Who is Responsible for the Irresponsible?

The Asian Art Museum of San Fransisco (AAM) is clearly an institution that is valued by the people of San Fransisco. After the great earthquake of 1989 ripped through the city and AAM's former home in Golden Gate Park, it became clear that the institution had outgrown it's current home and it moved to the city library. It is important here to note that the city of San Fransisco owns not only the library, but the entire collection featured at the Asian Art Museum of San Fransicso. It also pays for one-third of it's $17 million annual operating budget and directly employs one-third of it's staff. The city voted to pay for seismic upgrading for the library (via a voter approved bond) and the museum staff undertook the capital campaign to raise funds for the renovation of the building. In fact, a $100 million capital campaign, which was successful. Needless to say, San Fransiscans love their Asian Art Museum!

However, in 2000, the museum foundation borrowed $107 million AGAINST the very money they had just spent the better part of a decade raising, to purchase a 30 year, fixed-rate bond issue underwritten by J.P. Morgan Chase and insured by MBIA at an interest rate of 5%. In 2005, the foundation was able to refinance, this time securing $120.4 million at a 3.4% interest rate. Fast forward to 2008. (We can all guess where this is going, right?) MBIA gets into financial trouble and crumbles, the AAM loses it's insurance and the interest rate on the bond soars to 10%. A whole bunch of other crazy and complicated financial "stuff" happens (read the article if you want to know it all), and the museum is left with junk bonds (worth nothing, but still owing $120.4 million) from their investment, a complicated new deal with Chase that involves variable rate bonds, fixed rate interest, deferred payments, and giant headaches. And the city of San Fransisco is left with 2 options. Let the AAM completely fail OR sign a deal guaranteeing the $99 million owed to Chase in the new deal.

At this point, what was the city of San Fransisco supposed to do? If they let the AAM fail, the city not only loses an important cultural mecca, they lose a huge investment in the form of the entire AAM collection, salaries and monies paid for operating costs over the years, funds paid by the city (aka, the taxpayers) to upgrade the current building, and the list goes on and on. Really, what were they supposed to do?! So, the city jumps in to save the AAM. A very noble and worthy thing to do. But, was it really?

I personally believe that a city should stand behind it's cultural institutions. They provide economic stability and growth to cities, raise the level of cultural awareness and learning within communities, provide a necessary outlet of creativity for a city's constituents, foster job growth, etc. I could go on for days about the benefits of cultural institutions and why cities should support them. Indeed, San Fransisco should be commended for the amount of love and loyalty it has shown to the AAM. And indeed, no one could have truly predicted the economic collapse and effect that it would have on our entire country, so the AAM has some space to argue that they cannot be at fault for this situation. Except that they ARE. And so is the city of San Fransisco.

As future leaders of cultural institutions, it is our job to recognize that we are a business and our organizations must be run as such. If a for profit company had made the same investments as the AAM, they would no longer exist. They would have experienced financial hardship, bankruptcy, and eventually had to close altogether. No individual in their right mind would have stepped forward to save the company from financial ruin and you would be hard pressed to find a city council that would vote to do the same. However, we as a culture look at non-profits differently, because most of us understand that the benefits we receive from these non-profits are not measured in paychecks, dividends, and stock options. The benefits, particularly in the arts non-profit world, are sometimes intangible and immeasurable. In our current public policy as a nation, we do not hold arts organizations to the same business standards that we currently expect from for profit companies, but maybe we should on some level. The for-profit and non-profit business models are fundamentally different-and should be-because they are attempting to achieve different goals in society. However, when non-profits make irresponsible decisions, and waste donor time and money, where should our current policy of "bailing them out" end? Shouldn't fiscal responsibility be an expectation (a public policy...) not only among our arts organizations but from the public as well? Please share your thoughts...

http://online.wsj.com/article/SB10001424052748704803604576078214094548054.html

http://www.artsjournal.com/realcleararts/2011/01/asian-art-museum-high-finance.html