Get your kings and queens at the table!

An excellent interview with Nancy Burd in the Philadelphia Enquirer on borrowing money for museum capital projects. She talks about the Please Touch Museum's $30 million debt due to their recent move into a much larger new building.

There were some obvious red flags. For example, a facility project at Memorial Hall that was massively larger than their former facility on 21st Street, requiring them to achieve transformational growth; taking on a debt level that was more than one-third of their projected annual operating budget; enormous fixed costs requiring far more working capital and operating reserves (in other words, cash).  

Burd notes that debt is never a good idea and that museums should either raise the money they need to build the building "or be confident that increased revenues will cover annual operating costs" including debt service.

To me, any museum that is confident that it will increase its revenues sufficiently to cover debt services is misguided. Too many museums have found themselves in just the situation the Please Touch Museum is in.  There are far too many variables in museum projects to make operating projections any more than educated guesses. The only sure-fire way  to ensure debt service is manageable is not to have any debt by raising all of the funds needed for the project from its supporters.

The point is that an organization that wants to build a palace had better have its kings and queens at the table from the start.

Update: Another museum in trouble because of optimistic projections: the NASCAR Hall of Fame in Charlotte.  800,000 people projected in the first year. 200,000 showed up. The NY Times has the scoop.  New sports museums and halls of fame seem to often have misplaced projections. Millions of people are sports fans; a very small percentage of them seem to go to sports museums.