Woodruff Center’s problems deeper than ASO pact

The Atlanta Symphony Orchestra’s new labor agreement with its musicians is aimed at putting a coda on its dozen-year history of red ink.

To stem accumulating losses that topped $26 million this year, the ASO has resorted to lockouts twice since 2012 with its musicians’ union in negotiations over pay and jobs. But the labor pact signed late last week after a two-month lockout only solves one problem for the ASO’s parent arts organization, the Woodruff Arts Center.

Like a homeowner who got a big mortgage just before the Great Recession, Woodruff is grappling with a heavy debt load, stagnant revenue and rising expenses, an analysis of its financial statements by the Atlanta Journal-Constitution shows.

Since 2001, the arts center’s debt has tripled to almost $200 million. Most of the debt stems from an ambitious $124 million expansion of its High Museum of Art shortly before the deep 2008 recession withered revenue from patrons, donors and investments. It hasn’t fully recovered yet.

“The economic downturn stripped away the veneer for all arts organizations,” said Drew McManus, a Chicago-based arts consultant who works with non-profit arts centers on labor relations, board development and other issues. He said many organizations built new facilities and took on debt during the boom times, only to draw fewer patrons or donors than expected.

“That seems to be the crux of the problem,” he said.

Woodruff officials acknowledge that the unlucky timing of its expansion left it with a legacy of debt and growing interest payments. But the arts organization can handle it, they say.

It’s “more than we would like to pay, but I wouldn’t say it’s put a tremendous strain on us,” said Noel Barnes, Woodruff’s chief financial officer.

Woodruff’s annual debt payments have grown more than six-fold over the past 13 years, to almost $8 million this year. By comparison, the ASO musicians’ payroll grew 23 percent over the same period, to $10.7 million.

Meanwhile, the clock is ticking on almost $63 million of Woodruff’s bond debt, due for repayment in early 2016.

Citing chronic deficits at ASO and Woodruff’s higher-than-average debt load — almost 1.7 times larger than its revenues — bond rating agency Moody’s has cut the arts center’s bond ratings twice since 2009. Though still a solid credit rating, at A2, the two-notch cut tends to push up Woodruff’s debt costs.

Barnes said Woodruff expects to be able to re-finance the $63 million when the time comes. Meanwhile, he said, the institution is cutting costs, selling unneeded assets and working on boosting revenue to help pay down debt over time.

Among those moves was last week’s four-year labor agreement with ASO’s 77 musicians. The pact freezes the orchestra’s size for two years, after which it eventually grows to 88 musicians, and phases in a 6 percent pay raise over four years. ASO once had 95 musicians before a one-month lockout in 2012 ended with the players’ union agreeing to deep pay cuts and job losses.

‘Breathing room’

While the lastest deal eventually increases ASO’s musician payroll, Woodruff spokesman Randy Donaldson said it gives ASO “some breathing room to raise some money.” ASO plans to recruit contributors to new endowments to support the additional musicians.

But it’s unclear how much ASO will need or where it would come from. Woodruff hasn’t disclosed details. Earlier this year, ASO effectively wrote off $19 million in “loans” from its $72 million endowment that had covered the organization’s losses, acknowledging it couldn’t repay the cash.

Several U.S. cities have had difficulty rounding up support for their orchestras in recent years.

Chicago’s was losing money and facing debt challenges similar to Woodruff’s when its musicians went on strike in 2012. Philadelphia’s reorganized in bankruptcy court, and struggling orchestras in Detroit, Indianapolis, St. Paul, and Minneapolis have gone through lockouts or strikes.

Cultural institutions typically have several ways to keep their finances stable, and Woodruff has more than most.

Over the years, Moody’s has praised Woodruff as a pioneering arts organization that wisely grouped some of Atlanta’s key arts centers — ASO, the High, Alliance Theatre and other units — under one umbrella, allowing it to use ticket sales and donations from diverse fan bases to support all of the arts organizations at once.

As with most non-profit arts institutions, patrons who visit Woodruff’s various units pay only a fraction of the costs. In the most recent fiscal year, tickets and memberships covered 37 percent of ASO’s $38 million budget and 25 percent of the High’s $22.2 operating costs.

Woodruff has typically relied on corporate and individual donors to cover more than 40 percent of the overall costs —more than most institutions, according to Moody’s. Investment income from a roughly $400 million endowment portfolio pays the rest.

To help bring in cash, Woodruff relies on a cast of about 100 movers and shakers — such as SunTrust Banks CEO William H. Rogers Jr. and Coca-Cola Foundation Chair Lisa Borders — to serve as both fundraisers and trustees overseeing the organization.

That model paid off big time more than a decade ago, when Woodruff’s well-connected trustees raised almost $230 million in three years as it geared up for a major expansion. But it also helped set up the financial challenges Woodruff now faces.

Rising costs

In the late 1990s, Atlanta basked in the afterglow of the 1996 Olympics. Woodruff’s ambitions mirrored Atlanta’s swaggering self-image. Woodruff hired famed European architect Renzo Piano to draw up plans for a $330 million expansion, including a new $200 million symphony hall and a new $81 million wing for the High museum.

Fundraisers and investment bankers started wheeling in the money: $90 million of contribution pledges and a $73 million bond debt issue in 2002. In 2004, almost $94 million more pledges and $100 million of new debt.

By then, the price tag for Woodruff’s projects had hit $435 million and headed even higher. When the High’s new addition opened in late 2005, doubling the museum’s size, it cost $124 million.

Meanwhile, Woodruff was beginning preliminary work on the new symphony hall nearby. Its expected cost had ballooned to $300 million.

The High expected, and got, a big jump in patronage and revenue after the expanded High’s opening, especially as it rolled out blockbuster shows featuring masterpieces from Paris’ Louvre and China’s imperial terracotta army.

Donaldson, the Woodruff spokesman, said average annual attendance at the High jumped 37 percent, to 406,000, in the seven years after the expansion, and average contributions rose a similar amount, to $14.4 million.

Woodruff said it also is making money off Verizon Wireless Amphitheatre, the $35 million Alpharetta venue it opened in 2008.

But that hasn’t been enough to keep Woodruff’s overall revenue growing, or, as debt grew, to avoid deficits most years after 2006. According to Woodruff’s estimates, its $107 million revenues in fiscal 2014 were only 13 percent higher than in 2001 — and led to a $3 million deficit.

It could have been worse.

The Great Recession blew a hole through the rest of Woodruff’s expansion plans. The organization shelved plans for the $300 million symphony hall years ago, officially pulling the plug earlier this year.

It also wrote off $15 million in construction work, sold the site for $22 million, and used $15 million of the proceeds to pay down debt, now at $173 million.

In retrospect, the project’s death was a blessing in disguise, Woodruff officials said.

“It was ambitious,” said Barnes. “It would have been difficult to support.”

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