Los Angeles County Museum of Art is hard hit by recession

The Los Angeles County Museum of Art saw its investment portfolio lose nearly a quarter of its value during its 2008-09 fiscal year, which coincided with the worst worldwide financial debacle since the Great Depression.

The $254.7-million pile of cash and investments shrank to $196 million, a 23% drop, according to figures in the audited financial statements that LACMA recently posted on its website.

The most worrisome development for LACMA -- as for many nonprofits -- has been the recession’s effect on fundraising. In 2007-08, it raked in gifts and pledges totaling $129.7 million, most of it for the museum’s expansion and renovation campaign, which was in high gear amid strong markets. In 2008-09, donations fell to $29 million. The capital campaign stands at $316 million -- $134 million shy of its $450-million goal.

The portion of its holdings that the museum sets aside as an endowment shrank from $148 million to $99.6 million, a 32.7% decline. (That includes a $7.3-million reduction that was not due to investment losses but was withdrawn to pay operating expenses, in keeping with the museum’s policy of annually spending about 5% of the endowment’s value.)

With the markets brightening lately, the endowment had grown to $109 million on Sept. 30, said Ann Rowland, LACMA’s chief financial officer.

Museum director Michael Govan was not available for comment about the financial situation. Barbara Pflaumer, the museum’s chief spokeswoman, said that LACMA quickly reined in expenses when the economy tanked, instituting a hiring freeze, dropping some exhibitions and postponing a planned $50-million renovation of the former May Co. department store known as LACMA West.

Now the museum staff of about 350 has 16 vacancies, she said, and eight other jobs have been eliminated -- two by retirement and six through layoffs. Among those losing their jobs, Pflaumer said, were three employees in the museum store, a registrar and, most prominently, the director of LACMA’s film program.

Given the extensive layoffs at L.A.’s J. Paul Getty Trust, which this year cut its workforce by 14%, a loss of 205 jobs, and New York’s Metropolitan Museum of Art, where a 14% staff reduction sacrificed 357 jobs, Pflaumer said, “We’ve done better than just about anybody in keeping the wheels on the bus.”

In a silver lining of the flailing economy, LACMA’s attendance rose from 825,000 the period before to 853,000, Pflaumer said, perhaps reflecting people’s desire to save on travel and spend more leisure time close to home. There also was more to see: The Broad Contemporary Art Museum had opened five months before the fiscal year began, giving LACMA an additional attraction to draw visitors.

Meanwhile, as the recession continues, LACMA faces rising costs for its borrowing. If interest rates on LACMA’s $383 million in variable-rate bonds remain unchanged, Rowland said, the museum’s yearly debt expenses will nevertheless rise from $8 million in 2008-09 to $12.5 million to $13 million starting in the current fiscal year. That’s because a reserve fund to help pay borrowing costs has all been spent.

LACMA has been paying about 3.3% on its bonds, Rowland said, factoring in the complex interest rate swap agreements the museum has entered into with Citibank, and the $4 million a year cost of a guarantee by a consortium of banks that they’ll pay investors if LACMA defaults. The guarantee lowers interest on the bonds.

The museum has more fiscal control over its regular operations. There, said Rowland, the chief financial officer, LACMA ran a $400,000 deficit while spending $53 million. But total operating expenditures came to $74.1 million, factoring in depreciation on buildings and equipment, and other costs the museum doesn’t count in its budget -- notably the interest and fees on the bonds.

Overall spending was essentially unchanged from the previous year’s $74.4 million. Los Angeles County provided $22.3 million, or 30.1% of the 2008-09 expenses, not counting construction and art acquisitions. In 2007-08, the county kicked in $20 million, covering 27% of expenses. Rowland said that under a deal negotiated two years ago with the county, LACMA’s base support will be $24 million this year and $26 million in 2010-11, plus other increases pegged to inflation.

Beyond its operating expenses, the museum spent $43 million during the year toward construction of its new Resnick Exhibition Pavilion, which is due to open in 2010. Art acquisitions through purchases and donations were valued at $42.8 million, down from $45.7 million. Sales of works in the collection generated $4.2 million, which will be used for other art purchases.

Two months before the economic meltdown, the financial statement shows, an unnamed LACMA executive joined Govan as the second staff member who has been given extra financial incentives not to jump ship.

Govan’s deal, which The Times previously reported, calls for him to collect an extra $1 million if he stays to the end of his five-year contract in 2011.

Now, another LACMA leader will collect $450,000 in “executive deferred compensation” after fulfilling a three-year commitment that ends in mid-2011. Museum President Melody Kanschat is LACMA’s second-ranking employee, but Pflaumer, saying it is a personnel matter, would not specify who got the deal.

mike.boehm@latimes.com