The Art Recession
THE SOURCE: “The Culture Crash” by James Panero, in City Journal, special issue on New York’s Tomorrow, 2009.
The remarkably uniform plunge in the endowments of New York City’s best known arts institutions during the 2008–09 recession raises troubling questions about the prudence of the city’s cultural leaders. If the investment goal of the financial managers of storied museums and companies is to preserve capital, why were so many of them long in risky investments in domestic and foreign stocks?
The reason, according to James Panero, managing editor of The New Criterion, is that a great many had memorized the same venture libretto. Many were even using the same “managers of [money] managers” who advised arts organizations to emphasize “total returns,” including growth of their endowments rather than hanging on to what they had. With the collapse of the city’s investment banks and the deep recession overall, the result has been endowment declines of from 25 to 40 percent. Cutbacks, layoffs, and furloughs have ensued. And before the recession moves into the history books, he says, some institutions may well have to close their doors.
Commonly, arts institutions and foundations draw their endowment income based on a rolling average of income over several quarters. The last three devastating quarters are only now becoming a significant part of the average. “Eventually,” a spokesman for the Metropolitan Museum told Panero, “the bad periods become the majority of the average. That’s when the income will go precipitously down.” For the Metropolitan, that year will be 2011.
Particularly vulnerable is the New York City Opera, which, like the Metropolitan, is an important national cultural institution. The opera was shut down almost entirely for the 2008–2009 season waiting for construction to end at its home theater. Ticket revenue fell from the $13 million that it averaged for its 2005 to 2008 seasons to $320,000. It lost the temperamental director who had advised the shutdown before he assumed the job full time. Its endowment, once $51 million, has sunk to $10 million.
The National Academy Museum and School of Fine Arts, a 184-year-old repository of American art, confronted its fiscal crisis by selling two major Hudson River school landscapes to pay its bills, acting only one step ahead of legislation by the New York legislature that would make such sales illegal. Even with the sale of the paintings the organization is left with an operating endowment of only $10.5 million. Despite this, the academy’s leaders say the crisis may have brought necessary changes that will make it stronger in the long run. Under the threat of bankruptcy, the institution changed its “antiquated board structure.” The old system had hindered the fund raising and outreach that might have closed the gap before the academy lost its valuable paintings. The crisis has made the institution change its governing structure—permanently.