PSI Management’s “FAQ Regarding Negotiations” – The Real Facts
PSI Management assertion: “Over the past several years the Pittsburgh Symphony, Inc. has experienced a dramatic downturn in revenue, a significant increase in expenses and obligations, and an unhealthy dependency on its endowment to cover immediate needs.”
- Here are the numbers from the audited financial reports of Pittsburgh Symphony, Inc. (all in thousands) for the past 4 years ending FY2015*:
|Year||Operating revenue||Net contributions||Total expenses||Endowment net assets**|
* The Musicians requested financial reports for FY2016, which ended on August 31, 2016. PSI Management refused to provide them.
**does not include assets held in trust by others, or the “1963 endowment” (which holds approximately $10 million in assets and provides ~$600,000 in operating support to the PSO annually. The PSI does not include the income from the 1963 endowment in its budgeting forecasts, for reasons that have never been explained to the Musicians.)
- The numbers show that between 2012 and 2015:
- Operating revenue (primarily ticket sales) increased by 12.5%
- Contributed revenue fluctuated according to how PSI booked large gifts, but appears to have increased significantly
- Expenses were flat (increasing by a mere 0.24%)
- Endowment net assets increased by 11.4%
- It is clear that the claimed “dramatic downturn in revenue” and “significant increase in expenses” is a fabrication.
- Regarding the claimed “unhealthy dependency on its endowment,” we don’t know what that means. But if PSI is implying that it took more out of the endowment than the standard investment draw, there is no evidence of that in the audited financial reports for 2012, 2013, 2014, or 2015.
- The PSI has announced that for 2015-16, the Annual Fund hit a record high.
PSI Management assertion: “In 1986, the Pittsburgh Symphony, Inc. (PSI) had the nation’s largest orchestra endowment ($64 million), 39% above the next largest at the time, the New York Philharmonic ($46 million). Over the course of the following 30 years the PSI withdrew $60 million dollars more than a prudent (6.0%) endowment draw would condone.”
- In 2015, the last year for which we have audited financial reports, the PSI’s endowment net assets were $124 million – nearly double the 1986 amount.
- If the “1963 endowment” and other restricted trust assets are included – all of which provide income to the PSI in the same manner as the general endowment – the total is $133.9 million.
PSI Management assertion: “During this entire 30 year timeframe ticket sales for our main classical series only grew by $700,000 while orchestra expense grew by $10.8 million.”
- Cherry-picking time periods is always a fun trick. Recent history is much more relevant. As noted, operating revenue (primarily ticket sales) increased by 12.5% between 2012 and 2015.
- For FY2016, Management acknowledges that “earned revenue for the fiscal year ending August 31, 2016 exceeded budgeted goals by 4%”. (see statistics published on the PSI’s blog.)
PSI Management assertion: “The last $80 million Endowment Campaign helped bridge the organization through the Great Recession, however only $40 million of the intended $80 million actually was invested into the Endowment, with the rest being diverted with donor permission into the operations of the organization.”
- We have no idea what happened to that $80 million. We’ve asked, and have never gotten a straight answer.
- There is also the matter of $10 million in gifts from the Heinz Endowment. According to Heinz Endowment 2010-11 Annual Report, Heinz gave two, $5 million gifts to the “Pittsburgh Symphony Society.” What happened to that money? We don’t know.
PSI Management assertion: “The endowment no longer has unrestricted funds available to supplement operations and the PSI is currently withdrawing at the State of Pennsylvania allowed maximum of 7.0%. Government grants, short-term gifts and bank loans have helped the PSI to survive; however, all of these cash resources are exhausted.”
- There is no indication in the audited financial reports for 2012, 2013, 2014, or 2015 that any unrestricted endowment funds were used to “supplement operations.”
- “Government grants” and “short-term gifts” are not indications of failure; rather, that is how non-profits operate. (Not to mention that denigrating such grants and gifts is insulting to both the taxpayers and the donors who provide them.)
- A non-profit does not “exhaust” short-term gifts and government grants. It solicits them.
PSI Management assertion: “Two significant sources of revenue will cease at the end of 2015/16 and the 2016/17 season equating to over $1.2 million in new funds needed to keep the organization at current levels of expense. This is in addition to the currently anticipated deficit of $1.5 million this season.”
- Non-profit institutions like the PSO lose “sources of revenue” all the time – it is the nature of a non-profit that contributed revenue is uncertain. It is the job of Management to constantly be on the lookout for new sources of revenue, and to find ways to replace revenue when it dries up.
- Management doesn’t break down its $1.2 million figure, but we’ve been told that the bulk of it is the so-called “loss” of the Broadway series. But Broadway is not “lost” at all – our understanding is that Broadway will not cease at Heinz Hall, but will continue in some form. Further, Management has known for 15 years that this was coming. There has been ample time to find alternative ways to generate revenue from Heinz Hall.
- It is inconceivable that Management cannot find ways to substantially increase Heinz Hall revenue – most orchestras would kill to have such a jewel under their control. Many other places have found creative (and lucrative!) ways to monetize their buildings. (See., e.g., the Nashville Symphony.)
PSI Management assertion: “The fundraising activity within the five-year business plan is ambitious in this economic climate and is strategically focused on sustainable revenue, not short-term sources. The planned growth for 2015/16 to 2020/21 is an additional $1.5 million (understanding that a significant short-term gift ends August 30, 2016, equating to $600,000 and that corporate and individual giving continues to be challenging in the current environment).”
- Management’s forecasted growth in net fundraising revenue from 2015-16 to 2016-17 is exactly $92,284.00 (from $10,232,600 to $10,326,884). There is no evidence whatsoever of “an additional $1.5 million.”
- Management’s so-called five-year plan is the very opposite of “ambitious”. Management’s forecasted total of fundraising and endowment draw actually decreases by nearly 3% over five years (from $19,392,600 to $$18,848,234).
PSI Management assertion: “The current endowment draw of 7.0% is not sustainable and threatens the long-term viability of this revenue source as a meaningful support mechanism. The PSI is committed to reduce the draw by one-tenth of one percent per year until it reaches 6.0%.”
- Either 6% and 7% would be a reasonable endowment draw. Reducing to 6% is a conservative approach. But Management’s five-year forecast inexplicably lowers the endowment draw by far more than .1% per year: from $7,875,000 in 2015-16 to $6,888,316 in 2020-21. That’s a decrease of 12.5%.
- Such a huge decrease makes no sense at all, unless PSI is counting on significant investment losses in the future. (Perhaps PSI needs a new investment advisor?)
- This forecast also fails to take into account the fact that we have been told that an endowment campaign will begin in approximately year 3 of the five-year plan – and that certain gifts are even now being directed to the endowment.
- As noted, the “1963 endowment” holds approximately $10 million in assets and provides ~$600,000 in operating support to the PSO annually. The PSI’s five-year forecast does not include that income. The PSI has not told us where that money is going.