{"id":1491,"date":"2011-04-20T08:18:58","date_gmt":"2011-04-20T15:18:58","guid":{"rendered":"http:\/\/www.artsjournal.com\/artfulmanager\/wp\/2011\/04\/immovable_object_meets_unstopp\/"},"modified":"2011-04-20T08:18:58","modified_gmt":"2011-04-20T15:18:58","slug":"immovable_object_meets_unstopp","status":"publish","type":"post","link":"https:\/\/www.artsjournal.com\/artfulmanager\/main\/immovable_object_meets_unstopp.php","title":{"rendered":"Immovable object meets unstoppable force"},"content":{"rendered":"<p>There&#8217;s lots of chatter online about the Philadelphia Orchestra, and its<a href=\"http:\/\/articles.philly.com\/2011-04-17\/news\/29428041_1_orchestra-musicians-philadelphia-orchestra-second-rate-orchestra\"> board&#8217;s vote to file for protection and restructuring under Chapter 11 bankruptcy<\/a> (here&#8217;s <a href=\"http:\/\/www.scribd.com\/doc\/53286739\/phillyorchestra\">the actual filing<\/a>). Of particular curiosity to many is how an organization with no debt and over $100 million in endowment goes broke. Their answer is that contractual constraints on their assets (endowment mostly) and contractual liabilities (employee pensions mostly) imbalance the math to the tune of $14.5 million for FY 2011, and probably more thereafter.<\/p>\n<div><\/div>\n<div>While much has been made of the big issues (the bellwether of a top-five orchestra going broke, the tension of union workers against management, and such), it&#8217;s the details of the bankruptcy filings that are particularly fascinating.&nbsp;Richard B. Worley, Chairman of the Board of The Philadelphia Orchestra Association, offers the play-by-play of the evolving train wreck as follows:<\/div>\n<div><\/div>\n<div>\n<ul>\n<li>Main season revenues fell from $9.9 million in FY 2008 to $8.1 million in FY 2010.<\/li>\n<li>In recent years, the organization has drawn from the endowment at a greater rate than industry standards (more than 5 to 5.5 percent) to help plug the deficit, extracting all of the unrestricted funds, and leaving only highly-restricted funds that support specific activities and are not available for general operations or other liabilities.<\/li>\n<li>The organization made a practice of using funds from incoming unrestricted bequests to support operations, rather than investing them.<\/li>\n<li>Costs have risen significantly over the past decade, from $31.3 million in FY 2000 to $43.6 million in FY 2010.<\/li>\n<li>Of that $12.3 million increase, $8.4 million directly relates to musician expenses, including salary, pension, health insurance, and other benefits (this despite significant concessions from the musician&#8217;s union for FY 2010 and FY 2011).<\/li>\n<li>$1.4 million of that increase is attributed to higher occupancy costs resulting from the move from Academy of Music to the Kimmel Center.<\/li>\n<li>The organization also faces (and this is likely the kicker) at least $44.8 million in unfunded pension liabilities from its currently contracted plans. Due to market declines and investment decisions, their frozen defined benefit plan for musicians and active defined benefit plan for staff are underfunded by about $21.8 million, requiring an annual $2.18 million cash payment (which doesn&#8217;t show up in current income statements under accounting rules).<\/li>\n<li>The organization is currently in legal dispute with its Pops concert partner, which they claim will run an $800,000 deficit in FY 2011, but which they are required to present with full financial responsibility.<\/li>\n<\/ul>\n<div>And the list goes on (read section E <a href=\"http:\/\/www.scribd.com\/doc\/53286739\/phillyorchestra\">in the filing<\/a> for all the juicy details).<\/div>\n<div><\/div>\n<div>In short, seismic shifts in the environment led to an increasing disconnect between the Philadelphia Orchestra&#8217;s way of being and doing, and the support structures available to that model. The consequences and constraints of contracts (with donors and employees) negotiated decades ago made navigating that shifting environment nearly impossible. And all along the way, little choices that eased current problems but incurred future problems of greater scale laid the track even further away from the necessary destination.<\/div>\n<div><\/div>\n<div>So, what happens when an immovable object meets and unstoppable force? Philadelphia is providing the opportunity to watch and see. And, as a bonus, they&#8217;re offering everyone an opportunity to <a href=\"http:\/\/www.philorchtoday.org\/a-message-to-our-patrons\/listen-with-your-heart\">fund the experiment<\/a>&nbsp;(and I must say, the &#8220;Listen with your heart&#8221; theme to that campaign is quite a brilliant deflection for those distracted by the evidence their other senses are providing about the organization).<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>There&#8217;s lots of chatter online about the Philadelphia Orchestra, and its board&#8217;s vote to file for protection and restructuring under Chapter 11 bankruptcy (here&#8217;s the actual filing). Of particular curiosity to many is how an organization with no debt and over $100 million in endowment goes broke. Their answer is that contractual constraints on their [&hellip;]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","footnotes":""},"categories":[4],"tags":[],"class_list":{"0":"post-1491","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-main","7":"entry"},"_links":{"self":[{"href":"https:\/\/www.artsjournal.com\/artfulmanager\/wp-json\/wp\/v2\/posts\/1491","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.artsjournal.com\/artfulmanager\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.artsjournal.com\/artfulmanager\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.artsjournal.com\/artfulmanager\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.artsjournal.com\/artfulmanager\/wp-json\/wp\/v2\/comments?post=1491"}],"version-history":[{"count":0,"href":"https:\/\/www.artsjournal.com\/artfulmanager\/wp-json\/wp\/v2\/posts\/1491\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.artsjournal.com\/artfulmanager\/wp-json\/wp\/v2\/media?parent=1491"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.artsjournal.com\/artfulmanager\/wp-json\/wp\/v2\/categories?post=1491"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.artsjournal.com\/artfulmanager\/wp-json\/wp\/v2\/tags?post=1491"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}