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Minnesota Orchestra: strong endowment fundraising result, but operating deficit for ’19

Minnesota Orchestra
Photo by Courtney Perry
Because of the shortfall in operations-directed gifts, the Minnesota Orchestra has an operational deficit of nearly $8.8 million in FY 2019.

At its annual meeting on Tuesday afternoon, the Minnesota Orchestra shared some very good news, some mixed news and some not-so-good news. In that order:

    1. A $50 million fundraising campaign launched in 2017 brought in $60 million in major gifts, a whopping $10 million over goal.
    2. The orchestra anticipated the campaign would generate $40 million in operating support and $10 million in endowed gifts. Instead, it received $20 million for operations and $40 million for the endowment.
    3. Because of the shortfall in operations-directed gifts, the orchestra has an operational deficit of nearly $8.8 million in FY 2019.


This is after four years of balanced budgets. It’s larger than the then-record operational deficit of $6 million the orchestra reported in January 2013 for FY 2012, three months into the lockout. A previous record $2.9 million shortfall was reported in December 2011 for FY 2011, a lead-up to contract negotiations with the musicians that ended badly.

The musicians’ contract comes up for renewal in 2020. Should we worry?

A big deficit is not good. But the Minnesota Orchestra is not the same organization it was in 2011. Not only did the orchestra survive the lockout, it emerged stronger, more passionate, more community-focused and more accessible. New leadership – beginning magnificently with Kevin Smith, who came out of retirement to serve as interim president and CEO in 2014, then stayed until Michelle Miller Burns took over in September of this year – has worked with the musicians, staff and board to create a climate of we’re-all-in-this-together collaboration.

In a phone interview Monday, Burns was upbeat about the orchestra’s long-term success and sustainability, and positive about plans to address the deficit. Here are some highlights from that conversation, edited and condensed.

Michelle Miller Burns on the good vs. not-so-good news:

We’re announcing the conclusion of a very successful, very focused fundraising campaign, and also a deficit for fiscal year 2019. How can that be? The campaign exceeded its overall goal, but we received many more gifts to the endowment than we did to operations. It is this shortfall in operations-directed gifts that accounts for the deficit.

We raised $60 million on a $50 million goal, which is such a testament to the generosity of this small circle of donors, and something that we celebrate, as you can imagine. [This] says to me that our donors were very generous in supporting the long-term success of the organization.

It is important to remember that the timing of this campaign came just a couple years after the lockout, so the fact that donors would be so generous is wonderful. I think [the timing] also helps to explain why more gifts came to endowment than to operations.


On whether she thinks this represents a trend in giving:

It is definitely different from what was anticipated when the campaign was launched. We certainly wish there had been some additional operating support. That is offset by my delight that donors chose to invest in the long-term future of this organization. That is the view we have collectively at Minnesota Orchestra. Let’s think about the long term. What’s best for the organization long term? Let’s make decisions taking the long view into account, every time that we have to make a decision. That’s why I feel this is such a positive move in that direction.

Particularly as we broaden our circle of supporters, I believe we will have donors who want to ensure that both the short-term and the long-term health of the organization are addressed.

On the overall financial strength of the organization:

We have a very high net asset base of $176 million. We also have a low debt position. Contributing to that, in fiscal year 2019 we made the final payment on the bond revenue funding that we received for Orchestra Hall. So that left the hall unencumbered.

Another indicator we look at is philanthropic support. In fiscal year 2018, we had total philanthropic giving of $19 million. That jumped up in fiscal year 2019 to $26.3 million.

Michelle Miller Burns
Photo by Tracy Martin
Michelle Miller Burns: "We raised $60 million on a $50 million goal, which is such a testament to the generosity of this small circle of donors, and something that we celebrate."
The distribution of that funding changed. Much of what came in in 2018 was supporting operations. Much of what came in in fiscal year 2019 was supporting endowment. We did not bring in as much in operating support in 2019, leaving us with that $8.8 million deficit.

On plans to address the deficit:

We have developed a multiyear financial forecast and a revenue growth plan to build both earned and contributed revenue on a going-forward basis. [The plan] envisions broadening our base of philanthropic support beyond the close circle of donors we have now to the community more broadly.


We’re identifying and pursuing some new earned revenue streams. We have had a committee in place over the past year that has taken that up as their charge. This is one of our collaborative committees that involves staff, board members and musicians.

An example of a new revenue stream:

We have a lot of ideas we’re pursuing and exploring right now. I’ll give you one example, relatively small-scale in comparison to others. It builds on a partnership we have already established, and we just rolled it out, so it’s brand new.

We’re partnering with MPR on a music travel program. This will be in the form of a cruise that takes place in October of next year. [Minnesota Orchestra violinists Michael Sutton and Natsuki Kumagai] will be involved. We think this will capitalize on our core competency of performing music at a high level. It will amplify our artistic excellence. It will also bring to us some new people who may not already be engaging with the Minnesota Orchestra.

On how the orchestra was affected by the recent shift in corporate funding:

We have experienced a decrease in support from the corporate community. That reduction in corporate support is important and it’s noticeable, but it is something we can move beyond. We will continue to engage with those corporations and foundations that continue to support us, and will, as always, identify new donors to come on board, whether corporate, foundation or individuals.

On whether it plans to make any cuts in response:

We do not have any budgeted cuts. We are very much united behind our revenue growth plan.

On how the $8.8 million deficit might shape upcoming contract negotiations with the musicians:

A collaborative model has been built here over the last several years, where board members, musicians and staff all work together to address opportunities and issues based in the organization. We will use that model as a foundation for our conversation about negotiations.

Thoughts in closing:

As I look at the finances of the organization, I think about three things: The strong financial foundation that we talked about. The fact that we have a revenue growth plan, and while we invest in that plan, we will continue to pursue our artistic mission, and prudently manage this organization and its finances.

Last thought – in my mind, most important – the collaborative spirit that has been developing in this organization in recent years has really come to life and come together in this moment. We have support for this revenue growth plan from board members, musicians and staff. … I feel we’ve joined hands as an organization and are moving forward together.

***

Besides the deficit, FY 2019 was a good year for the Minnesota Orchestra. Seven new musicians joined the band. An American Expressions festival in January showcased music by 19 American composers. Sommerfest celebrated Latin American music instead of Strauss. The orchestra held its annual weeklong Common Chords residency close to home, in north Minneapolis.

It released two more Mahler recordings on BIS and made an album with Dessa that was later released on Doomtree Records, a hip-hop label, almost certainly a first for a symphony orchestra.

More than 30,000 students from 285 schools in Minnesota, Wisconsin and Iowa attended Young People’s Concerts at Orchestra Hall. Residents from every one of Minnesota’s 87 counties came to a performance there. In all, the orchestra performed live for nearly 250,000 people in and out of the hall. It had 42 million impressions on social media and 1.2 million video views on Facebook and YouTube.

The total number of donors grew to 12,600. Total capacity for all concerts was 86 percent, compared to 91 percent in 2018 and 87 percent in 2017 and 2016. Thirty-three percent of concertgoers were first-timers at a Minnesota Orchestra performance.

Announced Tuesday, a new initiative called Hall Pass may boost those new concertgoers numbers. Starting in January, people 18 and under may attend classical concerts for free. Hall Pass is being underwritten by the Bellwether Fund, a musician-led fund that supports education and community programming. The fund was begun four years ago, when the musicians dissolved a 501(c)(3) they had set up during the lockout for private donations and income from self-produced concerts. At the annual meeting on Dec. 2, 2015, they made a gift of $250,000 to the Minnesota Orchestra.

Hall Pass joins the orchestra’s existing $20under40 program in courting younger audience members. Except now, if you’re 18 or under, you (or your parents) can keep the $20.

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