BSO shares full audit of its finances, which paints a dour fiscal picture

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Image via the Baltimore Symphony Orchestra’s Facebook page.

A new audit of the struggling Baltimore Symphony Orchestra’s finances indicates the controversial cost-cutting measures put in place this summer may not be enough to help sustain the organization.

In a report dated July 15, prepared by SC&H Group and shared with Baltimore Fishbowl by the BSO, auditors wrote that with a growing shortfall of unrestricted net assets—funds donated to the organization without a predestined use—and recurring deficits, there is “substantial doubt regarding the Symphony’s ability to continue as a going concern.”

A determination on an organization’s status as a going concern hinges on whether the auditor believes it can continue operating indefinitely. (So, if a company or nonprofit goes bankrupt or liquidates its assets, it’s no longer a going concern.) An auditor’s determination casting doubt on whether it’s a going concern can make it more difficult for the organization in question to obtain future financing like loans.

The BSO had released a summary, but not the full results of the audit, earlier this week, but agreed to share them late yesterday afternoon.

BSO management abruptly reduced the symphony’s schedule from 52 to 40 weeks in late May, eliminating the players’ salaries and benefits from its books for the summer. The musicians have said the orchestra is saving itself millions at their expense in doing so, but CEO Peter Kjome has argued it can help turn the orchestra’s finances around with reduced costs.

Amid that conflict, the two sides are now without a contract for the players to pick back up when the new season begins in September. The BSO locked out its players after negotiations on a new contract crumbled; they had playing without a deal since September 2018.

The two sides met for another round of negotiations today, but the players, represented by the BSO Musicians group, said in a brief announcement this afternoon that the talks went nowhere.

Of the ongoing controversial cuts, the auditors wrote that management believes with the restructuring of the season it will “improve its operating results. However, there is no assurance that the Orchestra will be able to generate sufficient resources to fund its future operations.”

The audit report offers a glimpse into other BSO financials, including revenue from concerts, high expenses and a shortfall in funds to fill the gap.

According to the report, the BSO improved its operating results in fiscal years 2017 and 2018 compared to prior years after implementing a “transformation plan.” The orchestra actually brought in more revenue than the previous year in 2018, increasing from just shy of $10 million to about $10.9 million.

But the organization’s expenses of more than $31 million in those two years left a hefty gap to fill. Concert activities made up the lion’s share, with about $15.2 million spent on artistic personnel and around $9 million spent on production and operations in both years.

The BSO regularly uses donations, grants and other funds to close that gap. One source has been its endowment, which the organization tapped for $7.3 million in loans in recent years. Those aren’t due to be repaid until at least September of next year, the audit noted.

According to the auditors, the decline in donations that aren’t tied to a particular use raises concerns. The BSO reported those gifts declined by $774,000 for the fiscal year ending in August 2017. Twelve months later, the donations dropped by as much as $1.29 million.

The report noted the BSO has made efforts to improve its financial prospects. “Growing audiences, sustaining a thriving annual fund, and slowing the growth rate of expenses are components of the efforts to address longstanding financial challenges while maintaining a robust schedule of classical and pops concerts, education programming, holiday concerns, and special events,” auditors wrote.

Auditors also addressed the money that the General Assembly earmarked to help the BSO this past session. Legislators passed a bill to give $1.6 million to the symphony in the fiscal year that began this month, which Hogan withheld citing a looming state deficit, and $1.6 million more in fiscal 2021.

But auditors wrote that even if the second half of the money is released, it’s unclear if it “will meet the current cash needs of the Symphony.”

We’ve reached out to the musicians for comment on the specifics of the audit, which they said they had requested from management Monday.

BSO CEO Peter Kjome said earlier this week that the auditors’ opinion “underscores the continued urgency that we reach an agreement with our musicians as soon as possible,” but that the players had offered “no meaningful counterproposal… that addresses the financial issues our organization is facing.”

“This announcement makes it more clear than ever that we must ensure a sustainable business model that helps control costs while expanding revenues. It is vital that we move forward together toward a stable future.”

The BSO Musicians said they held their ground today: “The musicians’ proposal remains that management should end the lockout and restore the status quo contract.”

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Ethan McLeod

Senior Editor at Baltimore Fishbowl
Ethan has been editing and reporting for Baltimore Fishbowl since fall of 2016. His previous stops include Fox 45, CQ Researcher and Connection Newspapers in Virginia. His freelance writing has been featured in CityLab, Slate, Baltimore City Paper, DCist and elsewhere.
Ethan McLeod
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