earmarked for the endowment, and the symphony would have to maintain its traditional $6.5 million Annual Giving Program. Taylor also asked family friend Randy Adams to take a look at the books.
Adams, who'd recently retired from US Bank, came onboard as a consultant in early 2001. Within months he was running the place.
"When I started working with the management, it became very clear they were going to be bankrupt in about eighteen months and needed to take radical action," recalls Adams, who says his first task was to raise $30 million in stopgap funding. "The Taylors were dismayed to discover that the organization was going to be dead by the time it matched the money."
Adams embarked on a course of fiscal austerity and frenetic fundraising. He also met with the musicians and pleaded with them to open emergency contract negotiations.
"The plan we put together basically involved cutting $7 million in expenses out of a $28 million budget," Adams says. "It seemed outrageous: No orchestra musicians had agreed to a pay cut in the last twenty years, the most the symphony had ever raised was $20 million, and that was over a course of five years. Here we were asking for $30 million in six months. In cash."
The existing contract called for base pay to top $80,000 by the 2004-'05 season. Adams persuaded the musicians to shrink the performance season from 52 weeks to 42 weeks and reduce base pay to $61,000 (though two $1 million bridge loans from philanthropists Mary Strauss and Emily Pulitzer softened the blow, upping actual pay to $73,000 for the duration). Adams also inserted a stipulation that if no permanent revenue were found, salaries would start at $61,000 in the next round of negotiations.
By the summer of 2004, Adams had matched the Taylor gift. In the coming months, he would raise another $16 million, ultimately growing the endowment from $18 million to roughly $112 million.
"I still pinch myself," says Adams. "I thought at best we had a 15 to 20 percent chance of pulling this off. If we didn't do it, the alternative was bankruptcy. But the musicians stepped up. The community stepped up."
Still, Adams wasn't satisfied. The linchpin of his plan was to make room for the SLSO in the region's Zoo-Museum Tax District, a property tax whose proceeds support designated cultural institutions. Adams estimates that inclusion in the tax district would provide the symphony with $7 million to $8 million in annual operating revenue. He'd intended to launch a public relations campaign to get the initiative on last November's ballot but abandoned the campaign when advance polling found weak public support.
"That would have been the final stroke to get us back to full financial health," Adams says. "So we're not out of the woods. As it stands we have planned losses that take us out to 2010, when we finally break even."
Hefty endowments have long been a fixture in educational institutions, but the notion is relatively new among symphony orchestras.
"Forty years ago it was considered that a terrific endowment was [one that was] equal to the budget," says Henry Fogel, who served for eighteen years as president of the Chicago Symphony Orchestra before heading the American Symphony Orchestra League. "About twenty years ago that model became two times [the budget], and then in the '90s it became three times."
The concept is simple: Orchestras invest endowment funds in a mixed portfolio of stocks and bonds, anticipating an 8 percent annual return. Assuming 3 percent inflation, that leaves a 5 percent "draw" from the endowment for operating expenses.
"There are three streams of revenue for an orchestra," Fogel elaborates. "Though there is a wide range here, these days it is fairly typical that 45 percent of the budget will be earned revenue" -- i.e., ticket sales. "If it has the right kind of endowment, it will get 15 percent from the endowment, and the remaining 40 percent is all annual fundraising."
For an endowment to deliver 15 percent of the annual budget on a 5 percent draw, the endowment must be triple the size of the budget. But Adams has grown the SLSO's endowment to nearly six timesits $21 million budget, which equates to roughly 30 percent of funding.
"In the year 2000, the endowment was giving 2 percent to the annual budget. That was the big problem," says Adams. "By growing and preserving the endowment, we're thinking about future generations. As the endowment's earning power builds, it will begin filling in more and more revenue."
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