In the years before the global financial crisis hit, many of Chicago’s cultural institutions took on major financial risks by borrowing tens of millions of dollars to fund expansions, renovations and other big-ticket projects.
Some major institutions were expecting that the new attractions would bring in more visitors and thus more revenue, an assumption that often failed to pan out. Others presumed investment returns would stay high enough to cover borrowing costs and fund operations.
When those bets failed to pay off, the financial fallout left many institutions reeling.
Few have suffered the kind of crisis now playing out at the Field Museum, which expects to slash spending and lay off scientists. But whether it was job cuts at the Art Institute, price hikes at the Chicago History Museum or a strike at the Chicago Symphony Orchestra, many are feeling the effects.
The faltering economy and cuts in government funding explain part — but not all — of their troubles, experts say.
“The recession blew a lot of people’s projections and plans,” said Carroll Joynes, co-founder of the University of Chicago Cultural Policy Center. “But the plans would have been unrealistic in many cases and freighted with not very good risk assessment, even if the economy had kept humming.”
Institutions that borrowed conservatively, raised money ahead of time and projected realistic revenues have generally bounced back from the recession. But many have struggled with debt service payments, pension shortfalls or operating losses.
“Every institution you are looking at put a lot of debt on its balance sheet in the past two decades,” said former Exelon chairman and CEO John Rowe, who chairs the Field Museum board, is a life trustee at the Art Institute and chaired the Chicago History Museum board during its renovation project.
The history museum embarked on that $28 million makeover in 2005 although it had run operating shortfalls seven years in a row. Back then, money from a thriving endowment more than made up for those losses, said the museum’s vice president of finance, Cheryl Obermeyer.
“It really seemed, at that point in time, to be OK,” she said.