Montclair’s Deaccessions Revealed, AAMD Condones Applying Art Proceeds Towards Bond Covenants

Jackson Pollock, "Untitled," 1951, estimated to sell for $400,000-$600,000 on May 13 at Christie's Postwar and Contemporary evening sale

Above is the star lot from list of works consigned by the Montclair Art Museum for sale next month at Christie's. Most (including works by Bierstadt, Homer, Glackens, Henri) will be offered in the May 20 American sale; one, the Pollock pictured above, will be in the May 13 Postwar and Contemporary evening sale, and three works (Reinhardt, Motherwell, Stamos) in the May 14 Postwar and Contemporary morning sale.

With the exception of the Pollock (more on that below), this appears to be mostly a housecleaning. But to my mind (as I discussed here), the use of the proceeds to do double duty---shoring up the endowment to meet the requirements of a bond issue---runs contrary to the Association of Art Museum Director's stipulation that art sale proceeds may be used ONLY for acquisitions. As you will see below, Dan Monroe, director of the Peabody Essex Museum, Salem, MA, and chair of AAMD's Art Issues Committee, disagrees with me.

But first, let's review AAMD's written policy. It specifically states:

Proceeds from a deaccessioned work are used only to acquire other works of art---the proceeds are never used as operating funds, to build a general endowment [emphasis added], or for any other expenses.

While the proceeds will, if all goes according to plan, be used for acquisitions, the money is also being used to keep the total endowment at the level (the amount of which I have not yet been able to determine) needed to meet the requirements of the bonds. Christopher Knight of the LA Times recently reported that the endowment is about $1 million shy of what's required under the terms of the bond issue. (I have sought confirmation of this from Montclair as part of a list of queries still pending.) The bonds were issued on June 14, 2000, with a par value of $6 million. Some $1.08 million of that has been redeemed to date. The bonds' maturity date is July 1, 2020.

Lora Urbanelli, director of the museum, told me in an e-mail that it is wrong to say that Montclair's deaccession proceeds will be "backing the bonds." However, their use to satisfy bond requirements does mean that they are functioning as evidence to bond purchasers that the museum is fiscally sound and has enough cash to pay interest and principle, in the event of financial difficulty.

Here's what Dan Monroe of AAMD wrote to me about Montclair's unorthodox use of art sale proceeds:

AAMD's policy regarding use of funds obtained through deaccessions states that proceeds from such sales may only be used for new acquisitions. Placing funds derived from deaccessions in an endowment restricted only to acquisitions is entirely consistent with AAMD policy since the funds generated by such an endowment may only be used for acquisitions.

To argue that Montclair's restricted endowment for acquisitions is being used for a second and improper "purpose" that conflicts with AAMD policy because the value of this endowment may be part of Montclair's bond covenants is to conflate the meaning of "purpose." The purpose of the endowment is not satisfaction of bond covenants; it is support of art acquisitions. That Montclair's restricted endowment for acquisitions may enter into bond covenants does not imply a purpose other than acquisitions.

Do you have specific information to show that Montclair has taken any steps to jeopardize its acquisition endowment? We do not. Law controls management and use of restricted endowment funds. To our knowledge, Montclair has done nothing illegal in its use and management of endowment.

Urbanelli assured me in an e-mail that her museum has "the resources and the business model in place to pay them [the bonds] back over a long period of time. Their repayment is not, has never been, and we expect will never be, a concern."

But who ever thought that Lehman Brothers would collapse? We live in uncertain times.

Although Urbanelli told me that the bonds were "issued by the State of New Jersey," the Buy NJ Bonds office of the State of New Jersey informed me by e-mail that "the New Jersey Economic Development Authority issued those bonds, which are not backed by the State of New Jersey." Montclair Art Museum board member Steven Plofker, a real estate developer, investor and attorney, is also a board member of NJEDA, the bond issuer.

As for the new Pollock on the block, Carol Vogel of the NY Times (scroll down) reported:

The classic drip image is delicate, as well as light-sensitive, and therefore cannot be shown often. Among the factors the museum considered, Ms. Urbanelli said, was whether "it really matters if we have a Pollock drip when you can take a bus and be in the city in 20 minutes, where you can see lots of work by Pollock." [I'm a New Jerseyan; that bus must have found ways to evade speeding tickets and/or traffic.]

Urbanelli may have told Vogel that the Pollock can't be shown often, but in fact it was exhibited in eight museum shows in the last 21 years (including five at Montclair).

Most notably, it was part of the Guggenheim Museum's acclaimed 2006 exhibition, No Limits, Just Edges: Jackson Pollock Paintings on Paper, which also displayed a great work that never should have been sold from the collection of the Museum of Modern Art---Pollock's "Number 12, 1949," a colorful, gem-like classic drip painting on paper auctioned by that museum in 2004 for $11.66-million. (MoMA's castoff had appeared, prior to its sale, in about 20 exhibitions, several at MoMA.)

The Montclair Museum has also shopped its closet for disposables from from its costume collection, to be sold in New York this Wednesday by Augusta Auctions, a specialist in vintage clothing and textiles.

It seems clear to me that these disposals, which Montclair tellingly describes as part of its "Financial Security Plan," are not only about getting money to acquire art. Their timing, at the depths of the bear market, bespeaks a need to come up quickly with some cash to shore up an endowment that, according to the museum's press release, plummeted from $8 million to $6 million since July 1.

The museum's recently posted Q&A, revealed that a total of about 50 items are to be sold, for an estimated $3-$5 million.

And yesterday, Urbanelli published a letter in the Wall Street Journal, responding to James Panero's article that criticized Montclair's actions. She detailed the benefits of the disposals, without ever alluding to, let alone addressing, the specific practice that Panero had criticized---the use of art proceeds to satisfy bond requirements.

I think AAMD needs to rethink this issue. It's another slippery slope that may entice other financially pressed institutions if it's not placed off-limits.

UPDATE: Just as I posted this, I got word from Christie's that it will be selling a total of 54 Montclair consignments in six different sales (three in June), estimated to bring a total of $2.88-4.3 million.