Dateline, March 30, 2007, New York City
Congratulations to the Milwaukee Public Museum—finally some good news. Milwaukee’s conservative-leaning Lynde and Harry Bradley Foundation and another unnamed source have pledged $5 million to the museum’s recovery effort, according to Steve Schultze in today’s Milwaukee Journal-Sentinel—Gift May Spare Museum: $5 Million Donation Meant to Spur Fund-raising Drive to Avoid Bankruptcy. The gift was announced by museum president Dan Finley at a Milwaukee County Board meeting on Thursday. As is typical, the pledge...
| The Desktop Guide is Quickly Becoming the Must Have Guide for Nonprofit Executives Jack Siegel's new book, A Desktop Guide for Nonprofit Directors, Officers, and Advisors: Avoiding Trouble While Doing Good, has quickly become the go to guide for nonprofit executives and advisors. So what are people saying about the Guide? When our Jack Siegel introduced himself to one of the leading authorities on the law of federal tax exemption after she had made a presentation at a recent conference, the speaker said, "You're the 'Jack' in the Guide! We are fighting over your Guide in our office." A second speaker held the book up to two people who were asking questions after her presentation, exclaiming "I love this book. I tell everyone at conferences to buy it." One state charity regulator has indicated that the Guide is great and has recommended it to her fellow regulators. Some of our readers have followed the link to the Amazon.com Web site, but apparently have not bought the Guide. If they were turned off by the price, they should reconsider. One prominent attorney in the exempt organization field grabbed a review copy of the Guide and couldn't put it down. She has instructed a number of her clients to buy it, pointing out to them that for less than 1/2 hour of her billable time, they receive a lesson (and resource) that tells it like she would like it told. If you are starting a new charity, the Guide could save you thousands of dollars in legal fees by teaching you how to better utilize your legal counsel and framing the issues so you don't spin your wheels at $400 an hour. Buy your copy today at Amazon.com, Barnes & Noble, or John Wiley (the publisher). |
comes with strings attached. Most important, the museum must raise $5 million in matching funds from private donors. According to Schultze, the museum also must reach agreement with its lenders and Milwaukee County. Finally, it must strike new terms on its “now unaffordable promise to pay $6 million to buy the former Discovery World space at the Milwaukee Public Museum.” According to Finley, Chase Bank and M& I Bank have "tentatively" agreed to cut interest payments on the remaining $4.6 million still outstanding under the bailout loans. This apparently will cut the annual debt service payments of $1.2 million by two-thirds—it is not entirely clear whether the reduction in loan service payments is limited to the bailout loans.
The museum is by no means out of the woods. According to Schultz, at the same County board meeting, it was reported that “the museum could sink another $1 million in the red by fall.”
So there is the reported story. Now what really happened? We can’t say because we don't know, but we are willing to bet one of two scenarios is likely. Possibly, the museum used talk of bankruptcy last week to force the Bradley Foundation’s hand. That would suggest that the museum outmaneuvered the venerable foundation. It is possible, but we would bet not.
We suspect that the Bradley Foundation has been lurking about for months, if not from the beginning of the crisis. Under the more likely scenario, we would bet that the Bradley Foundation encouraged the bankruptcy talk to demonstrate just how dire the situation is and what an embarrassment a bankruptcy would be to the community. In other words, talk of bankruptcy might actually have been a fundraising strategy.
We also bet that the matching $5 million is already in hand or close to it. The museum cannot afford any more bad publicity. Consequently, we find it very unlikely that the $5 million pledge would be announced before the other $5 million was in the bag, so to speak. It may be that talk of bankruptcy was used as leverage to bring prospective, but hesitant donors to the table. In fact, if the parties play their cards right, the museum may be able to turn the $5 million Bradley/anonymous-donor grant into a $10 million match. There is a good chance that those already or nearly committed don't know their funds count toward the match or exactly how much has been pledged to date. That way additional requests for donations may be more productive.
That leaves the $6 million payment to Discovery World. In a September 21, 2006 article, Dave Umhoefer of the Journal-Sentinel reported that the museum was resisting payment of the $6 million owed to Discovery World. The man behind Discovery World, Michael Cudahy, was apparently willing to work with the museum. Umhoefer reported that Cudahy said, "I'm trying to be reasonable…We're willing to help the museum. But they can't just renege." The conditions in the $5 million Bradley Foundation/anonymous-donor grant appear to be designed to put some subtle pressure on Cudahy. If true, that is a difficult line for these donors to walk because Cudahy is known as a generous philanthropist in the Milwaukee community.
Although the new money obviously would prove helpful, it will not solve the problems. The core numbers say it all. Let’s assume the match is met and the museum now has $10 million of fresh money. Give or take a million or two dollars, that covers the $4 million in lost endowment and the $6 million in bailout loans. The fact that the museum may lose another $1 million suggests that the structural problems that led to the crisis have not been adequately resolved. And don’t forget, this is not the same museum that it once was. The still struggling institution has 40% fewer staff members. There were very significant cuts in curatorial and educational staff, which will adversely affect mission for years to come.
Last week, the Journal-Sentinel reported that the museum has $23.2 million in assets and $32.9 million in liabilities. Consequently, the $10 million in new money can be viewed as eliminating the negative “equity” without restoring the lost endowment or providing for any debt service of the remaining debt—some of which represents pension liabilities. If our bet turns out to be right--that the mueum raises $15 million in new money from the private sector--then the endowment is also restored.
Now we turn to compassionate conservatism. The Bradley Foundation needs to act with extreme caution in putting its name behind the museum bailout, lest it send the wrong a message to Milwaukee’s other nonprofits: “Screw up and we will bail you out, too.” Conservatives argue against welfare because it creates dependency. One can make the case the that this is exactly what the Bradley Foundation is doing by putting its considerable dollars behind the bailout. Of course, the museum's financial fiasco represents such a screw up and potential blackeye for the community that even the conservatives may have had to face reality.
But in the long run, letting the museum fail may have been the more constructive course, sending the community a strong message that it must support and govern the institutions that it believes are desirable. We have heard that there are other institutions with financial issues. We have also read about the troubled county parks system and the other county-run institutions that are seriously underfunded. The Bradley Foundation/anonymous-donor gift temporarily reduces the pressure on the community to make hard choices about how to finance desired amenities.
The Journal-Sentinel article says nothing about conditions tied to governance reforms. We would hope those are part of the $5 million pledge. Moreover, we hope that the Bradley Foundation seriously considers a smaller but equally important grant to UWM’s Helen Bader School of Nonprofit Management, earmarking the money to train the boards of Milwaukee-area nonprofits on proper oversight. Opportunities Industrialization Center failed before the Milwaukee Public Museum's financial woes became public. If the pitiful oversight that permeated OIC and the museum are present at other Milwaukee nonprofits, there will inevitably be a repeat of these two fiascos sometime in the future. Is the Bradley Foundation willing to continue to subsidize mismanagement?
Internal Revenue Service - Circular 230 Disclosure: As provided for in Treasury regulations, any advice (but none is intended) relating to federal taxes that is contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.
THE FOREGOING IS NOT AND SHOULD NOT BE TAKEN AS LEGAL ADVICE. IF LEGAL ADVICE IS REQUIRED, THE NON-PROFIT OR OTHER PARTY IN QUESTION SHOULD SEEK THE ADVICE OF QUALIFIED LEGAL COUNSEL. If you liked this post, please visit http://www.charitygovernance.com for a description of our training and consulting services. You will also want to acquire a copy of Jack Siegel's book, A Desktop Guide for Nonprofit Directors, Officers, and Advisors: Avoiding Trouble While Doing Good."
Copyright 2007, Charity Governance Consulting LLC. All Rights Reserved. You may not copy any portion of this post to a computer "clipboard" for re-posting anywhere or e-mailing, or otherwise reproduce this post. If you want others to review this post, you may provide them with a link to this web blog. Any use of the material or ideas in this post by reporters or other publishers shall make reference to Jack Siegel, author of "A Guide for Non-Profit Directors, Officers and Advisors: Avoiding Trouble While Doing Good" and this web blog. For additional information call 773-325-2124
.
