Dipping into Endowments?
by Aileen Kwun March 30, 2020
As the U.S. continues to grapple with the COVID-19 pandemic, recently surpassing China’s toll of deaths, nearly every shade of civic and cultural life has come to a grinding halt in an effort to “flatten the curve”—and with arts and cultural institutions closed until further notice, some may not survive the storm. News that the Metropolitan Museum of Art, a behemoth of the art world, anticipates $100 million in losses due to sudden closures (which are, as of now, planned through July) stunned the art world. If the economic pressures of the pandemic could falter and forebode canceled programs and layoffs at the Met—whose $3.6 billion endowments far surpass those of other museums in the country—it is a worrying indication of the struggles facing smaller arts organizations and institutions in this period of “medium-term” uncertainty. How can well-funded institutions like the Met use their endowments to stay afloat, and what can be said of the many others who are not?
According to an estimate from the American Alliance of Museums (AAM), U.S. museums are now losing more than $33 million per day, placing nearly one-third of them in peril of permanent closures—and the livelihood of museum employees across the country suddenly hanging in jeopardy. Cultural institutions account for 725,000 employees across the U.S., and are a huge economic driver of tourism in major cities; not to mention, they are custodians of humanity’s visual, cultural, and material histories.
The median art museum has just two months’ worth of working capital stored up at any given time.
“How long do we have to be closed? Will we have to close again? We don’t know that yet,” as the Walker Art Center’s director, Mary Ceruti, said to Artnet. Most museums depend on admissions and earned revenues, such as restaurant and event rentals, to keep their operations afloat, and according to a 2018 survey by SMU DataArts, the median art museum has just two months’ worth of working capital stored up at any given time. “Many museums are using any reserves they have to get through the next month,” as Laura Lott, AAM’s president and chief executive, told the New York Times. “This situation is by far more dire than anything I have experienced in my 25 years of being an arts finance professional.”
Met Museum Prepares for $100 Million Loss, Image via New York Times
In an effort to soften the blow, earlier this month the Met and AAM launched #CongressSaveCulture, a social media campaign petitioning the federal government for a $4 billion injection to save non-profit, at-risk arts and cultural institutions, as part of the national $2 trillion stimulus package that was working its way through Congress. While the final bill, signed into effect late last week, allocated a sum for the arts sector, it fell significantly short of the need, earmarking just $300 million: a pittance of the amount requested, with the lion’s share of the stimulus package directed to corporate bailouts.
With sweeping closures affecting nearly every sector of the economy, the pandemic has placed an uneasy spotlight on systemic weaknesses and precarities that have been steadily mounting for some time, and the world of museum funding is certainly no exception. As the distribution of individual wealth in the U.S. has become grossly skewed in recent decades, so has funding among the country’s museums, according to previous reporting from Quartz, with the top 5% of museums owning a majority of the national share coming from super-wealthy patrons.
#CongressSaveCulture social media campaign, Image via the Met Museum
As Tim Griffin, the director and chief curator of the Kitchen, remarked to Artnet: “There is consolidation we have been seeing for a decade in the museum field. This could easily be the thing that pushes it over the edge.” With closures planned through spring—traditionally, gala season for the art world—museums will also lose a crucial round of annual fundraising to buoy them through the year.
Charitable donations to non-profit organizations such as museums are regulated through endowments: a “war chest” of funds governed by a board of trustees, each of whom often pay large fees to maintain a seat at the table. With a lack of public funding in the U.S., museums rely on trustee contributions for as much as 30% of an annual budget. As a financial vehicle, typically endowments only allow boards to spend from the interest earned, rather than the principal amount, which is kept intact for future stability. As a portion of endowments are typically invested in the market, they are not immune to economic crashes—and in fact, they often reflect it. The 2008 recession caused museum endowments to dip as much as 30 percent (and in some cases more), depleting the safety net for the current economic tumble. To deal with losses, many museums cut budgets, enacted hiring freezes, and organized leaner programs that avoided costly loaned works from other institutions.
At the end of the day, endowments are meant to ensure that museums have enough funding to keep up their long-term missions as educational, charitable institutions.
For those few museums with sufficiently handsome endowments—such as the Met, whose $3.6 billion is more than tenfold its $320 million operating budget—will the COVID-19 pandemic losses qualify as a historically unprecedented crisis calling for more lax, immediate spending measures?
“At the end of the day, endowments are meant to ensure that museums have enough funding to keep up their long-term missions as educational, charitable institutions,” says art world veteran and lawyer Yayoi Shionoiri . “In other words, it’s implying that these museums will be around for a very long time because they are the stewards of aspects of our visual material culture for the public. We want museums like the Met and the Brooklyn Museum to be encyclopedic institutions so that down the line, many, many decades after this horrible COVID-19 crisis is over, and many decades after we’re all gone, there will still be a way for future generations to look and learn about art.”
Yayoi Shionoiri, Image by Munemasa Takahashi
While endowments are generally seen as a “rainy-day fund,” says Shionoiri, there are a few different types of endowments—unrestricted, term, quasi, and restricted—each of which are strictly governed by terms of usage. To complicate matters, a museum’s board may also have established by-laws and procedures that vary from institution to institution (though several protective restrictions, she notes, were put into place on a federal level after the 2008 crash).
Because restrictions on endowment spending can vary widely, the measures are not so clear-cut.
“During a crisis like this, Boards are responsible for thinking about what they have to do in the short-term, and the easiest way to do that is reduce expenditures,” Shionoiri
As the “medium-term” uncertainty continues, there is no guarantee that such a crisis won’t happen again: museums will have to weigh how to best preserve its stores of history and knowledge for the future. With payroll estimated to comprise as much as 75 to 80 percent of a museum’s operating costs, museum trustees will need to exercise their privileged seats at the table to make crucial decisions, and quickly: For an esteemed seat at the table may not be worth much, if the gears that keep it running are moot when this pandemic is all said and done.