Transcription of Feb 12 Hearing, Part 1

Minnesota Orchestra CEO Michael Henson appeared in front of the Legacy Committee of the Minnesota House of Representatives the afternoon of 13 February 2013. The audio of this hearing can be heard here. The section having to do with the Minnesota Orchestra and St. Paul Chamber Orchestra begins at 42:45.

The legislators who spoke at the hearing were Rep. and Committee Chair Phyllis Kahn, Rep. Mary Murphy, Rep. Dean Urdahl, Rep. Alice Hausman, and Rep. Mike Freiberg.

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PK: The next issue which has been brought to my attention from a lot of people and have also been brought to us I think – I hope to other members of the committee, too – is the, um, public comment on Legacy funds and perhaps general funds. This is – you know, we talk vaguely about the arts at some point, but this is also specific public problem that seems to be before us at this time, which is the issue of the Minnesota Orchestra and the St. Paul Chamber Orchestra. And I wanted to – and you know, whenever I talk to someone I realize that I know much less about this than I think I know, from reading in the newspaper, reading newspaper articles and reading people’s, um, comments to me. So again, hopefully this is the start of our conversation on this to see if there’s some role – the state, as I’ve pointed out, is a very large donor to some of these organizations and see what our role can be as that donor. So. Going to start now with the first person for comment is Michael Henson, who’s the President and CEO of the Minnesota Orchestral Association. Mr. Henson? Thank you. And you need to say who you are for the tape. Thanks.

MH: Um. Madame Chair, and Representatives. I’m Michael Henson, the President and CEO of the Minnesota Orchestra. Thank you very much and I very much welcome the opportunity to address you and answer any questions you have today.

It is my pleasure to be here to represent the Minnesota Orchestra which is an exceptional organization that has served this community with great music for 110 years. Our board is made up of citizen volunteers who are generous contributors to the Orchestra. Speaking on behalf of the board and myself, we believe that it is our responsibility and our privilege to ensure that the long legacy of this organization continues into the future, benefiting new generations of Minnesotans for years to come. We are grateful to the state of Minnesota and to the Legacy Committee for the annual operating support you provide to help make this possible. I know that it has been a point of concern from some legislators that the Orchestra’s yearly operating support from public monies might be used to fund our current negotiations or lockout. In order to eliminate all concerns around this point, we sequestered in a separate account all state funds received to date in this fiscal year. And we will continue to do so going forward until we’ve reached a contract resolution. To be clear, no state funds have been or will be used to fund these negotiations. We will only access state funding once we have an agreement in place and we are again performing concerts for the community.

As a non-for-profit, our orchestra has three sources of income. One, ticket sales from our concerts and events. Two, contributions from generous community members, corporations, foundations, and as I mentioned earlier, the state of Minnesota. And third, our endowment earnings. Over the years, generous donors have contributed to our endowment, and each year we’re able to draw a percentage of those earnings to help sustain our operations. During the recession, each of our revenue streams were negatively impacted, particularly our contributions and investments. We maintained stability within the organization through these volatile years by relying on our endowment, which was the appropriate and responsible action. But it is not a sustainable one. Today we face the reality if we continue to draw down our endowment at our current rate, it will be depleted in five years’ time. We cannot allow that to happen to the future of this organization.

Last December we announced a six million dollar operating deficit for the orchestra. We know this deficit will continue to grow until we address our financial issues directly, and we have developed a thoughtful strategic plan to just do that. This plan calls for a combination of revenue increases, including our board members increasing their already generous contributions to the organization by twenty percent, as well as significant cost reductions, which we have already undertaken on the management and administrative side of our operation.

PK: Excuse me, Mr. Henson. Did you give a dollar amount for the deficit?

MH: The deficit is six million dollars that we declared last year.

PK: Six million dollars annually, or six million dollars over a longer period of time?

MH: It was six million dollars for last year’s operating budget. Um, our education work is also central to the orchestra’s purpose, and those issues are part of these talks, too. We put forward a proposal to our musicians in these negotiations that would allow us the flexibility to dramatically increase the outreach work that the orchestra does in the community, both with students and adults. The proposal allows us to use our talented musicians even more so as our advocates in the community to perform educational and chamber concerts.

In January we put forth a four-point plan in order to re-start our negotiations. Each point was designed to help eliminate any barriers that might stand in the way of the musicians putting forward a counterproposal. We are now in a dialogue with the musicians about the terms around a joint independent financial review to verify the orchestra’s financial position. We are hopeful that following this review our players will make a counterproposal and we can begin the type of two-way negotiations that will lead to a settlement and the resumption of our concert season.

PK: Representative Murphy, did you have a question?

MM: I had a question on the six million dollars, Madame Chair.

PK: OK.

MM: Um, Mr. Henson, is the six million dollars include the expenses of the lockout?

MH: Um, the six million dollars referred – thank you, Representative, Madame Chair, Representative, for the question – uh, the six million dollars refers to the previous year before the lockout was instigated, so it’s last year’s full operating accounts, when we had a fully operating season.

Before I close, I’d like to thank the Legislature for the fourteen million dollars in bonding dollars you appropriated for the renovation of Orchestra Hall. That project is one of the major revenue generating initiatives outlined in our Strategic Plan. And it is one of the fiscal solutions to our current financial challenges. The building project is on budget and on pace for our 2013 opening, and we are currently employing approximately 130 union members of the building trades as we speak. We thank you for making that possible.

On a personal note, I would like to close by noting that I’ve worked for my entire professional career life managing symphony orchestras around the world. My family and I were drawn to Minnesota and to this great orchestra because of its outstanding reputation. Along with our board of directors, I see it as my duty to ensure that the Minnesota Orchestra remains artistically excellent and financially solvent for the future. Our sole purpose is to sustain an artistically excellent fiscally solvent orchestra that benefits this community, its audiences, its supporters, and its musicians for many years to come. Thank you very much.

PK: Thank you. Rep. Urdahl.

DU: Thank you, Madame Chair, and first I’d like to thank you for coming here today and your presentation. Um, I first saw the, uh, Minnesota Orchestra perform in 1970 at St. Cloud State University when I was a student there. Um, those of culture had to hold me until a few years ago when I – I appreciate your outreach program. You came to dazzle Cokato High School and perform there and I believe you’ve been there twice. I was there each time, um, was able to visit a little bit with Osmo Vänskä, um, my wife is of Finnish extraction, so there was a little rapport there, and we actually were in Finland – it was Sibelius? was that the name – ? – well we were there, too. And not for the performance of anything, but…anyway! As I babble on a little bit about some personal history, you know, I am concerned about this situation, and you know, hopefully a resolution can be reached soon. I don’t know if there’s any particular thing that we can do, but we are certainly interested in, you know, possible options. The specific question that I have is, how much money has the strike – or the lockout, I guess – cost you? How much does that cost the orchestra?

MH: Uh, Madame Chair, Representative, thank you for the question. Um, we have three income streams which are, uh, contributed revenue, which we continue to fundraise for. Uh, we have earned revenue, which is box office revenue, which, uh, we quite clearly are not collecting at the moment, and we are refunding any tickets that we have sold. And we are still reliant on, ah, the investment income from, uh, the endowment. Um, first of all, I want to say that we want to get the orchestra back to work as soon as poss – we want to negotiate a contract that is sustainable for this community with its generosity, and I think the – it’s balanced on two equations, the money that we haven’t actually taken, so obviously box office, and then the money, uh, that we haven’t paid – unfortunately – because of the lockout. Uh, the reality is, uh, that we’re trying to scope the size of the organization to the amounts of generosity we have, and the unfortunate, um, uh, thing is, uh, that for each month we played beyond the old contract that we had, it would have cost us and we would have lost over $500,000 for each month we continued playing.

[laughter in audience]

DU: Thank you, Madame Chair. One question, then how –

PK: We will have responses.

DU: Regarding negotiations, uh, have you been having regular sessions? Has there been a time period now when you haven’t been meeting? Uh, what are the plans for future negotiations?

MH: Um, um, we, um, had a meeting on the second of January, uh, where we, uh, presented to, um, uh, the negotiating committee from both sides our financial plans going forward for the following three years. Uh, we changed the mission statement, um, and, uh, we, uh, agreed to, uh, find common ground for joint financial analysis. Conversations have been going on for the last six or seven weeks in terms of how to reach agreement on that financial analysis, and so we are happy those conversations are going, we want to progress those as speedily as possible. Um, I feel the details of negotiations should probably be kept in the negotiating room, but we have every intent to try and move this forward as speedily as possible.

DU: A final – Madame Chair, a final quick question. How long has this been going on?

MH: Um. We locked out the orchestra on the first of October, so we are into the fifth month of this lockout. We realized this was going to be a complicated, um, negotiation, which is why we presented our first proposal on the twelfth of April, giving nearly six months for us to have conversations. Um, we are still waiting, um, to have our first counterproposal from the musicians. Um, we see by removing the barriers that are apparently were there in terms of what I say about the second of January but hopefully those removed and we can actually move to substantive negotiations as soon as possible.

PK: Okay, we do, um – Representative Hausman, and then Freiberg, and we really do have a long list of people who want to say something, so we’d like to get to them. Representative Hausman?

AH: Thank you, Madame Chair. And Mr. Henson. It was a long time ago that you and I met, and I have lots of questions. Um, but the presentation still sounds very much the same after so much time, and, um, it sometimes feels to us as sort of a cold description of a balance sheet. And what I hear in the community and maybe what we represent, is this growing sense of urgency and loss and despair. This committee is about preservation of the arts, among other things, um, over and above what this community and this state usually did. That’s what people voted for when they voted for the amendment, and so those are the kinds of contributions we make. And I think this feels to so many in the community like the opposite of preservation of the arts, the destruction of the arts, by people who –

[applause; call to order]

PK: You know, I know people would like to respond, but we really get a better meeting going if we allow statements to be made without audience reaction. So I’ll just ask people to refrain from that in the future.

AH: And it’s by people who love the arts – by people who are devoted to it. But there is this sense of disbelief growing in the community as time passes by and nothing changes. The presentation doesn’t change. The words are still the same. And the one thing that haunts me in the words is as I think about this, the coincidence of timing of this lockout with the construction that feels sort of convenient. It’s a good time to have a lockout when there is construction. Especially when I heard you say we really save money with the lockout; if we were playing, we would be losing money every month. And so I think it’s – um, as we’ve heard these words, this troubling, troubling dimension to this – the timing of it, and we’ve heard some of the descriptions of, do we have a surplus that shows donors we are comfortable, or do we have a deficit that explains a lockout. So it’s this sense of loss and despair that the community feels – the sense of urgency – and yet it doesn’t feel as though that’s a shared feeling.

MH: Madame Chair, Representatives. I thank you very much for the question. We are a performing arts company, a great orchestra. Uh, the board’s intent is to get the orchestra playing concerts, giving education work, um, as soon as possible, um, but we need to do that from a sustainable base. We’re 110 years old, and we have the duty to make sure that this orchestra continues for another 110 years. So we have a substantial financial challenge that needs to be overcome. We have to address that. But behind that is a passion for the arts, for music, that everybody on the board, everybody inside the company and the community feels that it’s in everybody’s interests to get the orchestra back onstage as soon as possible, but it has to be at a level that actually is sustainable, and it is at a level that this community is able to both afford and generously gives to.

PK: Okay, I’d like to go to Rep. Freiberg and then I’d like to hear some of the other people –

MF: Thank you, Madame Chair, I’ll make this very quick. Um, we heard a little bit about what the lockout is allegedly costing the organization. I’m wondering what the lockout is costing the average musician in the orchestra. Say, a second violinist who just started working there recently.

MH: Um, the, um… Madame Chair, Representatives. Um, the current, um, average salary, uh, that we had in the previous contract was $119,000. The current average salary that we had before negotiating any further is $89,000, um, with $30,000 on average in benefits. So we’re no longer obviously paying that salary and those benefits. That is the cost to – to the musicians. We are very aware of that – uh, we want to resolve this as speedily as possible, in terms of how we can get everybody back to actually creating music.

PK: Okay. I’ll just add, I don’t think we’ll have numbers on this, but there’s an obvious cost to both – remember we do have two musical groups we’re talking about – there’s an obvious cost to both the city of Minneapolis and the city of St. Paul for this. OK. Well, I hope you’ll stay around for the rest of the meeting. We’ll continue with some other people, but thank you very much for coming.

MH: Madame Chair, um, Representatives, thank you for allowing me to testify.