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BSO Budget Deficit, Responses

Posted by Geoff Edgers  April 14, 2007 08:31 AM

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David Oswald, of Brookline, has this to say about the Boston Symphony Orchestra's financial issues...

What are we to make of the BSO wringing its hands over a $1.4M loss in 2006 and putting the squeeze on its volunteers for $75 each to make it up, when we read in the same article that in roughly that same time period the BSO's endowment grew more than $60M to a total of over $370M dollars, which is more than a third of a billion dollars? Should we feel sorry for the BSO and bewail the crisis in classical music, or should we rather rejoice that the BSO is so successful and genuinely wonder why they don't just reallocate their more than ample income to cover their expenses? Is it right for them to speak of a structural deficit in this case, when the structural goal of many non-profits is to have an endowment large enough to generate investment income as a dependable part of the budget? It seems to me that by creating the impression of a financial crisis in what appears to be a time of plenty, the BSO is unnecessarily risking the good will of its volunteers and the good faith of its generous public donors. At a time when many smaller music organizations are struggling just to survive, the BSO should be counting its blessings and quietly continue its good work.

As luck would have it, the BSO has sent out a statement discussing the endowment. It reads:

At the same time we're reporting a deficit for fiscal year 2006, we also are reporting significant growth in our endowment from $310.0 in August 2005 to $353.5 in August 2006. The current endowment figure is $370.7 million as of December 31, 2006.

The absolute size of the endowment is not in itself an indication of the institution's financial strength. Not-for-profit organizations, from Harvard on down to the smallest social-service agency, know that it is the relative size of their endowments, their endowment spending policy, and their ability to operate in balance, that determines the institution's present and future financial stability.

While a $350 million endowment might understandably be seen as a king's ransom for some, this actually isn't the case for an institution of the scope and complexity of the BSO, with an annual operating budget of over $75 million.

In truth, the current BSO endowment is not yet sufficient to provide the endowment interest income needed for the future financial stability of the organization in today's challenging economic and market environment.

If a not-for-profit organization were to focus too much on the change in the size of its endowment from one year to the next, it would be taking a very short-sighted view of its financial health. Endowments, by their very nature, require a long-term investment horizon, and to view a single year's strong results as somehow a windfall is akin to a family seeing their retirement assets as funds they can access whenever they feel the need to do so.

A disciplined approach to spending the interest income from an endowment is critical to ensuring that the current and future needs of an organization are kept in balance. To do otherwise is to gamble with the future of the institution.


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About Exhibitionist Geoff Edgers covers arts news for The Boston Globe..

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