In Part 1, we examined the additional information provided by the Hartford Symphony Orchestra (HSO) in response to their 12/19/2015 statement saying that the orchestra’s board is considering shutting down operations at the end of January, 2016 if they are unable to reach an agreement on a new collective bargaining agreement (CBA) with their musicians. Along with determining where the HSO’s shutdown threat falls within potential options, today’s post will dive into the myriad of variables that are perhaps best defined as everything you wanted to know about unraveling negotiation spin but were afraid to ask.
Determining The HSO’s Position
In order to determine the likelihood for which type of shutdown the HSO is considering, the most important distinction is to first determine if there is genuine potential for bankruptcy. To that end, the HSO’s pattern of public statements focuses more on long term projections rather than immediate pressures. The latter is typically defined by a combination of variables:
- Existing cash reserve.
- Available line of credit.
- Scheduled unearned income (such as planned grant or large gift disbursements which are typically delivered to the recipient on set dates).
- Unrestricted endowment value.
- Outstanding debt.
Among those items, the HSO has actively avoided referencing current cash reserves or scheduled unearned income disbursements. This should come as no surprise because it is increasingly difficult to justify filing for bankruptcy or initiating a work stoppage if the organization has enough existing and/or planned revenue to cover a large share of impending event expenses over the course of the remaining fiscal year. At the same time, it isn’t unheard of, Philadelphia filed for reorganization bankruptcy even though they were cash flush, but it is unusual nonetheless.
In Part 1, the statement from HSO Board Chairman, Jeff Verney, touched on two of the other items: the organization’s line of credit and unrestricted endowment.
“Unfortunately, we’ve hit the maximum on our line of credit, we only have about $1 million of unrestricted endowment left after paying off the line of credit…” said Verney.
I’m Jeff Verney, Chairman of the Board of the HSO, and I want to thank you for your interest in the HSO. This goes beyond the questions that you asked but I wanted to make sure you have a detailed understanding of the situation that we’re in.
First, as I’m sure you know, the way that symphonic orchestras are financed is that revenue comes in through ticket sales (which comprise less than 50% of the total revenue) and what is called contributed income which includes annual individual, corporation and foundation gifts/grants. The problem that the HSO faces is that our expenses have exceeded our revenues by about $1.3 million/year for the past decade. To bridge the gap, we’ve borrowed money, have drawn down unrestricted endowment funds, and have had “angel” donors help us close the gap in a given year. Unfortunately, we’ve hit the maximum on our line of credit, we only have about $1 million of unrestricted endowment left after paying off the line of credit, and perhaps most importantly, our “angel” donors have said they are unwilling to continue to help us unless we fix the structural deficit that we have experienced.
Since 2008, the HSO has reduced our overall expenses by 26%, we’ve reduced our administrative staff by 60%, and we’ve been able to raise between $2 – $3 million per year from our generous donors as contributed income. At the same time, the guaranteed payment to the musicians has only decreased about 7%. And this is one of the issues we’re trying to address in the contract negotiations with the union/musicians. Our wonderful musicians, whose work with the HSO is part-time, perform about 260 hours of work per year (about 6.5 weeks of work – they also have many other jobs in addition to their HSO work). This is the amount of work the market will support. However, we are required to pay some of our musicians for 450 hours of work under the existing contract. We simply can’t afford to pay people to not work, especially when the market no longer supports the level of services that were available many years ago as I describe below.
To add a little more context (and I hope you don’t mind the depth of detail in this email!), Hartford, New Haven, and Springfield all have symphonies. The three cities are surprisingly close in many demographic areas such as total regional population size, education levels, household income levels, etc. But from a symphony perspective, things are quite different. New Haven and Springfield have budgets that are less than half of the HSO’s current budget, and the payment guarantees to the musicians are for about 100 hours per year. The cause of the difference between the HSO budget/guaranteed services and the New Haven/Springfield budgets/guaranteed services is that the current construct of the HSO contract was written back in the day when we had a ballet, an opera, and we could teach in schools during the school day (which we no longer can do because of the Common Core curriculum). Thus the level of work that we thought we could provide the musicians was much higher then than it is now. So what we’re really trying to do right now is work with the union/musicians to come up with a contract that reflects what the market will bear in 2015 (and beyond).
Bottom line, our hope is that the union/musicians will work with us to come to an agreement that reflects the demands of the current marketplace and provides a stronger financial foundation which meets the expectations of our “angel” donors who will then resume their support of the HSO but by helping us build an endowment, rather than funding a deficit. But if we can’t come to agreement, we simply won’t have the money to sustain operations for much longer. And as Steven has said, we are looking at all options but obviously our overwhelming preference is to come to an agreement with the union/musicians that the current market will support.
Anyways, Drew, I’m sure this is way more information than you needed but I wanted to make sure you had the facts and at this stage of the game I would rather over-inform than under-inform. But please rest assured that me, the Board, and the HSO management team is doing everything we can to try to resolve this situation. Thank you again for your interest in the HSO.
I hope the holiday season is treating you well,
Verney’s wording about the line of credit casts confusion over whether the HSO has already paid off the reported $2million debt. When asked for clarification, Verney failed to reply.
Likewise, Verney failed to reply to requests for details about existing cash reserves or any potential HSO scheduled unearned income disbursements by the end of the current fiscal year.
In order for patrons and supporters to develop a clearer understanding of the HSO’s current operating environment alongside its previous performance and potential, there are a number of necessary areas to quantify.
Perhaps unsurprisingly, any sort of reasonable dynamic analysis includes elements that fall outside of what both employer and employee stakeholder groups tend to focus on when crafting their respective public relations campaigns.
Nonetheless, in order to achieve reasonable levels of transparency and provide the HSO’s greater patron base with the information needed to form sensible opinions, I asked Verney a number of additional questions and submitted requests for information that touch on several key performance indicators. These are excellent examples of what’s needed in order to perform a reasonable dynamic analysis; having said that, at the time this article was published, Vernet has failed to reply.
Unearned and Earned Income Performance
- What are the contributed revenue sums (from all sources) for each season from 2000/01 through 2013/14?
- What are the board sourced contributed revenue totals along with the projected goals for each season from 2000/01 through 2013/14?
- What where the HSO’s fee engagement* revenue totals per season before and after outsourcing administrative responsibilities to The Bushnell Center for the Performing Arts?
- Please describe the fee engagement generation efforts implemented by The Bushnell Center for the Performing Arts.
- What are the total earned income sums for non-fee engagement events for each season from 2000/01 through 2013/14?
Extended Debt Obligations
- Is the HSO current on its existing AFM-EPF (American Federation of Musicians and Employers’ Pension Fund) contributions?
- Is the HSO’s service agreement with The Bushnell Center for the Performing Arts an annual or multi-year agreement; if the latter, how long is the agreement and where are you in the current cycle?
- When determining your music director’s compensation via her recent renewal, was it based on the existing musician service count or was it adjusted to coincide with the HSO’s proposed reduction in artistic activity? If the former, are there plans to ask her to reopen her terms accordingly?
- Regarding the surrounding orchestras in New Haven and Springfield, would you mind providing copies of the market analysis and related research the HSO has performed that led to the decision to present those institutions as peer comparisons?
- Would you mind sending a copy of the HSO’s current redline** proposal?
The final item in the above list is the crucial element capable of allowing a reasonable degree of understanding when juxtaposed with the structural institutional information for the preceding questions. In English, attempting to discuss the HSO’s long term goals without this info is an exercise in futility.
The Shutdown Threat
Based on the lack of basic details surrounding income/expense items that would support the potential for announcing the intent to file for bankruptcy, it is fair to say that the likelihood for that option is very low. If the organization were to announce bankruptcy without releasing these details in advance, it would be best for all parties involved if they filed for Chapter 7.
Likewise, there is no indication that the institution has plans for imposing a new agreement outside of the official ratification process nor are there signs of implementing the passive aggressive option of simply missing scheduled payroll disbursements and waiting to see how the musicians respond.
As such, and assuming the shutdown statement wasn’t a hollow bargaining tactic to begin with, the most likely scenario is the HSO would opt for triggering a work stoppage by initiating a lockout.
According to the HSO’s concert calendar, the only scheduled event activity in the stated timeframe is a quartet of concerts from 1/21/16 through 1/24/16 and a one-off event on 2/7/16. Given that the January events are designed to feature three finalists for a newly created Assistant Conductor position, cancelling those events would produce an unusually large operational burden, not to mention potentially scaring away any of the candidates.
This indicates a likely implementation window of 2/1/16 through 2/6/16.
INSIDER TIP: For those interested in looking for early warning indicators, you can always keep an eye on information related to any of the guest artists scheduled to appear on any of the HSO’s events beginning with the Love Notes concerts beginning 2/11/16. Typically, a presenter is required to notify a guest artist about a labor related cancellation within a minimum timeframe, which varies from one agreement to the next. Consequently, if you see the respective artist(s) announcing a cancellation or listing a last minute performance on the date(s) s/he would otherwise have performed with the HSO, that’s all but a lock that the employer has a work stoppage planned, but not yet announced.
As it stands, the shutdown strategy is one that holds very limited value.
If it is merely a tactic and there is no actual cash shortage, then it only degrades the employer’s credibility. If the organization will run out of cash, then it should come as no surprise to see the employer implement a lockout.
It ultimately comes down to relationships and trust. If musician stakeholders see the HSO’s problems as endemic and not systemic, as the current HSO leadership purports, then acquiescing by way of lockout doesn’t solve those problems. Consequently, folding offers little to gain.
As of now, all signs indicate that there simply isn’t a minimum amount of confidence or trust among stakeholders to get past a point that Mark Twain perhaps best defined when he quipped “Get your facts first, and then you can distort them as much as you please.”
In addition to publishing updates if new information from either stakeholder comes in, we’ll continue to monitor the Federally mediated negotiations. If things don’t improve after the end of January, we’ll begin to explore the 800-lb. gorilla that was the decision to outsource administrative function and share a CEO with the institution hired to perform those duties. In the end, that arrangement has far more impact on the HSO’s future than any other topic that crops up in stakeholder talking points.
In what might be one of the more heartwarming side stories in the dispute, the Hartford Courant published an article on 1/2/2016 by Russell Blair titled Top 10 Stories We’re Watching In 2016 and number six on their list is the HSO labor dispute. It’s heartening to see the local paper of record rank the orchestra so high. If anyone thought there wasn’t much interest, this should go a long way toward dissuading that perspective.
*A fee engagement event is one where the orchestra is hired by an outside party to perform an artistic service. This typically covers everything from in-school education activity paid for directly by the school system to providing a pit orchestra for a local ballet company’s production of The Nutcracker. Typically, this type of earned income is reported separately from self-produced events as they maintain higher ROI thresholds. For many orchestras, this is a crucial source of annual income and savvy orchestras manage to do a good job at using it to pad their revenue margins
** A redline contract (sometimes called markup or strikeout contract) is a version of proposed modifications that show the agreement’s original language while listing modifications in the form of strikeout and bold formatting; the former being a removal with the later an addition or modification. Depending on where the bargaining/revision process is, redline proposals come in varying degrees of detail but it is normal for final versions to include every possible change, right down to modified section and subsection numbering.