Metropolitan Opera, New York. Photo: Wikipedia.

Struggling Cultural Institutions Begin Dipping into Endowments

The coronavirus pandemic is challenging the United States’ cultural industry’s core belief that endowments—assets generally made up of donations that are invested in order to generate income—should not be touched. Only the earnings from such funds are meant to be spent by institutions. The economic hardship caused by Covid-19, however, has led some arts groups to draw from their endowments’ principal funds.

“When your entire business model is being compromised by a pandemic, we have to reconsider everything,” George Suttles, a senior executive of the education and research arm of Commonfund, an asset management firm that counts at least fifty cultural institutions among its clients, told the New York Times.

Among the organizations that have dipped into their endowments, withdrawing millions of dollars in order to stay afloat, are the Lyric Opera of Chicago, the Los Angeles Philharmonic, and the New York City Ballet, which were all forced to cancel their spring seasons and postpone future programming due to the ongoing health crisis.

The institutions are massive organizations with endowments ranging from $173 million to more than $250 million. If they withdraw from their principal balances, they risk yielding less investment earnings, which many organizations rely on to help cover operating expenses. If smaller organizations facing devastating revenue losses pull more from their endowments, they may find themselves in dire straits.

Despite looming deficits and the allure of fast cash, some institution heads are refusing to take the risk. “Endowments are not going to solve the problem,” Peter Gelb, the general manager of the Metropolitan Opera, which canceled its spring and fall seasons, told the New York Times. The institution has a $270 million endowment, but will only take its usual annual withdrawal of the industry standard 5 percent.

The Metropolitan Museum of Art, which has a colossal endowment of $3.6 billion, will also only take out its annual draw and will instead revisit its spending history. The move has drawn criticism from some who believe that the institution should have taken from its coffers to avoid cutting jobs during the pandemic. Expecting a $100 million shortfall, the Met laid off eighty-one employees from its visitor and retail service departments in April.

In the past, institutions would have faced repercussions for frequently using principal endowment funds or withdrawing large sums, but due to the current economic situation, the professional organization the Association of Art Museum Directors has loosened its guidelines on spending and will not penalize struggling museums that need to access their principal endowment funds. The New York State Attorney General’s office may also ease restrictions—typically, if an arts patron gives specific instructions on what they want their donations to support, institutions must seek approval from the state to redirect the funds.