Fiscal Shenanigans: Relevant Now More Than Ever

Following the recent decision by 14 Minnesota state legislators to conduct hearings into their concerns over whether or not the Minnesota Orchestra Association (MOA) misled lawmakers about the orchestra’s financial condition when it applied for, and received, millions of dollars in state assistance for the current hall renovations and subsequent operating fund endowment, it seems appropriate to revisit a topic that caused a bit of a stir when we initially examined it in January, 2012. Specifically, the practice of a nonprofit performing arts organization to exaggerate a financial position for negotiation leverage.

piggy bankThe original article was published on 1/19/2012 and since then there have been a number of high profile cases, the latest being hashed out is whether or not the MOA played fast and loose with how it reported income and revenue over the past few years.

What apparently caught the attention of the Minnesota lawmakers is the information from an article by Graydon Royce in the 12/6/2012 edition of the Minneapolis Star Tribune which included excerpts from MOA board minutes that indicate potential impropriety.

As early as 2009, board officers were discussing how much money to draw from investments, and the advantage of reporting balanced budgets at a time when the orchestra was raising funds and seeking state money.

“Balances in 2009 and 2010 would support our state bonding aspirations,” Bryan Ebensteiner, vice president of finance, told the orchestra’s executive committee in September 2009, “while the deficits in 2011 and 2012 would demonstrate the need to reset the business model.” His comments are included in minutes of the finance and executive committees obtained by the Star Tribune.

Time will tell whether or not pressure from Minnesota lawmakers will have any substantive impact on the MOA’s labor dispute but it is important to take a step back and look at the larger picture. For example, and especially if the state moves forward with hearings, how will the negative public scrutiny of the MOA’s affairs impact future state funding requests from other arts organizations?

This type of scenario was examined here at Adaptistration on 8/22/212 in a subsequent article to this topic. The warning presented at that point in time was the potential dynamic impact fiscal shenanigans have on neighboring arts organizations.

But the real danger here is every time one group cries wolf, it makes everything much more difficult for the dozens of groups that aren’t exaggerating their respective financial position.

At the time, that article only considered the fallout in terms of labor relations but in the MOA’s case, it is worthwhile to extend the scope to other arts groups and the potential for ongoing state government support.

For the time being, it will be worthwhile to keep an eye on how all of this plays out and to monitor any future impact on Minnesota state arts funding.

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11 Responses to Fiscal Shenanigans: Relevant Now More Than Ever

  1. Randall Olson Thu, Dec 27, 2012 at 10:12 am #

    Would it be possible that the dramatic run-ups in musician salaries in the 2007 and 2009 master agreements were put in place in order to make the orchestra appear higher-tier, salary wise, in order to place themselves in a better light for finding requests, with no intention of actually honoring those increases? There were concessions in the 2009 amendment, but the base pay still sent them into the upper group.

    • Randall Olson Thu, Dec 27, 2012 at 10:14 am #

      I meant funding requests. Sorry.

    • Drew McManus Thu, Dec 27, 2012 at 10:18 am #

      That’s difficult to say with any sort of verifiable certainty. Anecdotally, orchestras have used musician pay scales as benchmarks for donors and foundations and even for comparing the value of one executive against another but in the end, going to the effort to confirm that sort of hypothesis might end up as a counterproductive exercise.

      • Fri, Dec 28, 2012 at 1:11 pm #

        I do believe there is “blind ambition” at play in the board rooms of symphony orchestras as they compete for status as being the cream of the “top tier rankings” which seems by and large measured solely on budget size. Brings to mind the Oakland Symphony Orchestra Association 1988 bankruptcy “autopsy”, reprinted in 2012 on the Grantmakers in the Arts website.

  2. Song of the Lark Thu, Dec 27, 2012 at 10:39 am #

    Totally agree. I’ve had some readers who have expressed frustration at this, and I totally understand that. But at the same time, I personally feel like this abuse is so egregious, it needs to be addressed. (Of course others may disagree.) But so much has been uncovered about this particular situation, and so much is so public and high-profile, I fear that if the MOA is successful in its tactics, then other organizations will be emboldened and start thinking they too can get $14 million from the state without ever satisfactorily answering taxpayers’ (and legislators’) questions about how and why and in what context that money is being spent. If arts funding is affected in future, well, then that’s (very, very, VERY) unfortunately the price we’re going to have to pay. And it’s all the more reason to have a change in leadership at the MOA. (As a side note… Republicans in the state won’t get much traction out of the accusation that this was a wasteful Democratic big-government project, because Pawlenty was the one who approved the bonding request. Interestingly, he vetoed just about every other request from that year, including others that even I think were more important to the state, and I’m obviously a huge Minnesota Orchestra fan…)

    It appears that state legislators will get involved in the new year. It really does. The AFL-CIO has announced its intention to pressure lawmakers to investigate. My readers have gotten emphatic emails back from them within a couple of hours on the subject when they contact them. Jim Davnie, the man who appears to be spearheading the effort, is especially annoyed, judging by the replies to my readers I’ve read. (He appeared in the WCCO report and was the first man to sign the letter sent to the MOA.) In his email reply, he says in no uncertain terms that he is going to “continue to work on this until the lock out is ended and the musicians return to work.” We’ve heard from one representative who says that a sequestered account would be good enough for her to feel a hearing was unnecessary, but the article in which she said it.made it clear that was her own personal belief, and not the consensus of her colleagues. She may change her mind after reading more about the situation, or talking to others. But even she is distressed by what’s happening, judging by the replies I’ve read from her office. Plus, we’re also going to be seeing an influx of Democratic politicians in the new year, and they seem to be taking a bigger interest in this than Republicans, so… (You would think Republicans would be excited to investigate the potential misuse of taxpayer dollars, but apparently not! And you could draw any number of conclusions from that fact.)

    So we’ll see. The future is obviously unknowable. But if I had to guess, I’d say that Michael Henson, Jon Campbell, Richard Davis, et al, are probably sweating right now… I have a feeling the most dramatic portions of the Minnesota Orchestra’s struggle are still ahead.

  3. darrenrich Fri, Dec 28, 2012 at 11:25 am #

    I wonder if the inquiry from the state legislature isn’t part of a bigger issue? A quick internet search shows that MN’s state budget is roughly $35B, and the state had a multi-$100M surplus this past year, so $14M to the orchestra is pretty small in the big picture. Meanwhile, in a legislature that is fairly balanced between Democrats and Republicans, it’s quite a coincidence that the 14 lawmakers calling for this inquiry are all from the same party. Furthermore, this is the same party that just regained control of both chambers of the legislature and the executive branch. From there, one could speculate further what other factors are involved.

    • Drew McManus Sat, Dec 29, 2012 at 10:17 am #

      I wish I could believe that the amount of funding in the overall state budget would come to play in the way you suggested but history demonstrates it has far more to do with principles and politics than line item budget allocations.Think back to the NEA Culture Wars; in the grand scheme of things, the money involved in the controversial grants was chump change in the Federal Budget and even a small percentage of the overall NEA funding, but political motivations made it a hot button issue.

      Consequently, it would be surprising if the political motivation won’t cut both directions in Minnesota over the course of the next few years in that conservative members will be far more inclined to reference the MOA funding as a reason be overly speculative (if not outright deny) funding requests from other arts groups.

    • Sarah Sun, Dec 30, 2012 at 8:09 pm #

      The state surplus is basically a matter of timing – a lot of payments were delayed in order to balance last year’s budget.

  4. darrenrich Sun, Dec 30, 2012 at 9:21 pm #

    I agree Drew, and I apologize I was so vague before. Beyond what I observed above, I imagine this is very much politically motivated. In particular, the Democrats are less concerned with determining whether the MOA misled the state and more interested in embarassing the Republicans who were in the majority when this funding was approved.

    • Drew McManus Sun, Dec 30, 2012 at 10:17 pm #

      Ah, good point. I wasn’t even thinking about it being used as a leverage tool within the larger State legislature power struggle but I’d be surprised if that wasn’t part of the motivation as well. In the end, it seems like there’s no really terrific outcome here, is there?

    • Song of the Lark Mon, Dec 31, 2012 at 4:10 pm #

      I’m not sure if that’s as big of a factor as one might think…? Both parties were integral in getting this passed. (How often does one hear that phrase? LOL.) DFLers were actually in charge of the House of Representatives in January 2010, when the request was made (remember, this was after the Democratic wave election of 2008), and, as best as I can tell, they’re the only reason the request made it as far as it did. According to the Star Tribune, Pawlenty WAS going to veto the Orchestra Hall project. The conservative blogosphere wanted him to. But then, a couple of weeks later, he suddenly changed his mind…and never explained why. Pawlenty is now the CEO of the Financial Services Roundtable (interestingly, where Mr. Davis is on the board of directors), and I highly doubt we’re going to get an explanation of why he changed his mind. Anyway…I’m not how strong of a case either Republicans or Democrats would have in discrediting the other party over this. Pawlenty, a nationally prominent Republican, was a main player in this. The Democrats were a main player in this.

      I think there’s (at least) two reasons Democrats are more interested in this than Republicans. First, the obvious: it’s tied up with a labor struggle. The AFL-CIO has signaled their intentions to pressure lawmakers to get involved with the lockout and/or the MOA. I wonder if this makes Republicans hesitant to get involved – ? Or at least keeps it from being a priority with them? Second, although I have no proof of this, I’m betting that lawmakers from the Twin Cities are probably hearing more from their constituents about this than lawmakers from more rural areas of the state are. Nine of the fourteen legislators who signed the letter to the MOA calling for investigation are from the Twin Cities metro, and of course representatives from the Twin Cities skew liberal. There may be other reasons at play for the Democratic skew, too.

      Anyway. Not to be an apologist for Democrats. There may well be a political motivation here; I don’t know. But I don’t think we have enough information to judge, yet. We’ll have to wait and see…

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