Museum Endowments Aren’t Crisis Cash Cows

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By Steven Miller, Guest Blogger

On April 15, in an attempt to help member museums during the COVID-19 pandemic, the Association of Art Museum Directors (AAMD) issued a press release announcing it had “…passed a series of resolutions addressing how art museums may use the restricted funds held by some institutions.” Key wording in the announcement stated “… the AAMD will refrain from censuring or sanctioning any museum – or censuring, suspending or expelling any museum director – that decides to use restricted endowment funds, trusts, or donations for general operating expenses.” The information included how endowments are defined. It provided wording about ways they could be raided by museums. The resolutions also included new exemptions about how money gained from the sale of deaccessioned museum collections can be used for the “direct care of collections.” The statement went on to explain, “AAMD also recognizes that it is not within the Association’s purview to approve the redirection of restricted funds. However, it hopes that these resolutions will serve as an endorsement to donors or the relevant legal authorities, encouraging them to permit the temporary use of these funds for unrestricted needs.”

This blog post focuses on the endowment issue.

Museums are expensive places to run. Money primarily comes from three sources: earned income, endowments, and charitable donations. Earned income is customarily realized by such things as admission fees, retail sales, memberships, and space rentals. Endowments comprise funds gifted or otherwise allocated to sustain operations or designated programs. Charitable donations involve money freely given for general or specific uses.

Funding for American museums has been abruptly reduced as a result of the coronavirus epidemic. Most institutions are closed. This means attendance and retail profits are almost entirely lost. Downward valuations combined with large emergency withdrawals have reduced investment portfolio size and returns. Many museums find charitable giving reduced to a trickle as donors hold back.

Museum boards of trustees are going nuts trying to assure the survival of their organizations for which they are responsible. Their struggles are almost insurmountable. Practical solutions are almost entirely of a fiscal nature. What will it cost to survive, how is survival defined, and, where will the money come from, not to mention when?

The AAMD’s resolution announcement was made “…in recognition of the extensive negative effects of the current crises on the operations and balance sheets of many art museums – and the uncertain timing for a museum’s operations, fundraising, and revenue streams to return to normal.” In the abstract it’s a nice gesture. In reality, it has little weight. In fact, museum boards have always had the right to go to donors or their heirs to make restricted funds less restricted in order to survive a financial crisis.

Museum endowments range from huge to negligible and their purposes and structures range from specific to general. Usually they are invested in conservative monetary instruments, mostly stock and bond portfolios. These are managed either by professional money managers or designated members of a museum’s board of trustees. Responsible museums have investment policies. They spell out how funds are retained and used. As with other policies, the one regarding investments is agreed on by a board of trustees and kept in governing documents.

Anyone familiar with the American museum world knows boards of trustees do as they wish within sometimes broad legal parameters. For the most part their decisions are beneficial or at least not too damaging. Now, all face terrible choices regarding the very survival, much less longevity of museums, in this country. For the most part trustees are doing whatever they legally can with whatever resources they have, which include endowments.

Having directed a museum in 2008 when the Great Recession hit, I witnessed how one board of trustees dealt with endowments. Their example is unfolding again. The board analyzed the institution’s endowments. Unrestricted funds were spent down to cover operating costs. Trustees approached people who had established restricted endowments, or the donor’s heirs to request a release of the restrictions. Permissions were granted for all such endowments. Substantial cost-saving measures were instituted by me, starting with a voluntary 40% cut in my salary. Other compensation was reduced incrementally with the lowest paid employees suffering the smallest cuts. Furlough weeks were also instituted. We emerged from the mess having cut one position and that person was quickly rehired. A dozen years later, as COVID-19 unfolds, the lost endowment funds from 2008 have still not been replenished to their original levels.

My time dealing with the 2008 fiscal debacle was the most difficult leadership challenge I ever faced in my career. I am grateful to avoid the current boondoggle. But, as a member of two non-profit boards (an art conservation center and a college alumni/ae group) I am witnessing trustees struggling to make ends meet and how the AAMD’s resolutions have no meaning. Censuring or sanctioning member museums or directors will carry little weight. When push comes to shove, boards of trustees need to make difficult decisions based on a lot of unknowns. Unless the AAMD can pony up significant cash assistance, given the fiasco museums face now, they have sound arguments for contradicting their best intentions.

AAMD Board of Trustees Approves Resolution to Provide Additional Financial Flexibility to Art Museums During Pandemic Crisis (Press release, April 15, 2020)

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3 Comments on “Museum Endowments Aren’t Crisis Cash Cows”

  1. Janice Klein says:

    Perhaps the question isn’t whether the museum’s endowment has been replenished to its original level, but whether the museum has been able to continue to fulfill its mission with the resources it now has. How much was income reduced due to the drop in earnings from the endowment? Has any of that been replaced through other sources? It seems to be that this is a success story, where the museum was able to support its staff through a difficult time. Is maintaining the size of an endowment, regardless of its impact on either long or short-term income, really more critical than making sure that your talented staff is able to continue its work.

  2. Martin CJ Mongiello says:

    I truly enjoyed the wise and truthful manner of your article. Having run non-profit and for-profit museums, I can openly say I love the for profit ones much more that plan for these events and weather them without any problems.

  3. Steven Miller says:

    Thanks Janice.

    Good questions as always! I am no longer intimately informed about the museum’s non-endowment income so cannot answer those questions as I retired soon after the 2008 fiasco. (I returned to the museum field three years later.) Short or long term income is crucial to keeping talented staff regardless of source but given the relative security of conservatively invested endowments, over the long term that money is more reliable, unlike variable individual giving, grants, earned income, etc.

    Thanks Martin:

    Have never run a for-profit museum I have no experience in that realm. Actually, I would love to get a list of so-called for-profit museums as I remain curious about why they call themselves museums since I am unaware of how one can make a profit on such museum duties as collection conservation, registration, research, storage, etc.

    Steve


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