The American Folk Art Museum, which has struggled financially almost since the day it opened the doors of its new building in 2001, is now facing a moment of reckoning.
American Folk Art Museum in NY is having troubles
Debt Problem Has Museum Scrambling
By KATE TAYLOR
Published: August 8, 2010
Richard Perry/The New York Times
Maria Ann Conelli, director of the American Folk Art Museum, says the institution has been cutting its budget in recent years.
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Six months after disclosing that it could no longer make payments on the $32 million it borrowed through a bond issue to finance the building, the museum is still in protracted negotiations to restructure its debt with the company that insured its bonds.
Both sides say they are optimistic they will reach an agreement that will keep the museum in its home on West 53rd Street in Manhattan, which serves as collateral for the debt.
“It’s a process, so I can’t tell you exactly what the outcome of it will be, but I think that everybody is operating very conscientiously and in good faith to find a solution to these challenges,” said Stephen Corelli, the museum’s incoming board president.
All bondholders have been paid on time. But for months the museum has been unable to make payments into a debt service fund as required under its agreement with New York City’s Trust for Cultural Resources, the public benefit corporation that issued the tax-exempt bonds for the project.
The next payment to bondholders, in January, is to be covered by the bond insurer, ACA Financial Guaranty.
Although its exhibitions of folk and outsider art have been highly praised, the museum has never realized the optimistic attendance and revenue increases projected for it when the new building opened just down the street from the Museum of Modern Art. The money problems only deepened when the museum, like other organizations, suffered crippling investment losses during the financial crisis.
The museum is the first organization to default on an agreement to pay off the bonds issued for it through the trust, which was created to help cultural institutions finance capital projects. Since 1980, when the trust was created, some 20 organizations have borrowed money through it, including MoMA, Lincoln Center for the Performing Arts and the American Museum of Natural History.
The city is not liable for the museum’s debt, and the trust only serves as a conduit and administrator for the borrowing, so a single default is unlikely to damage its credibility with potential investors.
One additional complication, though, is that the insurer, ACA, has its own financial issues. It suffered major losses and had to go through a restructuring because of the subprime mortgage crisis and is no longer issuing insurance contracts. Steven Berkowitz, its general counsel, said ACA was in a position to honor its agreements to pay bondholders.
Neither he nor the museum would detail what sort of agreement is being discussed or offered a firm timetable on when negotiations might conclude.
The folk art museum was founded in 1961 and operated out of smaller spaces on West 53rd Street and West 55th Street before constructing its current home, a narrow, 30,000-square-foot bronze-clad building designed by Tod Williams Billie Tsien Architects. (It also has a branch at Lincoln Square, for which it pays $1 a year in rent to the Church of Jesus Christ of Latter-day Saints.)
The collection contains large amounts of Americana, although Mr. Corelli said that the museum hopes to show people that folk art “isn’t just quilts and weathervanes.” Among its holdings of outsider, or self-taught, art are two dozen works and a substantial archive of materials from Henry Darger. The museum’s contemporary curator, Brooke Davis Anderson, who has organized several Darger shows, was recently hired away by the Los Angeles County Museum of Art to be a deputy director; the folk art museum is planning to replace her.
For several years the museum displayed a painting from Edward Hicks’s “Peaceable Kingdom” series, a promised gift from Ralph O. Esmerian, one of the museum’s biggest patrons and its board president from 1977 to 1999. But Mr. Esmerian had also used the painting as collateral on a loan, and when he ran into financial difficulties it was auctioned off in 2008.
The New York City commissioner of cultural affairs, Kate D. Levin, who is an ex-officio member of the trust board, said the museum’s financial situation was not dire.
“They are making strides in terms of their financial health,” she said.
The museum’s director, Maria Ann Conelli, said that, with layoffs and other measures, the museum had cut its budget to $7 million for the 2011 fiscal year, down from $8.5 million in 2010 and $10.3 million in 2009.
Among the other cost-cutting measures, the museum has ceased publication of Folk Art Magazine, which went to members, and has begun publishing some of its exhibition catalogs only online. It also decided to stop leasing auxiliary office space on East 52nd Street.
Over the years attendance and revenue figures have fallen far short of the projections made while the new building was being constructed. At that time it was predicted that attendance would reach 255,000 a year by 2005 and generate $1.7 million in revenue.
Actual attendance was half that in 2005, and attendance today, though growing, remains at 160,000 a year. Admission revenue was $306,000 in the 2009 fiscal year, according to the museum’s draft financial statements.
The cost of operating the building, meanwhile, has been higher than expected, and the museum’s tax returns show that in recent years expenses have outpaced revenue. Net assets, which were $26 million in June 2002, had dropped to $3.1 million by June 2009.
One additional revenue source, Mr. Corelli said, may be the sale of the museum’s air rights to Hines, the developer of the planned Jean Nouvel tower on West 53rd Street. Hines has postponed the development of its building, however, because of conditions in the commercial real estate market.
“We’ve had growing pains,” Mr. Corelli said. “But what this crisis has really forced us to do is take a hard look at our operating profile. I think the result is we will be a leaner, smarter, more efficient organization.”