Fiscal 2012 independent audit released: Minnesota Orchestra posts deficit of $6 million

(December 6, 2012) The Minnesota Orchestral Association (MOA) today posted an operating deficit of $6 million for Fiscal 2012, the largest operating loss in its history, and released the independently audited financial statements for its 2011-12 season. The Fiscal 2012 audit was conducted and certified by accounting firm CliftonLarsonAllen.

“These results reveal the serious financial challenges facing the Minnesota Orchestra.  At the most fundamental level, our expenses continue to grow and our revenues cannot keep pace,” said MOA Board Chair Jon R. Campbell.  “This gap will continue to widen annually until we eliminate our structural deficit once and for all.” 

He continued: “Our Board has been aware of and managed this misalignment for many years, especially through the recession when we honored the contract calling for significant salary increases of nearly 20 percent for the musicians, despite serious losses in our revenues. At this time of contract renegotiation, our Board remains unified in the understanding that our duty as stewards of the Orchestra is to face and fix our financial challenges, rather than to deny and allow them to escalate further.  Our strategic plan outlines our path forward to an artistically and financially strong organization.”

Strategic Plan Addresses Revenue Raising and Expense Reductions
At last December’s annual meeting, the Minnesota Orchestra unveiled the strategic plan referenced above, which aims to lead the organization to fiscal sustainability and balanced budgets by 2013.  The fiscal portion of the plan outlines both major expense reductions—including a 20 percent reduction in the number of full-time administrative staff— and substantial increases in earned and contributed revenue.  It calls for the organization to re-scope the number of concerts to better align supply with demand and to capitalize on the renovated Orchestra Hall to attract new audiences.

As the final component of cost-saving initiatives outlined in the plan, the MOA approached its musicians for contract concessions totaling $5 million in negotiations that began last April.   Specifically, the MOA proposal outlined salary reductions of approximately 30 percent, offering a total package averaging $119,000 per musician, including an average salary of $89,000 with $30,000 in benefits.  The proposal also includes 10 weeks of paid vacation and up to 26 weeks of paid sick leave.  Musicians have not yet put forward a counterproposal.

2012 Independently Audited Financial Results
The MOA undertakes an independent financial audit every year in which professional external auditors do a rigorous, objective review of every category of income and expense.  The Orchestra also undertakes a separate audit of its pension plans. Every audit’s purpose is to verify that transactions, assets and liabilities are recorded accurately.

The Orchestra’s Fiscal 2012 operating deficit is attributable to two primary factors:  a decrease in revenue drawn from the Orchestra’s endowment and a contractually-obligated increase in musicians’ salaries in the final year of a five-year contract.

Total expenses for the year increased by approximately $1 million, with the largest factors in the increase being a rise of 6.6 percent in musician compensation and an increase of nearly $350,000 in direct concert expense.  The increase in concert expense is primarily attributed to launching the Orchestra’s Common Chords outreach initiative in Greater Minnesota, which was fully funded through grant revenue.  By contrast, the MOA’s ongoing cost-cutting measures reduced general administration expenses by nearly $300,000.

During the 2011-12 season,  average ticket sales across all the Orchestra’s concerts—including classical, pops, jazz, Inside the Classics and presentations, among others—ended the year at 69 percent capacity sold, compared to the prior year’s 70 percent. Total paid attendance was nearly 215,000, less than Fiscal 2011’s 235,000, due to a reduction in number of concerts offered and presenting Sommerfest concerts in a smaller venue due to the renovation of Orchestra Hall. In its ongoing initiative to better align supply with demand, the Orchestra offered five fewer classical concerts in Fiscal 2012 than in the previous season. 

In all, the organization’s total earned revenue decreased from the prior year by 8 percent, due to this planned reduction in the number of concerts and the June closing of Orchestra Hall for renovations.  The temporary closing of Orchestra Hall limited opportunities for rental, food and beverage income, as well as Sommerfest sales, since the festival was presented at a smaller venue.

Total contributions for the year, including the annual Guaranty Fund and the Oakleaf Trust distribution, reached $12.5 million, an increase over the previous year’s $12.3 million, which was fueled by a growth in giving from individuals.  The annual Guaranty Fund drew support from 7,856 donors, an increase of 13 percent over the previous year.   Additionally, Board members donated over a million dollars to the Guaranty Fund in Fiscal 2012 alone.

“This is the second consecutive season in which we’ve seen an increase in our total number of donors, which is a steady and positive improvement since the recession,” said MOA President and CEO Michael Henson. 

MOA Endowment Drops to $59 Million
Total investments for Fiscal 2012 (which includes funding from endowments, trusts, annuities and the Hall renovation) declined from $162.4 million to $137.3 million.  This was due primarily to funding the $6 million operating deficit and transferring $19.2 million in restricted Orchestra Hall renovation funds.  These contributed Hall renovation funds had been temporarily invested as cash separate from endowment and are in an escrow account now that the renovation is underway.

Over the last five years, the portion of the endowment specifically controlled by the MOA has dropped in value from $106.3 million in 2007 to $59 million today, due to the Board’s increasing reliance on endowment funds to honor the costs of the five-year musicians’ contract negotiated in 2007.  “This drop underscores the importance of resetting our model in order to protect the Orchestra over the next five years,” said Board Chair Campbell. “Our strategic plan is built on specific steps to bring us to new fiscal health, including a more prudent endowment draw that permits the principal to be rebuilt to a level that sustains the Orchestra over the long term.”

Building for the Future Campaign update
By the close of Fiscal 2012, fundraising for the Orchestra’s comprehensive Building for the Future campaign grew to approximately $97 million towards an expanded goal of $110 million.  Of that total, Board members have contributed over $31 million.  The campaign encompasses artistic initiatives, endowment support (which helps fund operating expense such as musician salaries) and the renovation of Orchestra Hall.  

“Our strategic plan outlines both revenue-generating initiatives as well as cost reductions to provide an across-the-board approach to resolving our financial challenges,” said Henson. “Fundraising is, of course, one of the revenue-generating drivers, and we are grateful to our generous community and especially our Board of Directors for their contributions to both our annual fund and our Building for the Future campaign.”

PRESS CONTACT:
Gwen Pappas, Director of Public Relations
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