Is art museum headed for bankruptcy?

Published on August 24, 2014 in Asheville, News Stories

Pack Place (now)

Ex-mayor urges city, county to ‘dig deep’ into nonprofit’s financials

Michalove has compiled a detailed analysis of the art museum’s stated financial position versus its projected income. His conclusion is that “raising $24 million, and likely a great deal more, is critical to AAM to avoid bankruptcy.” Twenty-four million dollars was the original stated goal of the art museum’s capital fundraising drive, begun in 1996.

Central to Michalove’s prediction is his examination of (1) the art museum’s most recent Form 990 tax return, (2) a draft of the museum’s proposed operating budget, and (3) the various escrowed funds from county sources set against the new obligations the museum will have under its direct leases agreement. He contends that the very financial maneuvering he says the museum is attempting to put into play, based on its “rosy” fiscal predictions, could actually lead to the nonprofit’s downfall.

Among Michalove’s findings:

The art museum lists its 2013 investment income as $789,357, reduced by $768,701 from the previous year. Of this difference, Michalove says, $775,000 was listed on the 2012 Form 990 as “Gross amount of sales other than inventory.” Michalove says he has repeatedly asked what “sales” made up that figure but has received no response from the art museum. Without its inclusion in the grand total, the museum’s investment income would only come to $34,357.

In a January, 2014, museum executive director Pam Myers made a presentation to the Buncombe County Tourism Development Authority (TDA) in order to obtain yet another extension to a $1.5 million grant agreement on which the museum had already defaulted twice. Myers indicated the museum’s number of non-student visitors had more than doubled, from 21,750 to 49,297. That number, divided into the museum’s stated admissions revenues of $71,224 yield an average ticket price of a dollar and forty-four cents, rather than the museum’s $8.00 regular admissions fee. “What’s going on with these numbers?” Michalove asked.

At the same presentation, Myers showed 39,400 ‘room nights” being booked by tourists drawn to visit the museum. However, Michalove says, most of the museum’s visitors are members who “presumably sleep at home” and students who “don’t book hotel rooms.” Yet, to support the museum’s figures, 91 per cent of visitors would have to book hotel rooms. “Really?” Michalove asked.

“Ms. Myers makes an elegant presentation,” Michalove said. “She is a wordsmith and a chartist.” But he called Myers’ presentations to the agencies from whom it expects grant money “meaningless fluff.”

Based on an examination of Schedule A of the museum’s 990, Michalove says the museum’s projected income under its present investment strategy will fall short of its goal by $228,000 by the end of fiscal year 2017. In that case, and without a “major influx of cash” from somewhere else, Michalove says, the art museum will be staring down the barrel of bankruptcy; hence his conclusion that the museum must indeed raise “at least” the full $24 million it originally stated as its campaign goal.

However the museum, which says it has already raised $15 million , is now seeking to reduce its fundraising goal to that amount, in order to comply with the TDA contract requirements. TDA has said it will start releasing escrowed funds when – and only when – construction actually begins on the museum’s renovations at the Pack Place building. TDA will address the museum’s grant money status at its meeting this Friday.

Meanwhile, Michalove has sent copies of his report to Asheville City Council, the Buncombe County Board of Commissioners and TDA.

And meanwhile, back in the board room …

… The art museum is having to come to grips with its new responsibilities under the direct lease with the city it had sought for so long. And so, it appears, is everybody else.

The city recently entered into direct lease arrangements with each of the Pack Place building’s three existing tenants – the art museum, Diana Wortham Theater and the Colburn Earth Sciences Museum. The art museum derives the greatest benefit from this arrangement, which it has pushed for since 2012, because it will control the lion’s share of the building’s space, including most of the area that will be vacated by the Colburn, which says it cannot afford the new arrangement and must vacate within the year.

Under the new arrangement the tenants will pay the city a rent of ten dollars a year, but they also become financially responsible for their own maintenance. The art museum, however, has been given a three-year free pass on this requirement while it goes forward with its remodeling plans.

Until now the county has paid for the tenants’ utilities and routine maintenance, but those moneys have been paid to the Pack Place corporation. In May, watching the developing power struggle at Pack Place closely, the county voted to allocate its full 2014 allotment of $409,000 to Pack Place, with a huge catch: that Pack Place not alter its “business structure.” But the city’s assumption of the role of landlord at Pack Place has effectively gutted the function of the Pack Place corporation.

The county has therefore requested a transition plan from the city, showing how the city intends to govern its new acquisition financially without substantially altering its corporate makeup. In the last two Pack Place board meetings, Vice Mayor Marc Hunt (the city’s liaison Pack Place board member) and art museum board member Lin Andrews and executive director Pam Myers, have been at pains to decide how to convince the county that nothing has really changed at Pack Place, when in fact it has. Both the city and the art museum are counting heavily on the prompt release of those county dollars.

During last week’s Pack Place board meeting, member and former county commissioner Carol Peterson noted that County Manager Wanda Greene has requested to see, on August 19, a transition plan and budget showing how the city takeover of Pack Place would not violate the county’s stipulation that Pack Place’s corporate structure not be changed. Amid earnest discussion by Hunt, Myers and art museum board chairman Lin Andrews, the suggestion was floated that the city should ask the county for a six-week extension to prepare these documents.

“I think it sends the wrong message for [the city] to tell [the county] ‘We don’t have a budget yet,’” Pack Place chairman Ed Hay said.

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