Pittsburgh Symphony Orchestra's deficit nearly triples over year

| Friday, June 28, 2013, 12:01 a.m.

The Pittsburgh Symphony Orchestra's deficit nearly tripled in the last fiscal year, a spike that happens at a time when it must make cuts and raise revenue to balance its budget or risk forfeiting $17 million in grants and gifts.

The deficit increased from about $1 million in 2011 to $2.9 million in 2012, according to the symphony. The $17 million consists of $12 million from board Chairman Richard Simmons, who declined to comment, and $5 million from The Heinz Endowments. The Simmons gift is contingent on the symphony having three consecutive balanced budgets, and the Heinz grant depends on having back-to-back balanced budgets by the end of August 2015.

“According to our chairman, Dick Simmons, (the Heinz grant) is one of the highest priorities, if not the highest priority, of the organization,” Scott Michael, chief financial officer for the symphony, said on Thursday.

The symphony's 2012 audit, which it received this month, shows that a board member whom the symphony declined to identify helped it pay bills last year by allowing it to use a prior $5 million gift if all of the money was paid back to the endowment.

As of Aug. 31, 2012, the symphony still had $4.25 million to repay. The board member and symphony have yet to establish repayment terms.

“I'm sure the terms of the repayment will be generous as well,” Michael said.

But Michael acknowledged another problem. The symphony has virtually no other unrestricted money, or cash with no strings attached, that it can use to cure another deficit.

Symphony officials attributed the financial problems to two factors: The recession shrunk the value of the group's endowment from $130 million in 2008 to $77 million in March 2009. It bounced back to about $115 million. In addition, the state cut funding to the symphony from $2.25 million in 2010 to nothing in 2012. This year, the state gave $700,000.

“The fiscal health of the Pittsburgh Symphony is fragile, and it has been that way for several years,” said symphony President and CEO James A. Wilkinson in an email from Philadelphia, where the symphony is performing. “We are not running a budget surplus and have not since probably 2008. We are looking toward a balanced budget both by increasing earned and contributed revenue and selectively cutting some expenses.

“We do anticipate having a balanced budget by the 2014-15 fiscal year.”

This month, the symphony agreed to a three-year contract with its approximately 100 musicians that restores most of the 9.7 percent pay cut from the first two years of the current three-year contract and left pay for the final year undefined. Wilkinson maintains the symphony could afford it.

“Our recent settlement with the musicians was in many respects predicated on giving us three years of labor stability so we could focus on revenue,” he said.

Bass player Micah Howard, chairman of the symphony Orchestra Committee, said the musicians “have always been concerned about the financial stability of the organization.”

“The musicians would not agree to a contract that would be detrimental to the financial future of the orchestra,” he said.

A spokesman for Schneider Downs, Downtown, which performed the audit, declined comment.

Kenneth McCrory, a principal with the ParenteBeard accounting firm whose clients include nonprofits but not the symphony, reviewed the audit and said the symphony has done a good job managing its expenses.

“The things outside their control, the investment income and the pension obligations, are what really hurt them,” he said.

Michael said the symphony's pension plans are underfunded by about $24 million. The money made from investments declined from $13.2 million in 2011 to $4.5 million in 2012.

The Allegheny Regional Asset District gave the symphony $1 million this year for operations. RAD supports parks, libraries, stadiums and cultural groups with half of the proceeds of an added 1 percent sales tax in Allegheny County. Yearly audits are a condition of receiving RAD funding.

David Donahoe, executive director of RAD, said the symphony was hampered by its rule for basing what it can draw from its endowment on a five-year rolling average of the endowment's value. That means it has to include quarters in 2008-09 when stocks suffered steep losses.

“The way this endowment draw thing works it keeps them in the penalty box for a couple of years,” he said.

Classical music critic Mark Kanny contributed to this story. Bill Zlatos is a staff writer for Trib Total Media. He can be reached at 412-320-7828 or bzlatos@tribweb.com.

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