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The curtain may rise to a shortfall

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Times Staff Writer

FIVE months from opening night, fundraising for the new Orange County Performing Arts Center symphony hall that architect Cesar Pelli has clad in waves of glass is $70 million short of its goal. Center leaders no longer expect to raise the money in time for the Sept. 15 debut, saying the anticipatory buildup and the hoopla of the celebration should boost a lagging campaign toward a happy conclusion.

Borrowing $180 million through a bond issue has ensured completion of the Renee and Henry Segerstrom Concert Hall, which backers predict will carry the Costa Mesa center toward its goal of being recognized nationally as a peer of such cultural fulcrums as New York’s Lincoln Center and the Kennedy Center for the Performing Arts in Washington, D.C. But unless fresh donations pile up in time, leaders of the Orange County center face having to explain why the new jewel comes with a big mortgage attached -- and why an organization proud of never having run a deficit in its 20-year history could have to confront unprecedented financial challenges.

As things now stand, OCPAC will need to keep searching for huge sums to complete funding for the hall while also ramping up its annual fundraising from $8 million to $11 million to pay for operations. A consequence of expansion is higher ongoing costs, including interest payments on the construction bonds that would total $4.7 million a year at recent rates of about 2.6%.

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“With a $70-million goal in six months, you’re going to need people to come in with some pretty large gifts,” said Vaughn Welty, head of the Southern California office of Brakeley Briscoe, a national fundraising consultant. “It’s a pretty big chunk to me.”

A long downswing in the $200-million campaign’s fortunes began in 2002, after a blowup on the center’s board led to the resignation of two leading donors, both high-tech billionaires. At that point, a funding drive begun with overwhelming optimism during 1999 had raised nearly half the money -- $96 million in donations and pledges. Only about $37 million has come in since, according to center officials. Two cases of embezzlement also have struck discordant notes in what OCPAC’s leaders initially expected would be a triumphal march toward funding and building the hall. The second theft, uncovered last September, involved the disappearance of $1.85 million from bank deposits over five years -- the largest embezzlement in memory from an Orange County nonprofit.

Fundraising experts say shattered harmony on a board and insider thefts that jeopardize public confidence in an institution’s financial stewardship are among the most serious blows a capital campaign can absorb. It could soon become apparent how well OCPAC has weathered those tests.

Center officials say they have done what’s necessary to prevent more theft and maintain donors’ confidence. They feel the repercussions from the board upheaval have faded -- and Henry Samueli, one of the major donors who resigned, says he has continued to support the campaign all along, occasionally helping to court new donors. The center’s leadership remains confident that OCPAC, the leading arts organization in a county with a legendarily wealthy business upper crust, will raise the money in due time. They expect fundraising momentum to surge as prospective million-dollar donors leap to share in the excitement of O.C.'s biggest cultural happening since the 1986 opening of the center’s existing venue, Segerstrom Hall. That original $73.3-million campaign reached its target by raising the equivalent of $16 million in today’s currency in the five months before opening -- a closing kick that, if duplicated, would leave the current project about $55 million short.

“Orange County, in my experience, doesn’t do very well in accepting anything but success,” said John Forsyte, president of the Pacific Symphony, the new hall’s leading tenant. He said he detects “a sense of movement, a closing rush, with some very large donors considering multimillion-dollar gifts, the kind that really begin to move the campaign. I remain very optimistic we’re going to stride home in good shape.”

While the center -- with an annual budget of about $40 million, well more than double that of any other arts organization in Orange County -- has struggled to land big donations, many other major arts-funding campaigns around the country have recovered from a post-Sept. 11 chill to ring up impressive totals. More than $1.5 billion has been raised for art museum and performing arts expansion in New York City alone since 1998. Initiatives for a new museum wing and a new performing arts center in Kansas City together have gleaned $334 million since 2003, two theater companies and two art museums in Minneapolis have aggregated nearly $345 million in donations since 2000, and the Nashville Symphony is within an eyelash of finishing a $140-million campaign, launched shortly after the Sept. 11 disaster, to fund a concert hall that will open six days before OCPAC’s.

The center’s “Building on the Vision” campaign began in 1999 on a crescendo of optimism. Its leaders long had yearned to augment the overbooked, 3,000-seat Segerstrom Hall, used for dance, music, opera, children’s shows and touring Broadway musicals. The vision: a 2,000-seat symphony hall with superb acoustics, a 500-seat theater, and an outdoor plaza connecting the new venues to Segerstrom Hall and the nearby South Coast Repertory. The center’s then president, Jerry E. Mandel, speculated early on that it might take just six months to raise half the $200 million and that the fundraising campaign could be completed in 2 1/2 years. In hindsight, said Roger Kirwan, who was the center’s chairman when the campaign began and now co-chairs the fundraising effort with lead donor Henry T. Segerstrom, OCPAC may have gotten caught up in the “irrational exuberance” that Alan Greenspan, the Federal Reserve chairman, had warned was distorting economic expectations during the late 1990s.

“I think we were prone to a little bit of that,” he said. “But you have to have that sense of optimism, or no great projects would get built.”

Sept. 11, 2001, was the first shock that drained momentum from a campaign that had been moving along well, spurred by a $40-million cornerstone gift from Segerstrom. He and his family, whose forebears arrived in Orange County from Sweden more than 100 years ago, developed the South Coast Plaza business district that surrounds the performing arts center and South Coast Repertory. The Segerstroms donated the land for the county’s arts hub and have been its leading funders.

A few months later, an explosion of a different sort sent tremors into OCPAC’s boardroom: a group of wealthy investors sued Broadcom Corp. and its founders, Samueli and Henry T. Nicholas III, saying the two had inflated their company’s stock and deceived investors by overstating revenues during a round of acquisitions of smaller tech concerns. Four of the plaintiffs, Thomas Tucker, Thomas Tierney, Robert Follman and Benjamin Du, were on the center’s board; so were Samueli and Nicholas, who already had given $10 million and $3.8 million, respectively, to the expansion campaign. The two quickly resigned from the board, saying that although they supported the center and would let their gifts stand, they couldn’t serve with fellow trustees who were accusing them of fraud. The OCPAC plaintiffs eventually folded their claim into a larger class-action suit that Broadcom, while admitting no wrongdoing, settled last year for $150 million.

“It cost us,” said Kirwan. “It was guilt by association, and from an emotional basis, we were the bad guys. It caused some bitter feelings all around, and it diverted people from the mission.”

Mark Chapin Johnson, the former center board chairman who headed the fundraising drive through mid-2002, said an image problem lingered: “I can’t tell you how many people have asked me over the years, ‘How is the lawsuit between the center and Broadcom progressing?’ They just assume it had something to do with the center or the symphony, and it never did.”

Samueli, however, questions whether his and Nicholas’ resignations could have caused a significant setback in attracting donors from their industry. “People in the tech field are savvy enough” not to hold the business dealings of a handful of board members against the center as a whole, he said. The Broadcom chairman, whose name adorns the new wing’s 500-seat Samueli Theater, said his “very busy plate” -- he also operates the Arrowhead Pond of Anaheim and owns the arena’s leading tenant, the Mighty Ducks hockey team -- doesn’t leave much time for helping OCPAC court donors. “But when there’s a key prospect to meet, something important, I will make myself available.”

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Pushing ahead despite blowup

WHEN leaders and advisors of other arts fundraising campaigns hear about OCPAC’s Broadcom blowup, many react with the verbal equivalent of a wince, as if they were fellow quarterbacks watching Joe Theismann’s leg buckle and break on “Monday Night Football.”

“That can sabotage a project. If your family is splintered, you’ve got a problem. When they’re suing each other, it casts a pall,” said Susan Plageman, a Nashville Symphony vice president who has helped shepherd the orchestra’s successful fundraising campaign.

“Nobody wants to be involved where there’s controversy swirling around,” said Peter H. Hansen, head of fundraising for the Nelson-Atkins Museum of Art in Kansas City, which is in the home stretch of a $325-million building and endowment campaign for a new wing due to open next year. “Uncertainty is the enemy of fundraising.”

When a serious mishap like the Broadcom suit strikes a campaign, “you wait for the dust to settle,” said Peter Wagner, fundraising vice president of the Virginia Museum of Fine Arts, which is nearing the $175-million goal of its eight-year push for a new wing. “It can take some time. It’s very complicated, and complicated is not usually good for fundraising.”

Rather than wait for donations to rebound, OCPAC officials pushed ahead, breaking ground for the new hall in February 2003. To pay for construction, the center in 2004 sold $180 million in bonds whose interest rates vary with market conditions, like an adjustable-rate home mortgage. The principal doesn’t start to come due until 2025. According to a financial statement the center recently issued for bond investors, the concert hall’s estimated construction cost has risen from $200 million to $206.5 million. That 3% overrun would be “an outstanding result” given the “unbelievably high escalation” in prices for concrete, steel and other materials while the project was being built, said Tom Holsman, chief executive of the Associated General Contractors of California, a construction trade group.

Under the center’s ideal scenario, the bond-financing deal would pay for itself. Donations would pour in and be invested, and the gain from those investments would cover interest payments on the bonds. But if donations don’t materialize in time, the center may be faced with drawing cash away from programming and other operating needs to pay the interest on its construction debt -- or pass the cost along to its customers and tenants through higher rents and ticket prices.

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The effects of owing

THE possible consequences of unfunded construction debt are apparent in other projects. At the Kimmel Center for the Performing Arts in Philadelphia, and at the Milwaukee Art Museum, shortfalls of about $30 million, combined with the cost of expanding operations, have brought budget deficits in the millions. In Seattle, the city’s opera and ballet company have imposed $2 ticket surcharges to help cover $660,000 in annual interest payments on the renovated McCaw Hall, which had a $13-million funding gap when it reopened in 2003.

At OCPAC, which has balanced its budget year in and year out without fail and without a nickel of government support, any red ink might as well be blood oozing from a wound to the institution’s pride. The inclination to extol private initiative and cast a wary eye on government spending still runs strong in famously conservative Orange County, a rapidly changing place where minorities now outnumber non-Latino whites in a population of nearly 3 million.

Center leaders are betting that the look and sound achieved by architect Pelli and acoustician Russell Johnson will send box office revenues and donations soaring after the new hall and theater make their debut. But many experts say fundraising -- hard enough in the closing stretch of a campaign because the most avid supporters already have given -- becomes even harder once a venue opens. “It can give a perception that the funds are no longer needed, because ‘Hey, there it is,’ ” said Welty, the San Diego-based consultant.

The center’s $30-million endowment also is at risk of being stretched more thinly. The common wisdom in nonprofit management says that cultural organizations building new venues should simultaneously be raising endowment funds -- the invested savings whose yield can help pay for programming, staffing and maintenance. Kirwan said center leaders decided not to add an endowment goal to the expansion campaign because $200 million seemed ambitious enough.

Terrence Dwyer, former managing director of the La Jolla Playhouse and Houston’s Alley Theatre, has immersed himself in learning OCPAC’s business since his appointment as the center’s president was announced in January. After shuttling between his new job in Costa Mesa and wrapping up his old one in Texas, he expects, starting Monday, to devote full time to OCPAC -- and to the fundraising that is its top business priority. Experts say a change of leadership, as long as it is orderly and doesn’t result from institutional upheaval, can inject energy into a funding campaign that has gone stale.

A large, lingering funding gap for the concert hall could put “a bit of a brake” on the center’s plans for expanded programming and educational offerings, Dwyer said. “But the institution is quite confident about the financial underpinnings for its future.”

It all comes down to Orange County’s arts donors, who will also be getting tugs on the wallet from OCPAC’s tenants: the growth-minded Pacific Symphony; the chronically deficit-ridden Opera Pacific; the Philharmonic Society of Orange County, which imports touring classical music attractions; and the Pacific Chorale. If the Orange County Museum of Art takes up OCPAC’s invitation to decamp from its cramped quarters in Newport Beach to a reserved site next to the concert hall, it too figures to join the megabucks fundraising derby.

For Mark Petracca, a UC Irvine political scientist attuned to Orange County politics and civic culture, fundraising in the county may not be as easy as its wealth would suggest, due to a lack of the old-line philanthropic families that often set the tone for charitable giving in more established communities: “A lot of the wealth generation taking place is psychologically still at the point of building businesses and accumulating. They’re not at the point of giving back.”

Society page and lifestyle magazine coverage of the county’s arts galas and charity benefits reflects this, Petracca said. “God, it’s a small group of people, and dominantly it’s an aging group of people. If you can’t bring in new people, because they’re not yet ready to start parting with their gains, it becomes difficult.”

No breed of donor, emerging or established, likes to hear that thieves are raiding the coffers their giving has helped to fill. That misfortune has hit OCPAC twice since its expansion campaign began: a $42,000 embezzlement by the box office manager in 2000, and the siphoning of $1.85 million by Ana Limbaring, a 10-year employee in accounts receivable who, until her arrest last September, was entrusted with taking cash deposits to the bank. Before receiving a 10-year prison sentence last month, she admitted stealing and spending the money over the course of five years to feed a gambling addiction. The center was insured for $1 million, minus a $10,000 deductible, according to one of its financial statements.

“That was a terrible incident for us, but we don’t have any donors saying, ‘I’m not giving you any money because you guys are idiots,’ ” said Michael S. Gordon, the center’s chairman. “One major donor we’ve been talking with quite a while was saying, ‘I’m in business, and that stuff happens.’ ”

“It can be devastating: ‘Why should I give my money? It may just get embezzled again,’ ” said Daniel Borochoff, president of the American Institute of Philanthropy, a Chicago-based watchdog. “They have to demonstrate that they have taken serious measures, that this sort of thing is not going to happen again.”

Center officials said that in response to the Limbaring embezzlement they have switched auditors and hired an additional worker in the finance department.

Now, after a symphony of bad surprises, OCPAC is trying to write a triumphant finale.

Robert B. Sharp, a Denver-based fundraising consultant with long experience in Orange County -- he worked on the original 1980s campaign to build Segerstrom Hall and on a recent one for Chapman University -- says it would behoove the center to emphasize, in its courtship of donors, that big challenges, such as a $70-million funding gap, create rare opportunities for philanthropic glory.

Donors “have the ability to become a hero or heroine the likes of which no one has seen in Orange County,” Sharp said. But in Costa Mesa, campaign leaders are publicly maintaining their sang-froid. Five months to opening night? $70 million still to go? No worries. No last-minute heroics required.

“There’s not an urgency to do it” by Sept. 15, said Gordon. “It would be a very good thing, but it would not be a crisis if we don’t.”

He might get an argument from Dede Wilsey, who has a reputation in San Francisco as an irresistible force for charitable fundraising -- including spearheading a $202-million campaign for the new De Young Museum that opened last October, replacing its quake-damaged predecessor.

“Emergency mode is very effective,” Wilsey said. “ ‘We’ve gotten this far, you can’t let us fail. How is it going to look?’ ”

Besides, she added, the party is so much better when the present being unwrapped has been paid for. “You don’t want to have a building that’s built with debt on it. You want to enjoy and celebrate it.”

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(BEGIN TEXT OF INFOBOX)

O.C. Arts funding campaign on a slow march

In mid-2002, three years into its $200 million campaign for a new concert hall, the Orange County Performing Arts Center was halfway home. But the pace of fundraising slowed considerably, the price tag rose a bit, and now officials don’t expect to raise the remaining $73 million in time for the Sept. 15 opening. Meanwhile, other major arts campaigns have continued to make headway in the post-9/11 fundraising climate; OCPAC, with 11 gifts of $2 million or more, needs to land many more big ones.

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OCPAC funding

July ’99:

Fundraising campaign begins with a goal of $200 million

Aug. ’00: Henry Segerstrom donates $40 million

Jan. ’01: Henry and Susan Samueli donate $10 million

March ’02: OCPAC boardmembers Henry Samueli and Henry T. Nicholas III resign

Feb. ’03: Concert Hall groundbreaking

July ’04: OCPAC issues $180 milllion in construction bonds to ensure completion of concert hall

Sept. ’06: Concert Hall opening

Goal: $206.5 million

$73 million needed

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Top donors

Other performing arts center campaigns in the United States

(In millions)

Renee and Henry T. Segerstrom: $40

Henry and Susan Samueli: $10

Ralph and Eleanor Leatherby Family Foundation: $5

Hal and Jeanette Segerstrom Family Foundation: $5

Elizabeth and Henry Segerstrom: $5

Richard Steele Trust: $5

Anonymous: $5

Anonymous: $5

Henry T. Nicholas III: $3.8

Bank of America Foundation: $2

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Other performing arts center campaigns in the United States

Dallas Center for the Performing Arts

Began: 2000

Goal: $275 million

Status: $201 million raised; construction not begun

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Guthrie Theater, Minneapolis

Began: 2000

Goal: $125 million

Status: $111 million raised; opens in June

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Metropolitan Kansas City Performing Arts Center

Began: 2003

Goal: $326 million

Status: $253 million raised; construction not yet begun

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Nashville Symphony

Began: 2001

Goal: $140 million

Status: $138.4 million raised, opens in September

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Lincoln Center, New York City

Began: 2004

Goal: $427 million

Status: $250 million raised, construction underway

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Sources: Orange County Performing Arts Center, Dallas Center for the Performing Arts, Guthrie Theater, Metropolitan Kansas City Performing Arts Center, Nashville Symphony, Lincoln Center. Graphics reporting by Mike Boehm

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Contact Mike Boehm at calendar.letters@latimes.com.


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