For the Nashville Symphony Orchestra — an ensemble that had previously weathered a recession, financial crises and even the weather itself — the phrase "face the music" has taken on unfortunate new meaning.
Eyebrows raised earlier this year when the NSO board announced that it did not plan to renew a letter of credit totaling some $100 million in outstanding bonds. The bonds had been used to build the symphony's gleaming new concert hall, the Schermerhorn Symphony Center, an edifice built to exacting acoustic specifications to match the orchestra's world-class ambitions. The symphony's finances took a massive hit from the flood of May 2010, four years after its opening.
If not renewing the letter of credit was intended to get the banks' attention, it worked only too well. Earlier this month, after negotiations stalled on repaying the Schermerhorn debt, Bank of America initiated foreclosure proceedings. The bank took the dramatic step of announcing a public auction of Nashville's magnificent symphony center. As of press time Wednesday morning, that auction was still scheduled for 10:30 a.m. June 28, at the main door of the Davidson County Courthouse.
As the Scene was going to press, sources familiar with negotiations between the NSO and the banks indicated that terms of a settlement were being worked out. If indeed the banks agree to retire some of the NSO's debt — a frankly magnanimous gesture that would silence accusations of predatory lending that followed the foreclosure announcement — and if the orchestra makes needed cuts that would improve its fiscal outlook, the NSO may have survived the biggest crisis in its 67-year history.
"Banks and donors are both going to want to see an orchestra put some skin in the game," says David Hyslop, a veteran orchestra administrator currently serving as interim chief executive officer of the Louisville Symphony, which has faced its own share of hardships. "To be taken seriously, you have to show you are willing to compromise and make cuts."
Yet even if an agreement is reached, the orchestra still faces a path strewn with obstacles. No sooner will one round of negotiations end than another will begin — this one with the NSO's own musicians, whose contracts are up July 31. Talks were scheduled to begin Wednesday between orchestra management and the musicians union, Nashville Musicians Association, which made a public statement earlier this month refuting arguments that musician salaries are part of the problem.
Beyond that looms a series of difficult questions about the future of the organization and others like it across the country. In a struggling economy, is a world-class symphony orchestra worth the resources it must have to meet its ambitions? And if it cannot meet those needs with patronage alone, should it be subject to the same economic Darwinism as every other arts organization struggling to pay the bills, and left to fail?
At the moment, however, assuming a settlement holds, the pressing concern is how the orchestra can avoid a repeat of its present predicament, and satisfy its supporters' demand for top-notch performances while eyeing the bottom line. For that reason, it's worth examining how the current situation began.
The extent of the NSO's fiscal trouble only became public in March, when the executive committee of the orchestra's board of directors refused to renew the letter of credit. But a review of the NSO's tax records and audit reports going back eight years reveals that the orchestra's financial difficulties had been going on much longer.
In an interview with the Scene in March, NSO President Alan Valentine noted that some of the initial problems were seen as normal growing pains associated with moving into a new and complex symphony center. "We learned that some things were going to be more expensive than we initially thought," Valentine said. "But we were not in a crisis in the beginning."
The symphony's tax returns bear out that statement. On its 2008 tax form, the orchestra reported income of $51 million and expenses of $38 million. But those healthy figures proved to be deceiving. In early 2008, the orchestra was still living off robust ticket sales, grants and donations from the prior season. Once the effects of the economic meltdown and global recession finally kicked in, the NSO's budget numbers crashed.
The orchestra's 2009 tax returns show income nosedived to $14 million, while expenses decreased only slightly to $33 million. Of course, all nonprofits in America suffered considerably at the time. But the Nashville Symphony's situation was somewhat unique in that its finances were extraordinarily leveraged due to its new concert hall.
It was at that point that the orchestra's letter of credit on the Schermerhorn first came up for renewal. According the NSO's 2009 audit report, completed by the firm Crowe Horwath, the letter of credit issued by Bank of America was renewed on Jan. 9, 2009, for one year "at a significantly higher cost to the [orchestra]," with fees on the letter of credit soaring 235 percent.
After that, the symphony's woes went biblical.
Crowe Horwath's audit of the NSO's 2010-11 fiscal year noted that the Schermerhorn was located "in a 500 to 1,000 year flood zone, and therefore, [was] not particularly susceptible to flooding." The Cumberland did not receive the memo. The May 2010 flood that crested 11 feet above flood stage came as both a surprise and a painful blow to the Nashville Symphony, destroying instruments and submerging its lower floors under 24 feet of brackish river water. Damage to the Schermerhorn was estimated at around $40 million.
"The 2010 flood was incredibly bad luck for the Nashville Symphony," says Drew McManus, a Chicago-based consultant who writes the orchestra business blog Adaptistration. "I am convinced that if it hadn't been for that flood, the Nashville Symphony wouldn't be in its current financial predicament with the banks."
The symphony was able to recoup most, though not all, of its losses with funds from the Federal Emergency Management Agency and from other insurance. But that didn't shield the orchestra from the initial monetary tsunami. "People may think FEMA comes out and writes you a check for $40 million, but that's not the case," Valentine told the Scene in March.
Although the NSO and its music director, Giancarlo Guerrero, continued to win accolades and Grammy Awards for their recordings of contemporary American music, the orchestra never recovered financially. The NSO's most recent audit report, in fact, shows the organization had been out of compliance with its letter of credit for much of the 2012-13 season. The orchestra entered into a forbearance agreement with Bank of America in November 2012 while the parties continued to negotiate the debt.
In March, when the NSO board opted not to renew the letter of credit, it said the action was intended to focus the bank's attention on the need to come to terms. The board got everybody's attention, but it also prompted Crowe Horwath to question the orchestra's ability to remain a "going concern." For those who scoff at the resources it takes to build a great orchestra, their concerns won't end with an agreement that settles the NSO's present dilemma.
Eric A. Patton : Consistent underfunding and politicizing the system for the sake of commercial…
The little zimmerman pig fits the "little man with a big gun" syndrome perfectly. It's…
@Jim Collins: Since you seem obsessed with Zimmerman's freedom you must have knowledge or evidence…
Subsequent acts by Zimmerman indicate there may be more to his culpability in the Martin…
This is exactly why we have juries.