Yesterday (June 13, 2005), the Milwaukee Public Museum began what well may be the last chapter in its 123-year life as a public museum. Last chapter? Everybody is excited that the County, the banks and the Museum have reached a deal that apparently will result in at least $6.0 million of new money from lenders. That is the deal in principle—the details still need to be worked out and signing is scheduled in two weeks. So how could this turn into the endgame?
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The private sector has effectively been squeezed out—view them as the common stockholders in a bankruptcy reorganization. The new five-person oversight board to be created by Milwaukee County will contain no existing museum directors or officers. The Museum has no endowment to speak of. The buildings and collections are owned by the County. Since the Museum entity has nothing to bring to the table—we will come to back to this statement later in this post—the private-sector is effectively out of the picture. The County has all but taken over the Museum, but nobody wants to admit that.
The County is now trying to save face and protect its equity in the building and the permanent collections. To protect that equity (in a philosophical sense, not a legal one), it has agreed to guarantee the new debt--what is not clear is whether the new deal also calls for County guarantees of existing debt. The dire economics are now forcing everyone’s hand. Recall that the Milwaukee Journal-Sentinel reported in a May 10, 2005 article that County Executive Scott Walker said “flatly” there would be no loan guarantees.
The public doesn’t really understand “guarantees” as we’ve seen in the debate over Social Security and private pensions. No money exchanges hands immediately so guarantees don’t cost the taxpayer anything. Right? Wrong. The guarantees reflect the precarious situation that the Museum’s board of directors has forced on the County. All the guarantees do is to buy time so that Mr. Walker can in effect engage in what could easily turn into an orderly liquidation of the Museum and its collection. The average person won’t notice what is happening for several years to come. The Museum’s doors will be open, people will still be able to stroll the streets of Old Milwaukee, and children will still be able to eat a hot dog in the food concession area.
But Mr. Walker’s heavy hand will be at work just below the surface. He says he cares about the Museum, but he has already telegraphed his long-term plan. Specifically, the Journal-Sentinel reports today
Walker suggested the museum sell off assets that are not part of the "exhibit experience" at the natural history institution. He mentioned in particular the 700-acre Tirimbina rain forest preserve in Costa Rica, which the museum owns as a research center. It was valued at slightly more than $700,000 in August 2004.
If they don't consider selling it, "it says to the average citizen they don't get it yet," Walker said of the museum's board, which fears that dramatic budget cuts could harm the museum in the long term. The museum's first round of layoffs hit its collections and research staff hard.
Notice the focus on the “exhibit experience.” The public should not be surprised to see the Museum sell off all the collections that are sitting in what we presume to be its large attic. That means that the “exhibit experience” will quickly grow static. If anyone needs further evidence, they only need look at where the staff layoffs have already come from. The public face remains the same—ticket takers, security guards, and vending personnel are all in place, but Sunday’s article in the Journal-Sentinel detailing those who have already been cut from the curatorial staff, makes clear where future cuts will come from and the devastating long-term impact of those cuts. You really had to feel bad for those curators featured in the article. But as one curator suggested, large institutions will now be reluctant to deal with the Milwaukee Public Museum.
In our view, anyone who doesn’t believe that this is the unspoken plan is kidding themselves (and that probably includes public officials who may not consciously believe this what they are doing). The agreement calls for further budget cuts—somewhere in the $1.0 million to $1.5 million range. Yet, the Museum is looking at a projected deficit of $7.0 for the fiscal year ending in just over two months—that may have been reduced by some cuts already made, but we bet the final number will be closer to $7.0 than $3.0 million. The fact is that the core problem is not going to be solved by such meager cuts. In fact, the core problem can only be fixed with additional long-term support that doesn't require repayment--assuming that people want to maintain the Museum's quality. Sure the new money will be there, but the new debt must eventually be repaid and no institution can do that with continuing operating deficits.
So we come to the banks. They will wait to be paid, but they will be paid no matter what--at least with respect to the new money being advanced. It will be interesting to see how the loan agreements are written: Are the guaranteed loans retired first or are the unguaranteed loans retired first? If it's the latter, then the banks (we are assuming the same banks that made the original loans are now making the new advances) really have bought time to protect their own interests at no cost to themselves. As Scott Walker apparently envisions repayment, the funds will come from some dusty old dinosaur bones sitting in storage rather than out of current county revenues [SUBSEQUENT ADDITION. It does appear that some repayment will come directly from the County subsidy to the Museum]. By the time the public figures out what has happened—well it already appears too be late--everybody will have moved onto bigger and better things--click here for Scott Walker's campaign site for the 2006 Wisconsin gubernatorial campaign. Mr. Walker's motto: Lower Taxes, Higher Standards. Well, Mr. Walker has it half right.
In any event, the Museum will be a shell of its former self. Maybe admissions and private contributions will support that shell, but maybe not. The lack any good PR coming from the County or the Museum will only soften the blow when and if it comes. Expectations are being lowered everyday that this debacle goes on without a meaningful solution in sight. "Oh, yeah, they had some big trouble there back in 2005, I guess they weren't able to fix it. Ah, well we hadn't been there in a couple of years so what's the big deal."
The one thing the private-sector Museum board can still theoretically bring to the table is fundraising capacity. However, we see little chance for success there. Presumably, Museum CEO Michael Stafford had been frantically knocking on foundation and corporate doors in the weeks immediately prior to his departure. Those doors haven’t opened, at least publicly. There has been no announcement of a big donation from a generous benefactor. And should that surprise anybody? The Museum may be able to fake the little school children out this fall when it asks them to collect pennies to save the Museum (oh, that’s coming, you know it). But it can’t fake the big money out.
Any donor now has to wonder whether his or her funds will be used to retire unguaranteed debt. Some might even be willing to do that if they believed that it would save the collections. But with no new glittering projects, liquidation (at least partial) in process, and County control, it is hard to imagine anyone giving real money to the Museum. Moreover, given the Museum’s recent track record with its endowment, who would trust the County to honor restricted gifts? You certainly aren’t going to have a State Attorney General protecting those restricted assets.
Those who are interested in museum management and governance may want to take a look at the American Association of Museum’s white paper (Considerations for AAM Accredited Members Facing Retrenchment or Downsizing) discussing how museums should deal with difficult financial times. As you read this white paper, you have to wonder how the Milwaukee Public Museum will maintain its accreditation. Specifcally, the white paper states:
• Various statements of ethics in the museum field prescribe what can be done with the funds resulting from deaccessioning. Accredited museums abide by the AAM Code of Ethics for Museums, and by any additional codes of ethics particular to their discipline. The AAM Code of Ethics for Museums specifies that proceeds from sales resulting from deaccessioning can only be used for acquisitions or direct care of collections. While the interpretation of “direct care” varies between museums and disciplines, there is a strong consensus that it does not include use of funds to pay operational expenses. The code of ethics of the Association of Art Museum Directors (AAMD) explicitly specifies that art museums can only use funds resulting from deaccessioning for the acquisition of new collections, and that of the American Association of State and Local History (AASLH) specifies that history museums can use such funds only for acquisition or preservation.
• There is increasing pressure on museums to capitalize their collections and to use them as collateral for financial loans to the museum. The AAM Code of Ethics for Museums requires that collections be “unencumbered,” which means that the collections cannot be used as collateral for a loan. The AAMD and AASLH codes of ethics also preclude using collections as collateral, and further, bar museums from capitalizing collections.
• A museum’s collections are valuable only insofar as they are accessible to the public and to scholars, and the information inherent in them is preserved through documentation and the knowledge of those who care for them. “Mothballing” collections, i.e., putting them in storage and eliminating or minimizing curation and use, may seem a desirable short-term strategy for cost reductions, but it carries measurable risks. Many kinds of collections are not stable in storage without constant monitoring and attention. Often, collections can be made accessible in a meaningful way only through the mediation of an experienced, knowledgeable staff that, once dismantled, may not easily be rebuilt.
Mr. Walker is arguably headed in the wrong direction, with his focus on cutting taxes (and expenses) guiding his approach to the Museum and its problems. But ultimately, Mr. Walker is a proxy for public opinion. The Milwaukee Public Museum cannot survive as long as the public believes that it receives nothing of value for its taxes. The only winners in this debacle are the banks who at least will be repaid the guaranteed loans and appear to have a shot at having their other loans repaid (again, assuming the new money is coming from the old lenders).
If you liked this post, please visit http://www.charitygovernance.com for a description of our Guide/Tutorial for non-profit directors and officers entitled “Avoiding Trouble While Doing Good: A Guide for the Non-Profit Director and Officer.” Copyright 2005, Auto Didactix LLC. All Rights Reserved. You may not copy any portion of this post to a computer "clipboard" for re-posting anywhere or e-mailing, or otherwise reproduce this post. If you want others to review this post, you may provide them with a link to this web blog. Any use of the material or ideas in this post by reporters or other publishers shall make reference to Jack Siegel, author of "Avoiding Trouble While Doing Good, A Guide for the Non-Profit Director and Officer" and this web blog. For additional information call 773-325-2124
THE FOREGOING IS NOT AND SHOULD NOT BE TAKEN AS LEGAL ADVICE. IF LEGAL ADVICE IS REQUIRED, THE NON-PROFIT OR OTHER PARTY IN QUESTION SHOULD SEEK THE ADVICE OF QUALIFIED LEGAL COUNSEL.
If you liked this post, please visit http://www.charitygovernance.com for a description of our Guide/Tutorial for non-profit directors and officers entitled “Avoiding Trouble While Doing Good: A Guide for the Non-Profit Director and Officer.”
Copyright 2005, Auto Didactix LLC. All Rights Reserved. You may not copy any portion of this post to a computer "clipboard" for re-posting anywhere or e-mailing, or otherwise reproduce this post. If you want others to review this post, you may provide them with a link to this web blog. Any use of the material or ideas in this post by reporters or other publishers shall make reference to Jack Siegel, author of "Avoiding Trouble While Doing Good, A Guide for the Non-Profit Director and Officer" and this web blog. For additional information call 773-325-2124