Category Archives: Uncategorized

Finally, Some Good News!

The Atlanta Symphony Musicians have ratified a new contract that will, over four years, raise the compliment of full time musicians to 88.  I am sure that I am not alone in looking forward to seeing them back on the stage of Symphony Hall.  Let’s not forget, though, what we have discovered about the Woodruff Arts Center’s leadership during this ordeal.  There are still many questions that need to be answered and, if we are to avoid yet another lockout in four years, we will need to put pressure on the folks in charge of the Woodruff Arts Center to shape up or move aside and let a more qualified and competent group of people take over.

In the meantime, though, let’s all congratulate the musicians and thank them for fighting to keep quality music in Atlanta.  And most importantly, don’t forget to enjoy the music!

Love and Debt: How a Donor Funded Project Resulted in Massive Debt

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.

How to Cut $5 Million from the ASO Budget in One Easy Step

It took an open records request and a comparison of numbers across four different sources, but it appears that I have finally found out how much the Verizon Wireless Amphitheatre (VWA) costs the Atlanta Symphony Orchestra (ASO).  I have mentioned before that the financial statements available from the Woodruff Arts Center (WAC) are not clear enough to tease out the real costs related to the various activities of the ASO.  I pointed out that the funding model used for the VWA broke from the approaches used for other capital development projects that the WAC has undertaken and that it has resulted in a large financial burden for the ASO.  I have also already discussed the fact that there seem to be conflicts of interest among many on the WAC’s Board of Governors when it comes to the VWA and that these conflicts of interest may be preventing them from putting the ASO’s interests first when it comes to decisions relating to that property.

The Woodruff Arts Center leadership has repeatedly stated that the ASO has been running deficits for the past 12 years.  That coincides with the WAC’s incorporation of what appears to be a shell company, Encore Park for the Arts, and purchasing the land for the VWA from one of its board member’s companies, Cousins Properties.  In 2007, when the WAC issued the bonds for the VWA project, they held a credit rating of AA3 from Moody’s.  Since then, their bond ratings have been downgraded twice and, just last year, Moody’s issued a statement downgrading the WAC’s outlook, suggesting that another downgrade is likely.  The principal reasons given for this are the ASO’s accumulated deficits and the WAC’s accumulated debt.  It is hard to imagine that the debt from the VWA is not related to this — indeed, that is likely part of the reason why the WAC leadership retired that debt early rather than fund ASO operations.  But what about the costs of running the venue?  Does it pay for itself or is it a liability?  If you have been following the reports around this lockout or the one in 2012 then you probably have heard mutterings about the VWA being the real source of the ASO’s financial shortfall.  Is this true?

Right now, the WAC leadership are trying to close the ASO’s budget gap on the backs of the musicians.  Although they say that they’ve cut everything else that they could, there are many who question this.  Unfortunately, the WAC has been unwilling to release any financial documents; even the ones that they are required to make available upon request as a 501(c)3 non-profit organization.   This has made it very difficult to tell what the biggest expenses are for the organization.  To get around the WAC’s stonewalling, I have taken the liberty of making an open records request for their financial statements from one of the government agencies that has granted money to the WAC.  Even after getting these documents, though, it was hard to suss out the specifics of the ASO’s revenues and expenses.  It was necessary to review several different sources to pull it all together.

I was able to find how much it costs to run the VWA in the budget for a fiscal year 2015 (this season) application for funding.  It seems that it costs nearly $5.5m just to operate the VWA.  We can assume that the numbers budgeted for FY 2015 are similar to — if not smaller than –previous years since no major changes have been made to the VWA and the bond that financed it has been retired.

ASO Budget Breakdown from GA Council for Arts Application for Funding w-highlighting - CROPPED

Click to see full page

Figuring out how it may be paying for itself is a little tricky.  If we look at the WAC’s FY 2013 Form 990 then we see that Part VIII Section 6a lists total rental income for the whole of the WAC as roughly $1.4m.  Even if that were all from the VWA — which would not be the case since the WAC has a number of venues and meeting spaces that it makes available for rent — then it still wouldn’t cover the costs.  So how about ticket revenue from the pop concerts held there?  The figures from the ASO’s schedule of activities from the WAC’s FY 2013 Audit tell us that the ASO brought in nearly $14m from ticket sales in 2013.  If ticket sales for the Classical, Pops, and Holiday series of concerts were roughly the same as the amount that the WAC leadership stated in their FAQ for 2014, then $4m of those ticket sales came from orchestra concerts and $10m came from the ASO Presents concerts.  In the aforementioned schedule of activities from the audit, we can see that the cost of the ASO Presents “Popular presentations” were roughly $15m.  If we assume that $5.5m of that was the cost of running the VWA, then ASO Presents had net revenues of around $500k in 2013.*  Even if we pretend that all ASO Presents concerts were held in the VWA — which they weren’t since they also produce concerts at Symphony Hall and Delta Chastain Park Amphitheater — then that leaves a $5m deficit resulting from running the VWA.  Now, some small portion of that is probably covered by rental fees.  Some more will be covered by food and beverage vending and parking fees, but the schedule of activities from the audit only lists $5.1m in ancillary revenue and there is no way that all of that is generated solely from activities in an amphitheater that is only open part of the year.

If you’re like me — and I know that I am — then you are wondering why the WAC hasn’t idled the VWA to save money instead of idling the orchestra since the operation of the orchestra is a major part of the WAC’s core mission: they’re the Woodruff Arts Center, not the Woodruff Venue Management Center, after all.  For that matter, it may be in their best interest to sell it off or even give it away like the Community Foundation for Greater Atlanta did with the 14th Street Playhouse when it was dragging their finances down during tough times.  We also have to ask why the WAC has seemingly obfuscated the financial burden that the VWA represents to the organization.  Could it be because there are three people on the board of Governors who have financial interests that have directly benefited from its construction?  Could it be because it sells booze provided by Douglas Hertz’s company?  Could it be some other, less nefarious reason?  Are they just incompetent?  There’s no way to know: it took four different documents just to tease out these numbers and the WAC leadership has shown that they are not willing to give us the real numbers.

Personally, I hate the idea that my donations are going to run an amphitheater that has nothing to do with the classical music concerts that I hold so dear nor the educational programs that do so much for the Atlanta community.  Even if the lockout ends tomorrow then we, the donors and subscribers, need to demand that these questions are answered.  If the current leadership of the WAC cannot act in the best interests of the subsidiary arts organizations that they purportedly serve then they need to be driven out.

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* The WAC has stated that net revenue from ASO Presents concerts totaled $2m in FY 2014. The discrepancy between that number and the one that I have calculated is likely due to ASO management increasing the number of ASO Presents concerts dramatically in FY 2014.

Interest in Conflicts of Interest

In a previous article, I wrote about some possible conflicts of interest related to the Verizon Wireless Amphitheatre.  The land was purchased from Cousins Properties and Duke Realty and, I’ve since discovered, Duke Realty also was contracted to build it (see note).  It is worrisome when the leaders of a non-profit benefit financially from the non-profit organization that they are charged to lead.  Donors and grantors do not like to think that they are paying to line a private individual’s pockets when they are trying to support the mission of an organization.  That’s why I was so disappointed in what I found when I took a closer look at the Woodruff Arts Center’s (WAC) Forms 990.

Since 2008, non-profits have been required to disclose any business transactions involving interested persons (i.e. people in the organization that may face a conflict of interest in performing their duties).  This would include any of the trustees and would absolutely include anyone on the Board of Governors.  The WAC’s 2012 Form 990 lists four such business transactions with trustees.

Conflict of Interest List

Unfortunately, this list is incomplete.  Contained within the form 990 itself is another major business transaction: $461,494 paid out to Coxe Curry & Associates for consulting services on fundraising campaigns.  Phil Jacobs, the Nominating and Governance Committee Chair of the WAC Governing Board, is a senior consultant at Coxe Curry & Associates.  That’s a pretty glaring omission that left me wondering if there could be any others.

Fundraiser Payments.crop

Douglas Hertz, the chair of the Board of Governors, is also the CEO of United Distributors, which is an alcoholic beverage distribution company.  Is that where the WAC gets their alcohol?  I’ve noticed that a lot of the new programming at the WAC has involved alcohol, such as the Friday Night Lates at the High Museum of Art or the Atlanta Symphony Orchestra’s Soundstage Lounge.  Does this benefit Hertz?  Similarly, Paul R. Garcia, the board’s Vice Chair, is the president of Global Payment Systems.  Which payment system does the WAC use?  I’d normally assume that the WAC uses other vendors since neither of these potential conflicts of interest are listed on the form 990 Schedule L but, because the Coxe Curry & Associates relationship wasn’t disclosed, I now have my doubts.

As I was looking into the affiliations of the WAC Board of Governors, I stumbled over the fact that there is a second person on the Board of Governors who had connections to Cousins Properties.  I mentioned before that Larry Gellerstadt, III is the CEO of Cousins Properties.  It turns out that Lynda Courts, an at-large member of the Board of Governors, is the wife of Richard Courts, II, who formerly served on the board of Cousins Properties and who, along with other members of his family, is a major stock holder in the company.

Of course, this wouldn’t count as a conflict of interest since the WAC bought the land for the VWA back in 2007, before this kind of transaction would need to be listed on a form 990.  And maybe we could just assume that something that far in the past wouldn’t matter to decisions regarding the VWA now, right?  But that’s not the whole story.

Cousins Properties owns a little under 20 acres of land across the street from the VWA.  Interestingly, they sold it in 2008 but then bought it back in 2010.  As of the time that this story was published, if you look at the VWA website then you will see that it mentions plans for a phase II development of Encore Park.  Do you  think that it would be a safe bet that this phase II would find its home on the 20 acres of land across the street from Phase I?

Making things look even worse is that the WAC seems to have formed a shell corporation to purchase the property for the VWA in the first place.  The actual deeds for the land show that it was purchased from a company called Encore Park for the Arts, Inc rather than directly from Cousins Properties.  Encore Park for the Arts bought the property from Cousins Properties in 2003.  It is worth noting that Thomas Cousins, himself, was on the board of trustees of the WAC at that time.   I took the liberty of looking into the State corporate filings for this company and it turns out that its principle address is 1280 Peachtree St, the same address as the WAC.  Further, the officers of the company are all officers of the WAC.  Indeed, Hepner is CEO of both organizations.  This company was incorporated in 2002 for the express purposes of developing Encore Park and has always been in the control of the WAC and its board.  Until 2010 it was registered as a 501(c)3 and, in its last form 990 from 2008, it lists an advisory board made up solely of people with the WAC as their address.  Oddly, it is still registered as a not-for-profit with the State of GA even though the IRS revoked its 501(c)3 status in 2010 for failing to submit forms 990 for three consecutive years.  That means that they stopped filing forms 990 after Cousins Properties initially sold off the plot of land across the street.

Why does the WAC have a shell company that bought the land for the Verizon Wireless Amphitheatre (VWA) three years before it was officially acquired by the Woodruff Arts Center (WAC)?  Is it just a coincidence that the ASO started running deficits when it was incorporated?  If it existed solely to raise funds for the project, why does it still exist?  And why is it still registered with the State of Georgia as a non-profit even though its 501(c)3 status was revoked by the IRS in 2010 due to failure to submit forms 990?  Is it just a coincidence that the WAC’s board began reorganizing to put substantial power of governance into the hands of the CEO of Cousins Properties around the same time that they repurchased the property across from the VWA?

There may be a good explanation for all of this and I’d love to see the WAC release information that explains what is going on.  Unfortunately, despite stating on their Forms 990 that financial statements and their conflict of interest policy will be made available upon request, they do not seem to  be responding to any requests for this information.  I said in my previous post that the optics were bad; this time, I’m saying that something smells rotten.  The WAC Board of Governors is made up of 18 members, of which 4 have definite conflicts of interest and there are 2 others who might also benefit from WAC expenditures.  It seems almost as though having a potential conflict of interest is considered a positive thing when the Board of Trustees elect the Board of Governors.  The WAC has a lot of questions to answer and donors, grantors, and any public entity who has underwritten their bonds need to demand answers.

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*NOTE* The Woodruff Arts Center has removed the original presentation to which I had linked. Click HERE for more information.

How Not to Finance an Amphiteater

A lot of people have talked about whether or not it made sense to pay off the debt for the Verizon Wireless Amphitheatre at Encore Park (VWA) early when those funds could have been used to support the general operating budget of the Atlanta Symphony Orchestra (ASO). There are arguments worth considering on both sides of that issue, but what I haven’t heard anyone mention is why the debt exists in the first place and what it says about the folks currently in charge of the ASO’s future.

The land acquisition for and the construction of the VWA began in January of 2007. At the time, as the Woodruff Arts Center (WAC) management keeps helpfully pointing out, the ASO was running a deficit. It was also running a fundraising campaign to build the (now scrapped) Atlanta Symphony Center. While one might think that management might want to finish the existing fundraising campaign or try to do something about about the deficit before taking on such a large project, they jumped at the opportunity to build the new Amphitheater. There had been discussions about it for years and, for some reason, they apparently felt that it couldn’t wait any longer.

The VWA was projected to cost $35m to build. That’s pretty good compared to the Symphony Center’s projected costs of $300m or the High Museum of Art’s expansion that had cost $130m just a few years before. It’s even better when you consider that it was expected to increase the ASO’s annual budget from $30m to $50m. (How much of that budget increase would go to running and maintaining the facility rather than funding the ASO’s primary mission has never been clear in any reports or financial documents that I’ve been able to find, but it sure does sound impressive.)

There was, of course, one glaring difference between the other two projects and the VWA that might make someone pause before diving in: it wasn’t going to be funded primarily through grants, donations, and sponsorships. There would be no grand fundraising campaign specifically for this project before it was built like the exceptionally successful one for the High’s expansion. Yes, the Robert W. Woodruff Foundation did kick in $5m and Fulton County and the City of Alpharetta each gave grants of $1m for the project, but the remaining $28m — 80% of the costs — would come from bonds issued by the WAC. Whereas the High’s expansion was completely funded by the time it opened to the public, the VWA remained a financial liability until its bond was paid off this past fiscal year. The debt and its financing costs were on the books for half of the 12 years of deficits that upsets WAC leadership so much.

Now, if you are like me — and I certainly am — you’re wondering why this project is different from all other projects. Why couldn’t they take their time to secure the funding in advance of starting the project the way that they did with all of the other capital construction projects that the WAC has undertaken in the past? Wouldn’t that be the responsible thing to do? Moody’s sure seemed to think so in 2009 when they downgraded the WAC’s bond rating.

I don’t have an answer to why the ASO/WAC leadership believed that they absolutely had to start this project when they did. I was, however, surprised when I found out where the land for the project came from: Cousins Properties and Duke Realty. You’d think that having Larry Gellerstedt, III, the CEO of Cousins Properties, and Howard Feinsand, who was then Executive VP of Duke Realty, on the board of trustees would mean that the land would have been donated. Indeed, both companies have been regular donors to the ASO. But, no, the WAC had to buy the land, although Duke Realty did hold onto the property for a few extra years and discount it for the WAC.

It certainly raises an eyebrow that it was the bond that was issued in part to fund that particular purchase that was paid off early. It’s also funny that two of the folks on the board of governors who are so concerned about the ASO’s deficits would have been involved in selling the land to the ASO that helped create the leverage ratio that Moody’s cited when they downgraded the WAC’s outlook from stable to negative last year. Maybe it’s guilt from being part of the rash decision to go ahead without first establishing funding that drives their hawkish stance on balancing the budget. Maybe it’s just plain foolishness. Perhaps they just don’t realize how this looks.

Honestly, I don’t see any particular evidence that there were shenanigans involved. Heck, Gellerstadt didn’t even join the board until 2009 and Feinsand didn’t come on board until 2010. That said, Thomas D. Bell, Jr. was on the board at the time of the sale and he was the CEO of Cousins Properties until 2009, at which time Gellerstadt took over for him both at the company and the WAC board of trustees.

One does have to admit admit that it can sometimes seem better to do business with a board member and donor than with some company that will take your money without giving you a dime back. That said, one also can’t help but wonder about the ability of some of the leadership at the WAC to make rational decisions with the ASO’s best interests in mind if they were willing to support taking on this debt during a period that the organization was running such problematic deficits.

Right now you have at least two people on the WAC’s board of governors who represent interests that are responsible for a big chunk of the ASO’s debt and who also seem to have favored paying down that particular debt early rather than funding the orchestra’s upcoming season. On top of that, you have Hepner giving away revenues from the sale of the 14th St Playhouse to an organization on whose board she serves because it’s “the right thing to do,” all the while refusing money to the musicians to feed their families or cover their medical costs even though a talk-and-play strategy clearly would not have bankrupted the organization. The optics on this are awful and it’s hard to have faith in that kind of leadership. The WAC needs people in positions of governance and management who patrons and donors can trust to put the mission of the WAC before their own interests and, frankly, I don’t think that they have that now. It’s time for a change.

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This post originally appeared on Save Our Symphony Atlanta’s Facebook page HERE.