THE NEW GILDED AGE (Part 2)
THE NEW GILDED AGE (Part 2)
How Questionable Executive Board Actions As Opposed to Building Expansion and a Bad Economy Have Placed the Crown Jewel of our Community at Risk
11th September, 2012 7
The Saginaw Art Museum is undoubtedly one of the crown jewels of our community - a harbinger for creativity, an incubator for education, and something that reaffirms the role and importance of Saginaw's artistic heritage.
Lodged inside the historic Ring Home on North Michigan, C.L.Ring was a key negotiator in the consolidation of Saginaw City and East Saginaw resulting in the present City of Saginaw in 1890. Following his father's death in 1896, Ring inherited the family's home, which was an Italianate-style construction and in 1903 commissioned New York architect Charles Adam Platt to design the stately home, along with its impressive garden, that has served as the home of The Saginaw Art Museum for decades.
But now that home is in jeopardy. Back in 2001 a 9,000 square-foot exhibition area and a 7,000-square foot education wing were added to the Ring Home, which current Museum Board President Sharril McNally now points to as a pivotal reason for the current financial difficulties that the Museum is experiencing.
This in part has led to the Board suspending operations and calling for a special annual meeting on September 13th to discuss plans to possibly move the Museum, citing exorbitant heating bills and drastic overhead, among other reasons; despite the fact that the entire $7.5 million fundraising goal for the expansion was met to cover the cost of construction and another $2.1 million added to the museum's endowment and the Museum did not carry a mortgage.
According to ex-Director Sheila Redman, responsible for advancing and shepherding the expansion project to completion, “No detail was left unconsidered. The museum was stable when I left, in the hands of volunteers and staff who worked day and night to make it a reality.”
What is Really Happening?
A thorough review of financial reports, minutes, and ancillary documentation from 2009-2012 reveals that pivotal and questionable decisions were made within this time-frame that were axiomatic at accelerating the financial decline of the museum, as opposed to a 'bad economy' or the Museum Expansion Project, cited in recent media reports by the current Board President.
Much of this surfaced back in September 2010 and again in September 2011 when Lindy Morley raised these issues at a special meeting intended to remove Morley from the Board, which I also attended as both a member of the media and the museum; and was subsequently requested by the Board to leave what they had deemed a 'closed meeting'. According to Morley, her removal was sought because she brought board inadequacies to light.
Morley has served on the Boards of HealthSource Saginaw, Child & Family Service, Saginaw Jaycees and The Saginaw Art Museum, and involved herself with Art & Public Places in Saginaw Township for 8 years. It was during her involvement with organizing The Modernists show at the Museum with Jean Beach that Morley decided to dedicate much of her time, money, and resources to solidifying the financial posture of the Museum into the future.
In March 2011, the Executive/Finance Committee met and it was discussed that because of her proactive abilities and willingness to dedicate hundreds of hours of her time, Morley would step in as Interim Director, allowing Ryan Kaltentbach to concentrate on marketing and curatorial aspects of the museum.
What Morley discovered and is substantiated by financial reports, minutes from prior meetings, and corroborated by past board members, brings to light numerous instances of poor decision-making and financial red-flags that have in turn jeopardized the reputation of the Saginaw Art Museum and brought it to the precarious precipice that it sits upon today.
Highlights of these findings consist of the following:
Clarence Rivette became Treasurer of the Museum in 2008 and advised the Board on all financial decisions, in addition to overseeing accounts payable, annual audits, and dealing with special loans. In May 2010, Morley requested a Profit & Loss & Balance sheet statement to present to the Board meeting, which is the only one she claims was ever received.
When Morley took over the museum bookkeeping in the fall of 2010, according to Yeo & Yeo the accounting & payables was “a mess.” Upon their advice, it was decided new books should be started from scratch using Quickbooks and Morley soon discovered the Museum was behind on all bills, some aged over 3 years with interest & late fees accruing. At that time Morley also discovered $80,000 in accounts receivable that had not been collected, stemming from the building expansion campaign.
Additionally, the President & Treasurer were off on the fiscal year by 2-months, thinking it started on October 1st rather than August 1st. Morley also discovered an additional $20,000 debt owed the Morley Foundation that had been dropped off the books entirely, along with an approximate $75,000 debt to the Saginaw Economics Development Corporation. Digging deeper more red flags surfaced when Morley found a credit card debt owing from former Director Les Reker that appeared to have stemmed from S.A.M. operations that the Board was refusing to pay, in turn taking the debt from $6,000 to $26,000 in late fees & penalties.
“The books were in such bad shape when I took them over that it was next to impossible to trace how the first $25,000 of this SEDC money was spent,” explains Morley. “But I did find out that the remaining $50,000 of the debt was paid directly by the SEDC to vendors and is accounted for.”
What Happened to the $400,000 from the Sale of the Hassam Painting?
$7.5 million was raised for the Museum expansion project, as indicated by Redman at the start of this article; yet according to the books in 2009 only $5 million was raised. Because of the situation with the Museum bookkeeping, the discrepancy has been difficult to resolve.
Perhaps the most disconcerting revelation in this investigation centers upon the sale of a rare Hassam painting from the vaults of the Saginaw Art Museum that was sold at Christie's Auction House in December 2009, netting almost $398,000 after restoration fees and commissions.
What was also discovered is that the Museum had a $407,000 mortgage balance at Citizen's Bank with a balloon date of July 2010. Consequently, The Morley Foundation was contacted requesting permission to sell this rare work of art that was donated to the museum by Mary Morley. Permission was granted with the stipulations that the monies from this sale be used to pay off the mortgage debt at Citizens.
However, rather than using the proceeds from the Christie's sale to pay off the expansion mortgage at Citizen's, on the contrary, $375,000 was placed into a 5-year CD at First State Bank at 3.3% interest with a line of credit at 5.3% interest. So with the ongoing mortgage interest at 6.75%, in essence, this move created a 2% LOSS every month on investments alone.
The mortgage at Citizen's was set up for interest only payments through the efforts of Rivette and Rick Goedert, whom also served as Past President of the museum and is coincidentally affiliated with First State Bank.
This 'interest only' arrangement with the mortgage note was agreed to by Citizen's with the understanding they would not be renewing the mortgage, so alternate funding would have to be sought.
In August/September 2010, the Board decided to liquidate the 5-year CD from the Hassam sale, with $135,000 going to the refinance of the mortgage at Citizens; but by the time this was navigated, $203,000 of the sale was owed First State Bank and with additional credit card obligations, $214,000 of that $375,000 went to First State Bank and was accrued in only nine months. Additionally, the SAM had received $300,000 from the Wickes Foundation over 3 years to pay off debt.
The Review attempted to contact both Rivette & Goedert to discern why this decision was made and what these monies were used for, but as of our deadline date, they have not responded. However, former board members have indicated it was their understanding these monies from the Christie's auction were used for museum operations.
The Review also sent an e-mail to current Director Ryan Kaltenbach requesting board minutes and financials for the 2012 fiscal year, along with a series of questions sent to current Board President McNally for response; but we have not received nor heard anything prior to our deadline.
Questions of course, abound: Given that the note on the building could have been paid off to Citizen's with this money from the sale of the Hassam painting, coupled with the Board going against the wishes of the granting foundation, why was the money instead used to open a line of credit? Assuming that the funds from this painting were indeed placed into operations, what is additionally troubling is the fact that even with this large amount of cash to draw upon, museum bills were still not being paid and the monthly mortgage payments at Citizens continued to be delinquent, adding more late fees, interest, and adverse signals throughout the community.
Another looming question is simply why this CD & credit line taken were taken out at First State Bank as opposed to Citizens, which has a long history and alliance with the Museum, given the fact that all the Museum Trust Fund monies and mortgage are set up at Citizens?
Jim Schwind at Citizen's Bank is part of the Special Loans division and handled the mortgage with the S.A.M. Although Schwind could not speak with us nor comment directly upon our investigation into the S.A.M., documentation that the Review is in possession of show that he repeatedly requested communications pertaining to the names of lenders that the S.A.M. would be seeking refinancing for on the loan, but never received them; along with its annual audit, which was due within 120 days of the start of the fiscal year.
With the mortgage note at Citizens up for renewal again on October 15th of this year, what actions have been taken to seek alternate financing on the museum and what are the alternative sources?
After a June 2011 budget meeting between Rivette, Morley and Mitch Reno, four financial institutions were approached about alternative financing on the mortgage, yet the financial packages from the Museum were never received by the banks from Rivette within the 2-3 week period that was promised.
By the time the $375,000 line-of-credit was liquidated at First State Bank, $135,000 was used as a down payment for the extension of the note at Citizen's for 2010-11, yet during the 2009-10 fiscal year only 7 of the 12 interest only payments were made to Citizen's from the line-of credit.
Anywhere from $1275-1,300 per month was due on this, so why wasn't the payment made monthly instead of racking up additional late fees and interests? Moreover, given that the Museum was requested by Citizens to seek outside sourcing on the note, why would a bad pay record be established knowing this would jeopardize the prospects for future refinancing?
When a mortgage is in special loans one of the requirements is to send out board minutes to the bank every month, yet according to Schwind's letter to Rivette, this was not done - nor does it appear to have been brought up to the board from a review of the minutes.
“If you're supposed to find outside funding sources to take over a note, it doesn't matter if you have a $4.2 million art collection and a building worth $1.25 million,” asserts Morley. “When you establish a terrible pay record and violate the wishes of Foundations and do nothing with programming to generate revenue streams, good luck. You might as well have the bubonic plague.”
“I told the Executive Board back in January, 2011, we need to prove we can handle money in a responsible way before the community will give any more,” notes Morley. “It isn't surprising that today they are having difficulty with foundations and the public.”
What Happened to the Boiler Money?
With a $4.5 million art collection contained within its vault, it is imperative for the Saginaw Art Museum to have temperature-controlled environments that necessitate both a working boiler & air-conditioning system.
As part of her numerous & tireless efforts investing 40+hour weeks into saving the Museum, Morley turned a grant book written by her over to David Morley at The Morley Foundation without her name on the grant proposal. Morley was impressed with the professional presentation, so reviewed the grant requests and agreed to a one-time grant of $5,000 to assist in the repair of the Art Museum's boilers, which the Foundation approved.
In a letter from Foundation president David Morley to current board president Sharril McNally, he states: “Our check is enclosed. The long-standing relationship between the Saginaw Art Museum and the Morley Foundation is what helped to ensure this grant. Another factor was the request submitted by Lindy Morley. Her efforts in providing the necessary information in time for our grant cycle were instrumental in the awarding of this grant.”
He continues: “In the making of this grant we reserve the right to postpone or cancel this grant in the case of a substantial change in your purposes or method of operation, or finally, failure on your part to fulfill the above stated requirement.”
According to Morley, when she informed McNally about receiving the grant from The Morley Foundation, McNally responded that the grant request had been turned into her father-in-law at the McNally Foundation and that they wanted other quotes for the boiler.
“I responded that this one wasn't up for grabs because the check had already been cut, so she should pursue a different grant request - seeing as we had different grant needs and requests on the table,” explains Morley. “Two days later I received a call from staff saying she brought in two different companies to get separate quotes.”
“I decided to resign from the Board when I received a letter in the mail that I needed to prove an alleged indebtedness against the Museum for tables & chairs that I loaned them and other loans I had given them to cover expenses.,” states Morley.
The June 2012 minutes state that it takes $8,000-$15,000 per month to run the Museum, but none of the financials stated in the minutes match the P&L or other minutes. Basically the P&L states they have a $38.066.19 surplus yet the Treasurer's report states they owe $20,000 + in bills.
Nowhere do the 2012 financials - which the Review received from Morley two days prior to our deadline - seem to reflect the $5,000 boiler grant from the Morley Foundation, although apparently all but $1,000 is still in reserves for the boiler, yet according to the August 29, 2012 P&L the restricted account does not reflect this, nor does the operating account.
“I have since been told that McNally had a company come in for an evaluation to fix the boiler and they said it would cost $35,000 to fix, which is much higher than the price that I was quoted,” adds Morley.
The Review posed this question about the boiler money to McNally, but again she failed to respond prior to our press deadline.
Borrowing Against Trust Funds & Conflicting Expenditures
Recent reports in the media claim the Museum only gets $60-$80,000 per year from its trust funds; yet the financial statements indicate that even in a bad market year, this is closer to $111,000 from the two Sargent trusts alone. Additionally, the Jury Foundation gives $12,000 annually and the Saginaw Community Foundation holds approximately $133,000 with annual payouts.
As if utilizing foundation grants for purposes other than the wishes of the foundation isn't bad enough, financial documents show that all the trust funds held at the Museum have been borrowed against and the Museum must come up with another $42,000 to pay back one of the Sargent trusts unless an extension is given.
In July 2011, Morley received a check for the S.A.M. in the amount of $3400.00 and phoned Helen James at the Trust Department asking where it was generated. Apparently it had been received every year, but was never included in the annual audit and never recorded in the books under Trust income, which was subsequently corrected at Yeo & Yeo and is now on record. Additionally, the Horgan trust pays out every July.
“The fact that the museum has a million dollar trust fund and gets $110,000 from it each year is a pivotal reason that the Museum is somewhat alive today, so again I don't know how they can claim they only get $60-$80,000 per year from trusts,” states Morley.
The Issue of Written Grants
In the Spring of 2009, Reker and Rivette met with a grant writer named Jillian Carter who entered into an agreement to write grants for the Museum. At the same time the museum was being sued from a prior grant writer for lack of payment on services commissioned. Carter wrote six grants, which only required signatures to complete; and after months of calling the museum she read in The Saginaw News that Reker had been let go, yet none of the grants she wrote had been signed.
According to Morley, Carter was assured the matter would be taken to the board, yet a review of the minutes over this period indicates it was never brought up - leaving one to ask why would grants not be signed for work that had already been written and not sent out to establish grant funding?
When Morley was approved by the Finance/Executive Committee as Interim Director (a move that was never taken to the Board for a vote) a list of Foundations that donated to the SAM in the past was presented by Morley to finance/executive committee members in order to create cash flow. Aside from her work and that of Mitch Reno, there appears to have been no participation or follow-up on pursuing this fundamental revenue stream.
At this point several problems were converging: the $262,000 mortgage at Citizen's renewal; the $69,000 owed the SEDC with payments going from $145 per month to $2300. The Sargent Trust at Citizen's was borrowed against and had a payment due in April 2012 of $3991.75 with $2000 in interest.
At the same time, several maneuvers were negotiated to guide the Museum away from the rocky shoreline of financial devastation. Board member Tom Luplow arranged a payoff with the credit card company with a $6,000 settlement, the SEDC debt was also renegotiated by Luplow through a contract with affordable payments for one year; and the Morley Foundation wrote off the $20,000 debt owing them from interest fees from the $100,000 bond, with the bond ultimately paid in full, albeit delinquent.
Consequently, in July 2011 Morley conducted several meetings with foundations with positive results and submitted 14-detailed program grant outlines, some with a five-year range. Mitch Reno subsequently resigned from the Board due to personal reasons and Morley maintains she continuously tried to meet or talk with Rivette to fashion debt strategy, but her efforts were ignored.
This finally came to a boiling point when Morley asked for Rivette's resignation as Board President at the September, 2011 special meeting. Subsequently, Rivette said the only way he would step down was if current President Sharril McNally came into the fold, which Morley says she had no problem with.
“Clarence wanted me gone because I was pressing him on these issues, and I didn't have a problem not being President and trusted Sharril and promised I would work with her as a Vice-President does,” states Morley.
The overriding question in all of this is simply why were these decisions made and what is the motive for 'moving' the Museum when it can continue to thrive and flourish in its present location?
Over the expanse of Morley's involvement at the Saginaw Art Museum she had navigated the successful Icon show, reorganized the staff, handled museum maintenance and programming with Ryan Kaltenbach, reduced overhead, corrected accounting and accounts errors, finished unwritten grants, wrote new grants, and put Museum operations in the black for the first time in many years.
One of the questions The Review posed to McNally that has not been answered is what has been done to further this trend of upward success and financial solidity since Morley's expulsion?
Usually, an average of $7,000 per year is raised through the Annual Membership Appeal letter, which happened in 2010 under Morley's instigation. However, no appeal letter to the membership was sent in 2009 and was late getting out in 2011, creating a cash flow shortage.
The current regime on the Board claims that the expansion project led to the current financial woes at the Museum, however as former director Sheila Redman has noted, along with others, it was precisely because of that expansion that the Museum was able to remain competitive in the art world.
“The reasons for the current failure is not because of the expansion but because the Board has not been fiscally responsible and run the Museum like a business,” states Morley.
“When I first took over the books all I would receive were Profit & Loss statements with no balance sheet to go with it,” she continues. “The fact debts were not showing on the P&L was the first red flag that I experienced that told me stuff was going on that the Board was not aware of. Essentially, the Board has acted in total disregard for following by-laws and the whole parliamentary procedure had broken down.”
“Art in the Heart of the City brought in $7-$8,000 and by February 2011 we had almost $50,000 in the bank. From the time I took over the books in September 2010 to December 2011, it put us into the black; and with the refinance of the note at Citizens, it took the pressure off the Museum,” comments Morley.
“In order to get grant money from foundations you need to get the doors rotating first,” notes Morley. “If the door isn't rotating with programs you won't get anything. You need to program your educational offerings and run it like a business.”
Indeed, many things do not add up. Reports in the media have claimed Consumers Energy bills at the museum are $100,000 per year, yet a review of the financial reports indicates the highest bill up through 2011 at $7,000 with an average annual expenditure of $60,000.
But the core question is whether the problems at the Saginaw Art Museum can be solved by moving; along with whether it is possible for the Museum to even contemplate a move. Apart from the costs of moving and financial costs involved on that front, Insofar as the art requires temperature requirements, it is doubtful the vaults at any other facility can handle such a move; plus are there restrictions in the Trust Funds pertaining to the building & art?
As a friend of mine that serves as a financial consultant dissected it when told of what was happening at the S.A.M.: “Let me get this right. You can't afford your current building so you're going to move to another one. That's like saying I have a car that I can't afford so I'm going to buy another one, along with all the gas and insurance that goes with it.”
But most important, can such a decision be made without a vote of the membership? This is hard to ascertain as the by-laws continuously seem to be changing and the current board has failed to give The Review copies of the current board by-laws as requested by our deadline date.
As mentioned at the outset of this investigation, all of these issues raised were placed and forwarded over to the principal individuals involved for a response and to discuss the issues raised; however The Review did not hear back from them, with the exception of Mitch Reno, whom stated the following:
“The SAM Boards of Directors and its professional staff members from the past 10 years all have one thing in common--a love for SAM, its collection and the facility. Today's situation is a result of many factors. Those combined factors have resulted in today's current realities. From many perspectives, it's easy to suggest what should have or might have been done differently.”
“Could the Board that decided to invest in the expansion of the facility have forecasted the global economic meltdown? No. There have been countless arts organizations closing their doors since 2008. The actual facility operating costs were much larger than anticipated and projected.”
“Could the Boards of Directors and the professional staffs of the SAM during the past 10 years made better financial decisions? Possibly. However, it's most likely that everyone involved was doing the best that they could do and was trying to do what was right at the time they made decisions.”
“Could the community have supported the facility more to overcome its challenges? Uncertain. Many individuals and businesses put their heart, souls and money into the SAM. Who knows how much more could have or would have been needed to make the difference?”
“At the end of the day, it has been a perfect storm of circumstances and imperfect decisions that has resulted in today's realities,” concludes Reno.
So What's Next? The September 13th Meeting…
Despite conflicting reports as to whether the Museum will be 'moving' and assurances from the current Board that it will not be closing, a very real & serious question exists as to whether they have the authority to make such a move without a fully informed membership willing to vote for such a radical step, especially insofar as no proxy cards were sent to the membership addressing the issues raised in this piece.
Moreover, as Morley and others have raised and alluded at in the media, is such a radical move necessary when a strong case can be made that if run actively & properly as a business, with solicitations going out to members and proper programming and pursuit of grants & foundation money, the Museum can indeed be self-sustaining.
As Director of The State Theatre in Bay City, Michael Bacigalupo deals constantly with grant administration and non-profits. When I spoke with him about the situation at the S.A.M. pertaining to spending foundation money in area's that it was not delegated by the granting foundation, he responded that the restrictions are so tight that it would be pure folly to expend funds on anything other than what the granting organization wished.
Finally, there is the entire question of whether at the annual meeting, when the Board is up for re-election, an entirely new board could indeed not be voted in by the membership with a solid plan to turn the Museum around - as Morley was striving and succeeding at doing - that would continue to retain the beauty and benefits of this crown jewel of the community at its current location.
The possibilities for the financial security at the Saginaw Art Museum are endless and very real. But it does take a fully informed public in order to make things happen and effect change for the better within our community.
And in order to move forward, accountability is mandatory. For the current board to claim that 'regionalism' and 'moving' is the cure to their woes is akin to using a band-aid when sutures are needed.
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THE NEW GILDED AGE (Part 2)