If this isn’t a blip, just what is it?

The news about the bankruptcy filing that will be made in Philadelphia court tomorrow by the venerable Philadelphia Symphony Orchestra has stirred angst around the globe. But the bigger news is hidden in the comment made by the American Symphony Orchestra League’s Jesse Rosen: “This is not a blip.” No, it isn’t, and that’s the real story. So far this year, both Honolulu and Syracuse have seen their orchestras go bankrupt. The eyes of the arts world have been on Detroit for months now, waiting to see if the inevitable will happen there as anticipated. Louisville’s fine orchestra filed for bankruptcy in December, not even making it to the New Year, bailing before those critical last few weeks of the calendar year when big donors in search of tax benefits often save nonprofits. Rumors swirl that the Indianapolis Symphony Orchestra, another wonderful ensemble, may not be far from taking the big step. And there are many other cities large and small throughout the United States where business and civic leaders, board members and donors are having plenty of sotto voce conversations about just what to do when the inevitable hits their back yard.

Bankruptcies aren’t new to the performing arts. Every recession in recent history has forced a few organizations that are under-endowed and over-contracted to face the music. Theater companies, ballet companies, opera companies, orchestras and performing arts venues themselves have all been victims.
But now that we all see the world in the post-Wisconsin-public-employee-union-pension world, different questions are being asked about the long term viability of performing arts institutions.

This is an industry that is firmly union based. When they are asked to save performing arts organizations from bankruptcy, many donors know that what they are really being asked is to maintain union agreements – often agreed upon in far rosier days – and in some cases to preserve or potentially bail out union pension funds. With the Philadelphia Orchestra – as with most of the organizations that have gone to Bankruptcy court before and those that are contemplating the move today – overly generous union contracts that can’t be met in today’s economy are the central issue. Sound familiar?

If you read last week’s post to this blog – and a lot of you did – you’ll remember that we’re thinking a lot about the sea changes impacting the arts. So rather than look at the Philadelphia Orchestra bankruptcy as just another blip, we’re pretty convinced that it is potentially, tragically, better described as a “new normal.” Simply put, too many contracts have promised too much that can’t be met. Too many pensions are underfunded, and depend on the continuation of current generous contract agreements to fund past agreements. Also, endowments are restricted in purpose and can’t be drawn down to meet crises. (Though, truth be told, plenty have been borrowed against steeply enough to cause their own set of problems.) At the same time, performing arts halls that have also granted their own unions lavish contracts – such as the Kimmel, the home of the Philadelphia Orchestra – need to charge every penny possible to stave off their prospective bankruptcies. Operating costs are through the roof. For large systems of performing arts organizations and their halls, the performing arts financial model is barely working, and only for those with the very largest endowments.

At ArtsMarket we’ve been increasingly asked to examine solutions to these developments in many different markets. Business leaders who are increasingly shaking their heads and refusing to bail out individual institutions are seeking larger, systemic adjustments. We’ve heard from many – corporate leaders in particular – that they’ve had it. Many understandably worry at the signals they send to their own employees when they step in to bail out arts union jobs providing six figure wages and generous pensions for jobs that often allow for or even further additional earning opportunities at universities and conservatories. Politicians feel the same way: How can tax payer dollars go to bailing out private sector union workers when public sector unions are up against it? Donors feel it, too. When institutions as venerable as the Philadelphia Orchestra declare bankruptcy – potentially making it possible to liquidate endowments that were never to be liquidated – why would any individual of means write that seven or eight figure check for an endowment meant to keep organizations safe forever? Why not give those dollars to something more pressing, more immediate, and possibly more honest in intent?

Are there solutions to this mess? Sure. But just as the citizens of Wisconsin have learned over their season of public employee union battles, the adjustments are nasty business, no matter what side you are on. First, you have to face reality, hard and uncompromising as it is. As the old saying goes, you have to raise the dragon to slay the dragon. One of our field’s many dragons is that we want a mid-20th Century performing arts system in a 21st Century world. We don’t want the pain of recognizing that our consumer tastes, interests, budgets, and technology have so dramatically and fundamentally changed our arts consumption and behavior that we aren’t ever going back.

We’re living in a time warp of about 1975. Are we ready to live in 2011? Because if we are, and we recognize that this Philadelphia story is not a blip, we better get busy in rethinking the entire financial and operational model of the performing arts while it is still possible to restructure outside of bankruptcy court.

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8 responses to “If this isn’t a blip, just what is it?

  1. Douglas Clayton

    Perhaps major orchestras have union jobs that pay six figure salaries with great benefits… but that isn’t the case with all disciplines. Certainly the theatre unions aren’t holding a line that actors/directors/designers get six figure salaries. If anything, it’s the non-union administrators in the theatre that make something approaching a living, as opposed to the union-based artists.

    • Good points, Doug. But I doubt if many of the business donors (with their own unions) understand the differences between those six figure orchestra members and the stage crew that gets union scale for only a handful of weeks per year. There is just a lot of nervousness out there on the part of some of those business donors in supporting organizations that are in turn supportive of union contracts… and then, on top of it, when organizations deplete their endowments….so the entire donor market gets nervous. If donors gained a better sense of comfort, the problem would largely (though not completely) subside. So the question is how to build greater comfort. Ideas?

  2. You’re a bit too quick to blame “the unions” for arts problems. In the broader picture, housing allowances for Executive Directors, weekly airfares for “star” Development Directors, and Board failures to meet unearned income budgets have to get some of the blame.

    It’s also important to note that some of the union agreements (… and other excessive cost decisions) aren’t between the arts organization and the union. When a second charity runs the theater (as in Philadelphia), high costs and poor practices (if any) might not even be the fault of the hall licensee. I personally resent the fact that Kimmel charges about an $8 (exact amount not researched) fee for any walkup ticket sale under $20. Tickets sold right at the event box office should not have fees. That money does not go to the Orchestra or the Ballet!

    You also have to remember the “auto company” example. For years, workers were given the chance to negotiate for more dollars in their paychecks and pockets, or for pensions, health coverage, supplemental unemployment, or other future costs. To the extent that executives agreed to non-current expenses, they were just like municipal and state governments that found “hiding” costs for their successors to deal with … today. But the workers made good-faith bargains to receive “compensation” in the future – kind of like a CEO’s unfunded supplemental retirement deal. Just because you can’t come up with it now doesn’t prove that the workers were greedy or undeserving at the time of the contract.

    Since the Philadelphia Orchestra’s main problem is the players’ pensions, unions can be part of the solution. When a multiemployer pension fund operated by a union takes a fixed payment in the week work is performed, there is no overhanging liability for the arts organization. And because other work at other employers actually creates the pension (and health insurance) for the employees, it can be much cheaper to use a union to supply labor.

    • Tim, really good points. Thanks. I’m not “blaming” the unions, but am saying that the underfunded pension issue in the performing arts in general is as huge here as it is in other fields. And, I totally agree with you about the out-of-control overhead. That $8 walk up fee is outrageous, too. Bad practice on top of bad practice. So the really key question is how to change it all? I’d love your thoughts.

  3. This is the first good argument I’ve ever heard for public funding for the arts: that arts organizations could be compelled to treat their workers badly to please corporate contributors. Whether we can “afford” union contracts and pensions is really a matter of whether we value workers over, say, fancy concert halls. The Philadelphia bankruptcy isn’t just a blip–all kinds of financial pressures are making symphony orchestras difficult to sustain–but to single out union contracts as the culprit is to accept the rhetoric of businesspeople (and their Republican political handmaidens) that the worst thing to happen in the 20th Century was organized labor, and that the goal of the 21st Century should be to eradicate it.

  4. Blame the artists and their unions? You have got to be kidding! First and foremost it must be understood that the unions have no unilateral authority to impose their demands on any organization. Every individual, regardless of what side of the fence they stand, yearns to improve their lot in life for themselves or the organization they represent. Artists are no different, nor should they be castigated for it. However, it is also true that the unions are often contributory conspirators to the financial struggles that many arts organizations now find themselves threatened by, in that the unions do not consider the long term consequences of their demands. In the end both the artists & their unions and the arts organizations & their leadership must find the equilibrium that yields a sustainable organization. What is critical is that the Boards of the organizations must be relentless in their fiduciary responsibilities and their goverance of the organizations. If the Boards of these organizations were holding themselves accountable for the roles they serve as strategists and policy makers, and governing the affairs of the organization as if it were their own personal finances, it is highly unlikely they would have allowed the organization to be so compromised that they could not navigate the organization through these challenging and changing times.

  5. It would be a refreshing change if people didn’t try to demonize the other side over their beliefs.

    Public funding for the arts, even if you agree it to be a swell idea, is going to be a difficult “sale” to make when virtually every level of government is facing severe fiscal problems. The federal government is racking up record deficits and the political climate is not supportive of massive tax increases. That means the path back to fiscal sanity will involve spending reductions. That is today’s reality.

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