The Art World: Will Costly Museums Go Bust

NEW YORK, Oct. 4 (UPI) -- Are art museums both large and small across the nation expanding at such a rate that they will not be able to afford their increased overhead if the current economic downturn becomes a real recession in the wake of the terrorist attack on the United States?

That is the question that should concern ambitious directors and trustees of the 25 American art institutions involved in fund-raising for new buildings and new wings, some costing in excess of $100 million. It is the greatest era of museum building since the 1890s, reflecting the almost blind confidence of an enterprise that has always been run as a red-ink business subsidized by public contributions.

Museums have, for the first time last year, topped 1 billion in attendance overall, more than double admissions to professional sports events, certainly reason for optimism.

But at least one expert in the field has predicted doom if the museum expansion boom proceeds at its present hectic pace. Adrian Ellis, a management consultant to many U.S. and European museums, wrote recently in the monthly Art Newspaper that too many museums have indulged in expansion as an excuse to raise funds and refinance so that they can move into the 21st century bigger and better than ever.

"The problem with this strategy is that it is a form of pyramid selling or Ponzi scheme," wrote Ellis, chief executive officer of the London-based AEA Consulting firm. "Eventually, after the noise has died down and the new building completed, the logic of the weakening balance sheet kicks in again.

"Unless the scheme was so successful that is has generated a whole new set of contributed funding opportunities, the systemic under-financing reappears in heightened form and operational costs will have grown faster than contributed income and earned income. The museum is faced again with the option of crisis appeal."

To avoid the necessity of repetitious crisis appeals that may wear out a museum's welcome in the community, Ellis suggests reining in dramatically on plans drawn up during the long upswing of the Dow Jones and Nasdaq, but not yet executed. However, American museums show no intention of following his advice, which was given before the Sept. 11 disaster.

New York's Guggenheim is going ahead with the nation's most expensive museum project, an enormous $678 million Frank Gehry-designed satellite in the Wall Street area, where untold billions will be needed for reconstruction in the World Trade Center area.

Before the Twin Towers disaster, 10 percent of the expense of building this facility was pledged by the city, but it remains to be seen whether this pledge can now be honored or whether foundations and private donors, already feeling the pinch of stock market reverses, will be as generous in giving funds as expected.

Museum endowments only generate 11 percent of museum budgets on the average, meaning that most museums are shockingly under-endowed, according to a survey by the American Association of Museums. The rest must come from museum revenues (admissions, gift shops, restaurants, reproduction royalties, rentals), which provide museums with 28.6 percent of their income, and philanthropic donations that fluctuate from year to year.

"Between 75 percent and 84 percent of total giving to all non-profit institutions, including museums, come from individuals, and people tend to cut back when the value of their stocks fall," the AMA reported. "It may not be evident immediately, but it will show up in time."

Smaller institutions have already felt the crunch, but many larger institutions are cushioned from immediate recession effects by income accrued during the long bull market and the conservative investment policies followed by most museum boards. All that, of course, could change if the United States launches a prolonged war against terrorists and the countries that harbor and aid them.

There already are signals that museums are pulling in their horns. The director of the San Francisco Museum of Modern Art, David Ross, resigned earlier this month because the museum felt it could no longer finance projects he wanted.

But most museum directors are going ahead with planned expansion. Their optimism is reflected in a cultural sector survey by Moody's, the financial publication, which reported this week that "the current building boom will continue, driven by growing community and philanthropic support."

The report did not reflect what would happen to museums in case this support dwindled substantially because of economic recession or war.

"We are not going to adjust our fund-raising or strategic goals or minimize our programming in any way, and I don't project that we will, assuming the downslide doesn't go further," said Emily Rafferty, development director for the Metropolitan Museum, which has raised $460 million of its $650 million 10-year capital campaign goal in six years.

"I think we're going to be OK," she added.

An informal United Press International survey of museums from coast to coast show that the following have some of the most ambitious expansion programs that might be vulnerable to events that have a negative effect on the economy:

-- The Museum of Modern Art, New York, which is raising $650 million for its current expansion and an annex in the borough of Queens.

-- The Nelson-Atkins Museum, Kansas City, Mo., a new addition to cost $175 million.

-- The Corcoran Gallery, Washington, a $120 million wing.

-- The Denver Museum, a new $110 million wing financed by city bonds.

-- Austin Art Museum, Texas, a $65 million construction.

-- Brooklyn Museum, New York, long-term renovation and expansion at a cost of $60 million.

-- Jewish Museum, San Francisco, a $60 million project.

-- Walker Art Center, Minneapolis, a $50 million expansion.

-- Institute of Contemporary Art, Boston, a $50 million project.

-- Guggenheim/Hermitage Museum, Las Vegas, a new $30 million facility.

-- Amon Carter Museum, Fort Worth, Texas., a $39 million wing now under construction.

-- Museum of American Folk Art, New York, a new $34.5 million museum now under construction.

-- Akron Art Museum, Ohio, a $30 million project.