Tax returns, financial statements paint gloomy picture of arts center finances

tbarton@islandpacket.comNovember 17, 2012 

Despite cutting staff and other expenses over the past three years, the Arts Center of Coastal Carolina has continued operating in the red, according to its tax returns and audited financial statements.

The statements show the center reported a net operating loss in each of the past three fiscal years: $69,709 in 2009, $159,878 in 2010 and $81,757 in 2011. The losses occurred at the same time a more daunting problem -- paying off long-term debt and funding repairs and improvements at the arts center's building in Shelter Cove -- turned into what center president and CEO Kathleen Bateson has called a "$5 million nut to crack."

The extent of the arts center's financial difficulties came to the fore last month. Bateson asked the Hilton Head Island Town Council to immediately provide $346,000 in accommodations tax money, which ordinarily would not have come until February. The council agreed to the early pay-out.

Describing the problems to the council Oct. 31, Bateson said costs associated with operating and maintaining its building in Shelter Cove, along with fundraising difficulties during the recession, had put the center in a hole it needed help getting out of. She made the same points during an interview Friday.

"This community has supported us for a very long time, but we've come upon a period where people can't do as much as they did before," she said.

"There's really not a whole lot of mystery as to how we got here. The fact is we've been taking care of the artistic business, but the building's been put on a line a credit with the hopes things will improve. ... (and with the recession) these last four years have taken the wind out of the sails that we're trying to put up."

Bateson has emphasized that the arts center's long-term financial needs are its most daunting challenge. Shorter term, she has said, the outlook is brighter because the center is bringing in enough money from ticket sales, grants and other sources to cover month-to-month operations.

The arts center's fiscal year ends Aug. 31. Financial records and the center's tax return for fiscal year 2012 were not available.

Financial statements for the previous three years show:

  • In 2009, income totaled $3.44 million versus $3.5 million in operating expenses.

  • In 2010, income totaled $3.43 million versus nearly $3.6 million in operating expenses.

  • In 2011, income totaled $3.66 million versus $3.73 million in operating and capital campaign expenses. (The special fundraising campaign cost $181,523.)

  • The deficits are higher when interest expense on loans and depreciation on the building and equipment are included. And without the annual infusion of about $400,000 in government grants -- mostly from the town -- the arts center's expenses would outpace revenues even more. Government grants were 11 percent to 13 percent of total revenue during the past three years, according to the center's tax returns.

    The center has fallen behind even as it has trimmed costs -- cuts that Bateson and Fred Beard, chairman of its board of directors, point to as evidence that the center is serious about controlling spending.

    Figures they point to show spending in fiscal year 2011 was $256,668 less than in fiscal year 2008, including a $77,000 decrease in salaries. Salaries and wages totaled $1.8 million in fiscal year 2011.

    The arts center's most recent federal tax returns show expenses have remained largely unchanged since 2007. Indeed, when all the elements that have a bearing on the arts center's bottom line are taken in to account -- interest payments, fundraising costs, depreciation and other costs -- only $95,000, or about 2.3 percent, has been shaved, according to a comparative report prepared by the arts center.

    The arts center's financial statements show other details:

  • Program income, which includes ticket sales, has declined as a percentage of total income -- from 52 percent in fiscal year 2009 to 42.5 percent in fiscal year 2011.

  • The value of an endowment fund has dropped nearly $760,000. The fund's value peaked in 2007 at $2.9 million but fell to $2.16 million in the fiscal year that ended Aug. 31, 2012.

  • Debt doubled from $1.2 million at the beginning of 2008 to $2.5 million for the 2011 fiscal year

  • According to the center's 2011 financial statements, it owed $677,572 on a $750,000 line of credit and owed about $1 million on a loan secured by money in its endowment account. It also owed $813,491 on a capital loan secured by a first mortgage on the arts center's facilities.

  • Bateson's salary increased from $151,608 to $154,352 from 2008 to 2011.

  • In discussing the arts center's financial problems, Bateson distinguishes between the costs of putting on performances -- saying those expenses are mostly covered by income -- and costs associated with the building. She has said it is unrealistic to expect the arts center to generate enough income to pay for both.

    "It's difficult in any community, if you're depending on your citizens to provide the revenues to the organization, to take care of programing as well as the building," Bateson said. "That's a huge presumption and why so many performing arts centers partner with a university or government entity."

    Beard, the board chairman, said efforts are under way to raise the $5 million needed to meet long-term obligations by reaching out to past donors. The center also hopes to launch a broader public fundraising campaign, he said.

    "We've been judicious about controlling the expenses that we can, but to a certain extent we can't control the building costs," Beard said. "... We need to continue to raise money from contributions and find ways to have public partnership. ... It was always understood that the building needed to have some kind of permanent financing, and that never materialized."

    Added Bateson: "We are trying to offer programs people will pay a ticket to see. We are trying to sustain our outreach. ... And we're trying to do this campaign. It's important people have confidence in what we're doing."

    To help get its message out, the arts center has hired a long-time public relations consultant, Tom Gardo.

    Gardo said he began working for the arts center "a few weeks ago" and is only charging a discounted hourly rate. Neither he, Bateson nor Beard would say how much he is being paid.

    Gardo said his work for the arts center could be viewed as a cost-saving move because he is not a full-time staff member. In the past, the center has had a full-time employee handling public relations and publicity.

    Follow reporter Tom Barton at twitter.com/EyeOnHiltonHead

    Related Content:

    Arts Center gets $346K bed-tax advance: Nov. 7, 2012

    Arts center seeking relief from debt, maintenance woes: Nov. 3, 2012

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