The Berkshire Museum’s financials

I just spent a lovely weekend in the Berkshires, which included (of course) a stop at the Berkshire Museum. My trip coincided with the publication of an open letter from the museum’s president, Buzz McGraw, where she says that while she understands the “shock, sadness and anger” which greeted her decision to sell of the museum’s masterpieces, “the vitriol that some have expressed has been disheartening”.

The letter is a positive development, for two reasons. Firstly, McGraw says that she and the museum’s director, Van Shields, are now willing and able to talk about what they decided to do: I have, of course, put in my own request. And secondly, near the bottom of a related FAQ, the museum links to some updated financials, which help to answer some of the open questions.

First and foremost: Just how much money has the Berkshire Museum been losing, in recent years? Here’s the answer:

Source: Berkshire Museum form 990

This is the Berkshire Museum’s net revenue: its total revenue, minus all of its expenses, going back to the 1999-2000 fiscal year. Back then, it ran a surplus of $403,000; in 2015-2016, by contrast, it ran a deficit of $512,000. There were some very bad years at the beginning of the 2000s, after the dot-com stock-market crash; there were some very good years in the mid-2000s, during the boom years, and then there were some more bad years once the recession hit. All of this is pretty much what you’d expect, and it doesn’t indicate that the museum is facing unusually harsh problems, or that it’s at imminent risk of closing.

After all, all those surpluses in the good years helped to build up the museum’s nest egg. Here’s its total net assets, over the same time period:

Source: Berkshire Museum form 990s

As of mid-2016, the most recent information we have, the Berkshire Museum is sitting on net assets of $17.5 million. That’s up from a low point of just $5.3 million in the early 2000s. Again, it doesn’t seem to be at any imminent risk of running out of money.

So what about its budget? Is that out of control? It doesn’t seem that way.

Source: Berkshire Museum form 990s

What you see here is revenue fluctuating quite a lot, as you’d expect – after all, fundraising tends to be lumpy. Expenses, meanwhile, hit an all-time high of $3.1 million in the last two fiscal years; they were less than $2.4 million as recently as 2010-11.

In any event, there’s nothing in these charts which implies that the Berkshire Museum is facing an existential risk. There’s also nothing which implies that the museum needs an extra endowment of $40 million or more, which would throw off $2 million a year in income just on its own. The museum has neverhad a $2 million deficit; even in the depths of the Great Recession, its deficit didn’t top $1 million.

Finally, let’s move from the Form 990s to the audited financial statements. (It’s worth noting that all of these statements are at pains to point out that “the museum follows a practice of not capitalizing its collections”.) This is where we can take a look at what has happened to the Keep Crane Fund, the money from the last big deaccession in 2008.

The Keep Crane Fund was founded with $7 million from the sale of art, and between its foundation and mid-2016, it transferred a total of $3,405,290 to help fund the museum’s operations. Some of that money went to new commissions, most notably windows for the entranceway by glass artist Tom Patti. But it looks like most of that money has simply been used to fund the operating budget, which was not the original intent. The fund stood at $6.3 million as of mid-2016; it looks very much like it’s being treated like an endowment, throwing off $360,000 or more every year, and being invested so as to try to maintain its value over time.

In other words, the Berkshire Museum has already done, on a relatively small scale, what it has said it wants to do with its remaining masterpieces. It sold off paintings, invested the proceeds in the market, and then used the income from that fund to help support its operations.

That’s not the kind of action which would ever be embraced by the American Association of Museums, but clearly the Berkshire Museum has decided that it’s OK. And it raises an obvious question. Let’s say that the museum, looking forwards, determined that it was likely to see its expenses exceed its revenues by say $500,000 a year, and that it wanted to create an endowment which was capable of covering that deficit. If the endowment spends 5% of its assets each year, then it would need to start at $10 million.

Given a bit of time and goodwill, it’s entirely possible that the Berkshire Museum and the Norman Rockwell Museum, between them, could find a donor willing to spend $10 million on Shuffleton’s Barbershop, and then immediately donate the Rockwell masterpiece to the artist’s eponymous museum. The painting would remain in the Berkshires, where Rockwell wanted it to be, the Berkshire Museum would get their $10 million endowment, the other 39 pieces would be saved, and there would be much less uproar and vitriol.

But the board doesn’t seem to have seriously attempted to find that kind of solution; instead, they signed an agreement with Sotheby’s which gives them no control whatsoever over where their paintings end up. And, of course, they agreed to sell 40 artworks, rather than just one. If and when McGraw agrees to speak to me, I’ll be sure to ask her why.

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