Natural History Museum faces big fundraising challenge
Needing to raise big sums in a sobering economy, the Natural History Museum of Los Angeles County has fallen almost $20 million behind its initial projections in its $115-million campaign to renovate galleries at its headquarters in Exposition Park, according to an analysis published by Moody's Investors Service.
Spokeswoman Cynthia Wornham said this week that the museum is hopeful an improving economy coupled with the 2010-12 rollouts of new exhibition halls for mammals, dinosaurs and the Southern California environment will spark the six-year campaign to success down its home stretch.
"We're beginning to see some signs of life in the philanthropic environment, and the new exhibitions and building project will remind people what a civic treasure this museum is," she said.
Wornham said the $28-million budget for the just-ended 2008-09 fiscal year came in balanced, although there will be some belt-tightening, on top of the recent layoffs of three part-time workers and a full-time employee whose job had depended on a grant that ran out. The projected budget is $27 million for the coming year at the Exposition Park museum and its sister venue, the Page Museum at the La Brea Tar Pits. The museum had about 800,000 visitors during the past fiscal year, including many free visits from schoolkids, Wornham said, with paid admissions up 3% from the year before.
The capital campaign, launched in 2006-07, aims to raise donations for ongoing museum operations while also building a big enough reserve to retire $89.9 million in bonds issued to pay for the renovations. Besides the remodeled galleries and fresh exhibitions, the project includes a restoration of the museum's historic original 1913 Rotunda building, one of several in a patchwork of connected structures in Exposition Park.
Moody's issues bond ratings that many investors use as a guide and reviewed the museum's finances to update the rating. Its late May report reaffirmed an A2 rating -- meaning the bonds are "upper-medium grade," with a "low credit risk" -- that the museum received in April 2008. But Moody's lowered its advisory on the bonds' investment outlook from "positive" to "stable."
These days, Gilson said, being considered a stable investment bet is no shame: "In the environment we're in for cultural institutions, that's a very positive indication, a signal we're still generally on track."
Chief among the Moody's analysts' concerns is whether the museum can step up its fundraising despite a weak economy. The report says that fundraising targets are $21.2 million in the 2010 fiscal year that began Wednesday, $24 million in 2011 (when the much-anticipated dinosaur hall is scheduled to debut along with its star fossil, Thomas the T-rex) and $16.8 million in 2012. Tax returns at Guidestar.com show that the museum took in $20.7 million in contributions and pledges in 2006-07, the first year of its campaign and $18.8 million in 2007-08.
The Natural History Museum isn't alone locally in having to worry about covering large long-term debt commitments at a difficult time for cultural philanthropy. The Los Angeles County Museum of Art is carrying $383 million in bond debt for its ongoing expansion and renovation, with $450 million the overall goal of a campaign that now stands at $316 million raised. The Orange County Performing Arts Center borrowed $265 million for its Renee and Henry Segerstrom Concert Hall and remains $77 million short, 10 years after its campaign began.
For all three institutions, failure to raise the money could mean needing to economize on programming so they can afford the millions in annual interest on their construction bonds. A cautionary example is the previously ironclad J. Paul Getty Trust, which has to pay the piper for $627 million in construction and art acquisition debt without ever having developed a donor base. Almost entirely reliant on its diminished, albeit still impressively ample investments, the Getty cut operating expenses nearly 25% for 2009-10.
Another concern for Moody's is the complex "interest rate swap agreements" the Natural History Museum has with its banker, JP Morgan Chase. The museum pays the bank a fixed rate of about 3.4% on a sum equivalent to a chunk of its bond debt. In return, the bank pays the museum interest on the same sum, reflecting current market conditions.
If interest rates are high, the museum is cushioned by the profits it reaps from the exchange -- money it can use to offset the higher rates it must pay its bondholders. But the deal means the museum can't take full advantage of the low interest rates that have prevailed in recent years. Under the terms of the swap agreement, along with conditions for a letter of credit in which bankers agree to pay off bond investors if the museum defaults, the museum has been forced to put up substantial collateral. Moody's says it has had to post as much as $19 million in recent months; Gilson said the museum has deep enough reserves to tie up those amounts without affecting its ability to pay its bills.
Moody's also noted that the museum has revamped its unusual, longstanding policy of betting virtually all of its endowment on a single stock (albeit a diversified and legendarily lucrative one), Warren Buffet's Berkshire Hathaway. Berkshire Hathaway suffered a 31.8% loss in 2008 -- better than the S&P 500's 38.5% beating, but worse, in this economy, than a portfolio containing a substantial mixture of more conservative bonds.
In January, Moody's said, the museum's board voted for a more diversified approach guided by an investment advisor, and began a gradual selloff of Berkshire Hathaway, with the goal of Buffet's company making up half its portfolio instead of more than 90%. The rest will be invested in stock and bond funds.
A Forbes magazine story from 1998 suggested one reason for the Natural History Museum's loyalty to Berkshire Hathaway. It told how Franklin Otis Booth Jr., a onetime Los Angeles Times executive who became a billionaire thanks to a $1-million ground-floor investment in Berkshire Hathaway in the early 1960s, gave the museum a 1977 gift of $350,000 worth of stock in a company that Berkshire Hathaway subsequently acquired. The museum's holdings were converted to Berkshire Hathaway stock. "Frequently, the museum's investment managers wanted to unload the shares. Booth discouraged it," Forbes reported -- and within 21 years his initial gift had grown to $80 million.
Gilson said there was no stipulation from Booth, who died a year ago at 84, requiring the museum to hold the stock he had donated. Asked whether Booth, who served on its board for decades until 2007, had left money to the museum, Gilson said, "I don't know of any, but he was a very generous donor to the museum during his lifetime."
-- Mike Boehm
Top photo: Exposition Boulevard entrance to the Natural History Museum of Los Angeles County; credit: Anacleto Rapping / Los Angeles Times. Middle: Renovated north wing interior of the Natural History Museum's historic 1913 building; credit: Conrado Lopez. Bottom: Franklin Otis Booth Jr., museum benefactor; credit: Los Angeles Times file photo.