A lot of people have brought up questions about the $196m in bonds on the Woodruff Arts Center’s (WAC) books that were issued in 2002 for the High Museum of Art’s expansion. This project was supposed to be funded by a very successful fundraising campaign that surpassed the original goal of $130m by tens of millions of dollars, so a lot of people want to know why the debt was necessary. Of course, the fundraising wasn’t completed at the time that the project started, so one has to expect that some amount of debt would have to be taken on, but that doesn’t explain why those bonds are still on the books twelve years later. Donors would expect that their donations would go to retiring this debt, if not to directly pay for the expansion project itself, so where did the money go if not to pay down the bonds? Indeed, any of us who donated to that campaign would not be considered crazy for wondering why those bonds are still on the books nearly a decade after the its successful conclusion. I may have stumbled over the answer to this question while looking at the performance of the WAC’s endowment based on numbers reported in their forms 990.
Instead of paying for the various construction projects that were sold to donors, it seems that the WAC decided to put it all into the endowment. The chart below shows the yearly change in the value of the securities in the WAC’s endowment at the end of the fiscal year along with the year over year change in the value of the S&P 500 on the same day. You’ll notice that there is a very distinct jump in the value of the endowment during a time when the stocks were declining but that, otherwise, they vary in roughly the same way. I ran a quick and dirty regression and determined that the increase in the endowment in 2002 exceeded what would have been expected if its value continued to vary with the value of stocks by around $72m.
Please understand that $72m is a very rough estimate and not at all exact. What this number does, though, is tell us that there was a sizable increase in the endowment in a year during which the endowment should have lost value due to poor market performance. Only $15m of the the funds raised were slated to go into the High’s endowment and the one thing that my estimate can tell us with a good degree of certainty is that way more than $15m was put into the endowment that year. The unsuccessful fundraising campaign for the Atlanta Symphony Center had, at that point, mostly resulted in pledges rather than cash donations and could not have caused this jump in the value of the endowment so, unless there was another massively successful fundraising campaign going on that could account for this increase, it is a safe assumption that these are the funds raised for the expansion of the High.
Now, you may be thinking that it makes sense to put the money in the endowment to accrue interest while waiting to pay the bills. Indeed, the decline in the value of the endowment in 2005 and 2006 might at first look like it could have been due to a withdrawal of funds to pay down this debt. However, if you review the WAC’s forms 990, there is no evidence that any of the bonds have been paid down with those funds. I have no idea why the endowment didn’t grow with the market from 2005 through 2007, but it wasn’t because the bonds for the High’s expansion were paid off. What’s more, depending on the interest rate on the bonds, there’s a very good chance that the funds that they invested made far less money than had to be paid in interest on the bonds. Indeed, with the financial troubles that started in 2008 taking sizable chunks out of the endowment, it is likely that the funds have actually lost a lot of value and can no longer cover the expenses for which they were originally raised.
Why did the WAC decide to take the donations for the expansion and gamble on the market rather than pay for the project? Could it be because their endowment managers buy investment instruments from someone connected to the WAC? Where does the firm that manages their endowment buy their investment instruments? Should we be concerned that the Chair of the WAC’s Investment Committee is Barry Berlin, managing director of Atlantic Trust, who sells the kind of hedges that make up an unusually large portion of the WAC’s investment portfolio? Could it really just be simple incompetence? Why does the WAC only seem to be using new funds to pay down these bonds? Who knows? As I have repeatedly pointed out, the WAC’s finances are as opaque as can be. All we can see are blurry shadows of their actions: there is no way for us to find out what is really going on behind the scenes at the WAC.
Donor trust is crucial to a non-profit organization. When an organization requests money from donors for a construction project, you can bet that donors are going to be upset and much less likely to continue donating if the money isn’t used in the way that they were told that it would be. It is time for the WAC to stop obscuring its finances and take ownership of its past mistakes so that we can begin to trust them again. We donors and patrons need to demand answers. If you, like me, are a donor who has become reluctant to continue giving because you have become concerned about where your money is going when you give to the WAC or its subsidiary organizations then it is important that you let them know this. Don’t be quiet: this has been going on far too long and it needs to change now.