Shaky BSO finances leave endowment chiefs skittish about forking over cash, pondering orchestra’s successor

Will the Baltimore Symphony Orchestra survive in its current form?

Until recently, that question would have been unthinkable about a 103-year-old arts group described as one of Baltimore’s crown jewels. But the BSO’s finances arguably are so unstable that members of the endowment trust supporting the symphony balk at lending or giving it even one penny more than the $6 million it has received this fiscal year.


Some trustees worry that releasing more funds to an organization they say is in dire financial straits would be tantamount to pouring money down a drain. They point to two loans totaling $7.3 million — a $5 million loan from 2017 and a $2.3 million loan from earlier this year — that haven’t been repaid. (The 2019 loan was in addition to the BSO’s annual draw this year of $3.75 million.)

Moreover, an expert on the economics of orchestras points out the endowment hasn’t recovered its value in the 13 years since it was slashed by 30% to pay previous BSO debts.


Some trustees say that prudence requires them to hold onto the $60 million endowment in case it’s needed to bankroll a future replacement orchestra.

“The endowment trust was created to support the BSO or its accredited successor,” Chris Bartlett, chairman of the Baltimore Symphony Endowment Trust, wrote in an email. (The emphasis on “or” was Bartlett’s.) “Trustees have consistently assisted when the organization is in trouble, but we have a greater fiduciary responsibility to our donors to ... remain financially viable over the long term.”

The endowment trust was created to support the BSO or its accredited successor.

—  Chris Bartlett, chairman of the Baltimore Symphony Endowment Trust

Officials say the BSO isn’t in imminent danger of shutting down or the less drastic alternative of filing for bankruptcy. Peter Kjome, the BSO’s president and CEO, wrote in an email that bankruptcy “is not a concern at this point.”

But beneath a fierce debate about the precise meaning of arcane legalese in the Baltimore Symphony Endowment Trust Agreement is a coded discussion about whether this orchestra has a long-term future, and if so, what that might look like.

Local music lovers were stunned when the BSO announced on May 30 that it was mired in a financial crisis -- an emergency complicated by a labor dispute with its 75 musicians.

Citing $16 million in losses during the past decade, the BSO canceled its summer concerts and resurrected a proposal to shorten the season from 52 weeks to 40, along with a roughly 20 percent pay cut for musicians. On June 17, the players were locked out of Meyerhoff Symphony Hall.

The crisis, officials said, was triggered by the unexpected loss of a $1.6 million emergency grant. This spring, the Maryland General Assembly approved $3.2 million in additional funds for the BSO over two years. But Gov. Larry Hogan has refused to release this year’s allocation, citing a potential $961 million shortfall next year.

Budgeting experts say there are two ways to climb out from a financial hole: cut costs or find more revenues. BSO officials are seeking to adopt the first strategy by trimming their largest expense — labor — and by scrapping the summer concerts; board chairwoman Barbara M. Bozzuto said in an interview last month the summer season typically “doesn’t make any money.”


The players are promoting the second method. They maintain the BSO is simply pretending to be broke as a negotiating tool. They hope public pressure will persuade endowment trustees to make up the shortfall — and their salaries — by increasing the amount of the BSO’s annual draw.

“BSO management and the board of directors have engineered the deficit,” said Greg Mulligan, co-chair of the BSO Players Committee. “Any financial difficulty that the BSO claims it has is self-inflicted and can easily be rectified by using funds from the endowment, as management and the board have been doing for years.”

The trust agreement limits the draw (the annual distribution of endowment funds made available for operating costs) to a maximum of 6% of the fund’s average over the past five years. Sarah Beckwith, the BSO’s vice president and chief financial officer, said the draw for this fiscal year was 5.75%.

The players want the trust agreement amended to allow a draw of up to 7%, the limit set by state law before the distribution is deemed “imprudent” and the attorney general’s office must be notified.

But endowment officials have resisted, arguing it would be the equivalent of killing the goose that laid the golden egg.

“Unfortunately, we have reached the limit of our capacity to provide further support,” Bartlett wrote in a letter to the editor published Jan. 24 in The Baltimore Sun. “If we continue to increase the annual draw, we risk depleting the endowment principal to the point that we are precluded from providing further support at all.”

Marin Alsop conducts the Baltimore Symphony Orchestra in the first concert after the orchestra made a surprise announcement that the summer concert series would be canceled. The concert began with an impassioned speech by Brian Prechtl, co-chairman of the BSO musicians, who received a standing ovation.

The players claim the BSO board leadership exerts too much influence over endowment trust decisions.

Nine trustees make up the endowment’s board. Under the 2006 Endowment Trust Agreement, three must be the BSO’s president (Kjome); the BSO board’s chair (Bozzuto) and the BSO board’s treasurer (former Anne Arundel County Executive Steven R. Schuh).

The BSO board appoints the remaining six trustees, who the trust agreement defines as “members of the community who are neither officers, directors nor employees” of the symphony. But Bartlett is the sole trustee with no previous ties to the organization.

Two — Kenneth W. DeFontes Jr. and Calman J. “Buddy” Zamoiski Jr. — are former BSO board chairmen. Another, Joseph Meyerhoff II, is the grandson of the philanthropist for whom Meyerhoff Symphony Hall is named. The final two, Rick Monfred and Andrew A. Stern, are former BSO board members.

“The BSO board appoints the endowment fund’s trustees, and it can remove them,” Mulligan said. “Therefore, the BSO board is the controlling institution and not the other way around, which is what they want people to think.”

Bartlett disagrees. He wrote in an email that the endowment trust was created in 2006 precisely to function independently of the symphony’s board.


At the time, the orchestra was enmeshed in another financial crisis.

The board of directors initially proposed selling Meyerhoff Symphony Hall and then leasing it back, but the plan was nixed after symphony officials determined it would violate Internal Revenue Service regulations.

So the BSO board withdrew a staggering $27.5 million from what at the time was a nearly $90 million endowment. Not quite $20 million was used to repay debts, and the rest was put into a reserve account as a financial buffer against emergencies.

The remaining $62 million was transferred into a new entity — the endowment trust — to allow the principal to grow untouched.

In the 13 years since, the roughly $8 million cushion supplied by the withdrawal has vanished. “The funds that were provided in 2006 were spent many years ago,” Kjome wrote in an email.

According to Robert J. Flanagan, author of the 2012 book, “The Perilous Life of Symphony Orchestras: Artistic Triumphs and Economic Challenges,” it would be a mistake to divert every cent of the 8.2% interest the endowment earned in the last fiscal year (according to Beckwith) to the operating budget. There are expenses associated with endowments, and Flanagan said a responsible annual draw should not exceed 4 percent, or in some cases, 4.5 percent.

Baltimore Symphony Orchestra musicians convey a message to Maryland Gov. Larry Hogan earlier this year.

“What you see in the last days of all orchestras are desperate attempts to solve their problems by raiding their endowments,” said Flanagan, professor emeritus at the Stanford graduate School of Business. “It’s an all too familiar scenario that’s characteristic of organizations facing growing financial difficulties.”

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If treating the endowment as a rainy day fund has failed to put the BSO on a sound financial footing, the other proposed strategy — cutting performers’ salaries — historically has proven equally ineffective, according to the players.

In 2009, the union voluntarily gave up $1 million in wages and benefits. Three months later, the musicians accepted the equivalent of a 12.5 percent pay cut. Less than a year after that, they agreed to a 16.6 percent salary reduction through 2013. In 2018, the performers’ base pay was $5,000 less than it was in 2011. None of those cuts has solved the BSO’s long-term cash flow challenges.

”Our salaries are not the problem,” said Players Committee co-chair Brian Prechtl.

If there’s a permanent solution to the BSO’s woes, it could lie in finding philanthropists willing to bankroll this costly enterprise.

Kjome has argued that if the endowment grew to $100 million, a 5 percent draw would generate an extra $2 million annually ― or about $400,000 more than the BSO’s recent annual average shortfalls.


Last month, he said that endowments ideally should be at least three times the size of their organizations’ annual operating budgets. But, at $60 million, the BSO’s endowment is just twice the size of its $28 million budget.

“That pales in comparison to the endowments of our peers,” Kjome said. “It is vital that our ongoing endowment campaign continues to be successful.”