In his June 8 article about the Cleveland-Cuyahoga County Port Authority’s plan (now realized) to issue $75 million in tax-exempt bonds to help finance the Cleveland Museum of Art’s expansion, Steve Litt of the Cleveland Plain Dealer reported that those bonds “will be backed by donations made for the museum’s project.”
That’s true. But it’s not the whole story.
I couldn’t help but notice that the stated amount of the bond issue was identical to the $75 million for which the museum had successfully sought court permission to divert to the capital project. The money freed up by the court would, if needed, come from four funds that, according to the donors’ written stipulations, were meant to applied solely to art acquisitions, not bricks and mortar.
Is it a coincidence that these two figures—$75 million for each—are identical? I think not.
Caitlinn Devitt‘s June 15 article in The Bond Buyer about the issuance of the bonds reports that the income from the art funds will indeed provide backing for the bonds.
The borrowing will nearly double the museum’s outstanding debt. The bonds will be backed by future donations and a reserve account funded by endowment earnings. The reserve account typically funds art purchases [emphasis added], but a Cuyahoga County court ruled last year that the museum could tap the fund for capital projects….
Standard & Poor’s downgraded the museum’s outstanding debt ahead of the sale to AA-plus with a stable outlook, from AAA with a negative outlook. Analysts cited operating and fundraising uncertainties amid the capital program and the museum’s heavy reliance on endowment to fund most of its operating budget.
At the same time, Standard & Poor’s noted that the AA-plus rating “remains among our highest for U.S. cultural institutions, reflecting
core credit strengths.”
Christa Skiles, the museum’s spokesperson, informed me in an e-mail last week that
“the museum has not yet used income from the art fund.” She added that “no specific date or amount for future use of this income has been set” and that “there is no plan for the income from the art fund to be repaid” if that money is indeed diverted to the expansion
But it now appears that, while not yet spent, the partially repurposed income from the art fund is (contrary to what Skiles said) already being used—to back the bonds. If donations to the capital campaign fall short, up to $75 million in money that was meant to be applied to art purchases may instead be diverted to the building project.
While this is not the same thing as using works already in the permanent collection to back a bond issue (which would be widely frowned upon), this IS sacrificing works that would otherwise have been part of the future permanent collection—the objects that the museum won’t be able to buy if the $75 million goes towards enhancing and expanding the facility designed to accommodate them. As I’ve previously stated, I regard this gambit as the most egregious disregard of donor intent by an art-displaying institution in recent memory.
Paradoxically, Cleveland’s legal argument for violating donor intent was that the four long-ago benefactors hadn’t envisioned the pressing need to provide more space for the collection and new acquisitions. In its successful Complaint for Declaratory Judgment, Cleveland argued in Cuyahoga County Probate Court that of all the funds that the museum might have chosen to tap for construction, the art purchase fund “would be most frustrated as to purpose in the event the Museum does not expand.”
On the contrary, it seems to me axiomatic that these funds would be “most frustrated as to purpose” if they weren’t used for their intended purpose—art acquisitions, not construction.
Commenting on the diversion of acquisition funds, Deborah Gribbon, the museum’s interim director, said this to me in a written statement:
This action was not necessitated by imprudent planning, it was taken only after full consideration of every other option, and it was pursued with complete transparency [emphasis added]. To the extent that these funds are used, it will be to the direct benefit of the museum’s collection and its public.
But “complete transparency” did not extend to full public disclosure that the diversion of the art funds was being sought to bolster a bond offering. That information is contained in one short phrase in the court petition, which states that, among other things, the money might be used “to service debt that is now or will be outstanding.” Timothy Rub did allude briefly to the issue of “bonding capacity” in his Q&A we me about the diversion of Cleveland’s art funds. (We spoke about this after he had left the Cleveland directorship and assumed the top post at the Philadelphia Museum of Art.)
As for paying off those bonds, Standard & Poor’s has warned (as also reported in The Bond Buyer‘s article) that the museum’s future debt burden could exceed 20% of the museum’s budget. In 2005, the museum issued $90 million in bonds through the Cleveland-Cuyahoga County Port Authority. The total fundraising goal for the project is $350 million, of which $220 million has thus far been raised. On June 14, the museum’s board green-lighted the final phases of the expansion designed by architect Rafael Viñoly, scheduled for completion in 2013.
On Saturday, the museum opened 17 newly renovated galleries, completing the restoration of its original 1916 building. These spaces house art from the ancient Near East, Greece, Rome, Egypt and Africa; works from late antiquity, the Byzantine Empire and the European Middle Ages; and prints and drawings.
The installation of ancient art, Litt reports, includes restitution replacements—objects sent by Italy on long-term loan, in return for Cleveland’s givebacks of antiquities that the Italian government had claimed were illegally removed from that country.
According to yet another report by Litt, Cleveland still rejects Greece’s claim to one of the most important antiquities in the museum’s collection—“Apollo Sauroktonos” (pictured at the top), a life-sized bronze attributed to Praxiteles, now featured at the entrance to the newly renovated galleries.
CLARIFICATION: The actual par value of the bonds, as stated in the June 17 offering circular, is $70.43 million.