Bigger, bolder . . . and poorer

Audrey Irmas remembers when money was so tight for the Museum of Contemporary Art in 1997 that she drove from one fellow board member’s home to another, rounding up $7,000 for building repairs.

Now MOCA’s financial house is in shambles -- and this time it reportedly will cost at least $25 million to replenish the endowment and an additional $5 million to cover projected deficits for the coming year.

“This shouldn’t have been a surprise to anyone,” said Irmas, a life trustee of the museum. “We lived over our budget.”

Renowned as one of the world’s top museums of post-World War II art, MOCA has overspent by $1 million a year on average since 2000, burning through reserves to pay bills. Deficits continued to mount early in the decade despite spending cuts, leading to a bid to grow out of problems by ramping up exhibitions to attract acclaim and big donors -- a strategy one arts management expert likens to playing the lottery. Since the national economic meltdown, MOCA has retreated again, limiting exhibitions and announcing a six-month closure of its Geffen Contemporary building.

Hastened by the tanking economy, the museum’s financial crisis has triggered an investigation by the California attorney general and prompted calls by prominent former trustees to sweep the current board from power and fire Director Jeremy Strick.

Now, with its 36-member board fractured, MOCA faces dramatic changes if it is to survive. Trustees will meet Tuesday to sort through conflicting views and proposals on how to deal with an unprecedented fiscal emergency.

On the table is an offer by billionaire Eli Broad, MOCA’s founding chairman in 1979, to shell out $30 million -- if the museum can come up with an additional $15 million on its own. Other bailout options include an alliance with the Los Angeles County Museum of Art, board co-chairmen Tom Unterman and David G. Johnson said in an interview last week. There also has been some discussion of selling artwork, but no action has been taken.

“We promise that we will find a way to stabilize the institution and make it sustainable because we understand how important it is to this country, the art world and this city,” Johnson said.

MOCA carries the costs of operating two downtown buildings, the Geffen Contemporary and the main museum on Grand Avenue near Walt Disney Concert Hall. Other than a $1-a-year city lease for each of its two downtown properties, it gets scant government help.

Strick, a low-key curator and scholar who declined interview requests, was brought in as director in 1999 and apparently saw spending as a path to success. On his watch, it rose 35%, from $15.6 million in fiscal 1999-2000 to $21.2 million in 2006-07, according to the most recent IRS returns for the nonprofit museum.

That resulted in average annual shortfalls of about 5.5% in a decade that, until the recent meltdown, was very kind to the wealthy class on whom MOCA and other major arts organizations rely. But as other investors reaped the rewards of a robust stock market, MOCA drew on its investments to pay its bills.

Nonprofit-governance experts, former trustees and others say the museum’s officers and volunteer board should have seen calamity coming.

By mid-2001, as the economy slumped toward recession, independent auditors warned that MOCA’s reserves had fallen $3.8 million below “the level required by donor stipulations.” Indeed, year in and year out, the museum’s financial statements included that same ominous disclaimer as the amount borrowed from the endowment ballooned to $17.1 million in mid-2007. (Meanwhile, MOCA’s investments had fallen from $38.2 million in mid-2000 to $20.4 million in mid-2007.)

But instead of balancing the books by generating more revenue or dramatically cutting costs, Strick repeatedly dipped into MOCA’s reserves -- with the board’s approval. Ultimately, nonprofit boards of directors or trustees are responsible for how their organizations operate and spend their money.

“A lot of very bad habits were allowed to build up,” said Dean Valentine, a television and Internet executive who left the board in 2006, unhappy with its financial practices. “Obviously, those bad habits led to a disaster.”

He and Irmas -- who joined the board in 1992, later served as its president and now, as an honorary life trustee, has no voting rights -- said museum leaders were unrealistically optimistic.

“It was always, ‘Oh, well, we’ll have our next fundraiser, and we will put the money back in then,’ ” Irmas said. “There was always going to be the good fairy coming down because where else are we going to get it? It just doesn’t happen that way.”

‘Financial jeopardy’

Susan Bay-Nimoy left the board the same year as Valentine and says she was disgusted with what she saw as excessive spending.

“The exhibitions became more grandiose, more expensive, to try to capture the imagination” of the public, she said. “But they put the institution in financial jeopardy.”

Like Valentine, she has little confidence in Strick, although she said it was not for his lack of hard work. She said he “gave his life’s blood” trying to raise money to get out of the hole. “But money follows vision, and there was no vision.”

Soon there may be no Strick.

His contract runs through mid-2010, but his future is uncertain. Unterman said Strick’s ouster was not a requisite of any of the bailout options being considered. He also praised Strick for accomplishing “an incredible amount” in expanding the collection and mounting exhibitions.

But when asked about Strick’s future, Unterman said: “We can’t really comment on the employment status for anybody.”

Unterman, a former chief financial officer of Times Mirror Co., erstwhile owner of the Los Angeles Times, said MOCA trustees received quarterly briefings, usually from the museum’s chief financial officer.

Unterman and his co-chairman Johnson, an attorney and producer of independent films who joined MOCA’s board three years ago, said financial difficulties and remedies for them were a frequent topic of discussion.

“I think we can say we’re confident that the trustees have been aware of their complicated fiduciary duties,” Johnson said.

“And have met them,” Unterman chimed in during an interview at the Santa Monica offices of his Rustic Canyon Partners venture capital firm.

Others in the nonprofit world say the annual shortfalls and diminishing endowment should have sparked decisive action to head off calamity.

Douglas Mancino, a Los Angeles attorney who specializes in nonprofit law, said that at the earliest signs of distress, boards must “ensure they are taking appropriate steps rather than getting to the brink of disaster and having to try to salvage things at the last minute.”

He described as “disturbing” MOCA’s repeated borrowing from restricted funds -- contributions that donors have made for specific purposes such as acquisitions. That probably is a focus of the attorney general’s investigation, he said.

Whether any laws were broken hinges largely on what restrictions were spelled out in gift agreements detailing donors’ wishes.

Unterman hedged when asked if MOCA has proof that it got approval from all donors whose restricted contributions were used for other purposes. “There have been exercises to make sure that to the extent that there were contractual stipulations, that they have been honored,” he said.

He and Johnson said MOCA is complying with the attorney general’s request for financial records but would not elaborate. The attorney general’s office would not comment.

As the co-chairmen see it, meeting fiduciary duties meant not just securing MOCA’s bottom line but presenting an excellent exhibition program that would serve L.A.’s community of artists and art lovers.

For three years, from mid-2002 to mid-2005, MOCA economized, cutting spending from nearly $20 million to less than $17 million. The problem, Unterman said, is that corporations, foundations and other donors liked to tie their gifts to specific shows. Reducing the number of shows meant drops in contributions as well as lower earnings at the box office and the museum’s bookstore, he said.

Deciding that belt-tightening was not the answer, MOCA’s leaders did the opposite: Before the economy tanked, the museum tried to grow its way out of its difficulties, spending heavily on exhibitions that have won art-world acclaim and engaging L.A. architect Michael Maltzan for a preliminary study as it laid the groundwork for renovation and expansion of the Geffen Contemporary building.

Spend to earn?

A big campaign focused on the Geffen not only would raise construction money, MOCA’s leaders reasoned, but also attract donations to refill the endowment.

Meanwhile, the MOCA co-chairmen say, the hiring of new directors of fundraising and finance during the last two years has allowed the museum to be quicker on its feet in landing donations and fine-tuning its fiscal operations. In 2006-07, MOCA enjoyed its first surplus -- $3 million -- after six straight years of deficits.

Bruce Altshuler, director of New York University’s museum studies program, sees competitive reasons for MOCA spending down reserves to keep a high profile. By 2005, LACMA, which shows art from all historical periods, was building the $56-million Broad Contemporary Art Museum, funded entirely by Eli Broad. In 2006, it hired Michael Govan, a dynamic new director with a specialty in contemporary art.

There is a “finite number” of big-dollar donors interested in contemporary art museums, Altshuler says, so MOCA might not want to be seen as “retrenching” while LACMA surged ahead. “I can definitely see the impulse” to step up exhibition spending despite deficits, the professor said.

Andrew Taylor, director of the Bolz Center for Arts Administration at the University of Wisconsin-Madison, said the tack MOCA took was not in the arts-management playbook. “Growing their way out of the problem -- it can work, but boy, that’s a risky strategy. That could happen, but it’s kind of like buying a lottery ticket.”

Although Unterman said MOCA’s money problems were raised at length in “unpleasant and challenging” finance committee sessions, the full board apparently did not become galvanized to solve them until the co-chairmen clearly laid them out last summer.

“I don’t think a lot of the board was aware how dire the situation really was,” said Jane Nathanson, a longtime MOCA trustee who also sits on LACMA’s board.

Nathanson said she has chaired fundraising events for MOCA but left the fiscal watchdog duties to others better versed in finance. Now she’s making a New Year’s resolution to improve her grasp of museum money matters.

“I would be much more concerned about financial reports,” she said, “and definitely take the time to read between the lines.”

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mike.boehm@latimes.com

kim.christensen@latimes.com