Trail of miscalculations, missteps led to Bellevue Art Museum's closure

By Sheila Farr, Cheryl Phillips and Warren Cornwall
Seattle Times staff reporters

	JIMI LOTT / THE SEATTLE TIMES The Bellevue Art Museum abruptly closed in September.
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The unprecedented move has caused a stir among museum leaders nationwide. Marjorie Schwarzer, chair of museum studies at John F. Kennedy University in Orinda, Calif., calls the closure "historic" and believes it represents "the first time something built as a museum has actually closed."

BAM board President Richard Collette said he and others are reorganizing the museum and plan to reopen in July. He blamed the shutdown on a bad economy and a flawed business plan.

Yet a Seattle Times investigation, based on financial documents and interviews with former BAM trustees and employees, shows that a host of mistakes contributed to BAM's closure, including:

• Accounting errors and $750,000 in unapproved withdrawals from a line of credit made up much of a $1.3 million deficit that shocked trustees when it was revealed.

• Over-optimistic projections of income from admissions and BAM's art school and gift store, and the lack of an endowment, added to the budget crisis.

• An unclear mission, bland exhibits and galleries poorly suited to traditional art shows failed to create public support.

• Board members failed to build lasting relationships with donors, resulting in an over-reliance on the generosity of a few wealthy individuals such as Mary and Jon Shirley.

"There's a lack of stewardship there somewhere," said Chris Bruce, director of the Museum of Art at Washington State University in Pullman and former curator at Henry Art Gallery and Experience Music Project in Seattle. "Closing is a really radical move after you've spent a lot of people's money on a promise."

The museum's unexpected closure left Bellevue leaders stunned and arts patrons baffled that a cultural institution serving some of the country's wealthiest communities could fold for lack of money.

Even the timing of the closure was bizarre, announced just two days before a new exhibit opened.

Patti Warashina had her work featured in "Clay Body," which closed after three days. "When you're told something like that, you just feel numb," she said.

If the community and artists were in the dark about the museum's plan to close, BAM leaders knew for more than a year that the institution was in serious trouble.

Since the bursting of the dot-com stock-market bubble and the Sept. 11, 2001, terrorist attacks, a number of nonprofits in the region have struggled to make ends meet. Some, like ACT Theatre, appealed to the public for emergency aid. BAM is the only one that has closed its doors.

"The closing didn't need to happen," said Kim Richter, former chair of the board finance committee who quit with several other trustees in July. "... There was a lot of notice this was coming."

Untried plan

	STEVE RINGMAN / THE SEATTLE TIMES Board President Richard Collette, former chair of the finance committee, said he was unaware of $750,000 in Bellevue Art Museum's credit-line withdrawals.

Roots of the crisis trace to the early 1990s when the board signed on to untried business and programming plans for the future museum. An extension of the city's huge summer art fair, BAM made its first home in a former funeral parlor and later moved to the Bellevue Square mall.

When Diane Douglas took over as director in 1991, she and the board began planning a new museum. One early decision was to jettison their haphazard art collection, giving it to the Tacoma Art Museum in exchange for borrowing rights to TAM's collection.

"It was a stroke of brilliance," said TAM director Janeanne Upp. "They have access to a much larger collection without fees or any costs of storing or maintaining it."

For Douglas, the decision was part of distinguishing BAM from other local museums. With the collection out of the way, the path was clear for a daring business plan. Douglas and the board planned on getting 60 percent of BAM's revenues from admissions, memberships, store sales and tuition from its art school, which would be expanded. Typically, museums earn only 40 percent from those sources and rely mostly on grants, contributions and endowments.

That business plan, along with another decision at the time, would prove to be a major miscalculation. Faced with rising costs for the building, designed by New York architect Steven Holl, the board overruled its finance committee and cut plans for a separate endowment of $3 million to $5 million for operating costs. The board said donations should go for construction.

Having a star-power architect has become a selling point in museum expansions, and Holl is widely admired here for the stunning Chapel of St. Ignatius at Seattle University. But, as some museums learned during the 1990s boom, a big name means little if curators can't make the space work or if there's no money left for art.

As the grand opening grew near, BAM leaders had distilled its mission into the motto, "See, explore, make art." But what were they going to put on the walls?

Just as BAM's mission was experimental, the building ended up unorthodox as well.

The museum space was geared to community gatherings and performances. Holl designed the irregularly shaped upstairs galleries for high-tech, multimedia exhibits rather than more traditional shows of paintings, works on paper and sculpture.

BAM's first show featured decorative Northwest paintings, a show focused on the theme of light and an interactive computer display of the museum's architecture.

The line-up baffled some museum-watchers. The exhibits failed to establish a distinctive new image.

"They bought a branding tagline that sounded good, but what did it mean?" said former Seattle curator Bruce. "There was a little hubris about trying to reinvent the museum."

Faulty projections

	Mary Shirley and her husband, Jon, and had been the museum's biggest donors. In July, they told BAM "it's time for the community to give."

For the first year in the new building, museum leaders had projected an increase in attendance from 30,000 to 100,000 visitors. But visitors and art students didn't flock in as expected.

Even counting unpaid admissions, the highest annual attendance was 60,000. The low turnout would be a problem for any museum. But for BAM's radical financial plan, it was potentially disastrous.

The museum missed its projected earnings in 2001, its first year in the new building, by more than $300,000 out of a $1.3 million budget. In 2002, things got worse, with a shortfall of $574,000 out of a $1.8 million budget.

Still, budget projections remained optimistic. In June 2002, the museum anticipated $420,000 in tuition from its school over the next 12 months, but pulled in less than one-third of that.

Accounting crisis

The man involved in much of these projections was deputy director Bill Edwards, BAM's financial officer, who started in 1996. Edwards was not a certified public accountant but had a master's in business administration.

	Diane Douglas, director, 1991 to 2001 She spearheaded the museum's unusual mission and business plan.

In June 2001, just months after the new building opened, Edwards resigned. So did director Diane Douglas. Both Edwards and Douglas agreed to stay on until a new director was in place, but Douglas then left on a nearly two-month paid leave.

As 2001 drew on, Edwards realized that the museum would need more money to pay its bills.

He turned to a line of credit the museum had established during construction to use as a bridge, if needed, while outstanding campaign pledges came in. The pledges served as collateral.

Edwards withdrew $500,000 in September 2001 and $250,000 in December to cover operating expenses.

When Kathleen Harleman accepted the job of director in November 2001, she had just come from a financially troubled museum and didn't want the same problems again. "I was very clear when I interviewed and asked very pointed questions and asked to go over the financial statements," she told The Times.

	Kathleen Harleman, director, 2002 to August 2003 The board hired her knowing she was not a strong fund-raiser.

By January 2002, Harleman and a new chief financial officer, Sharon Burke, started work. Burke, a CPA with plenty of nonprofit experience, had worked for the previous 10 years at Seattle's 5th Avenue Theatre. Both said they had been told by Edwards to expect a $250,000 deficit — nothing alarming for a new institution. But before long, Burke noticed revenue shortfalls and began slashing projections to realistic figures.

Then she uncovered something far worse: the $750,000 Edwards had borrowed on the museum's line of credit to pay operating expenses, with interest mounting.

Burke was stunned. So was Harleman. With the deficit now nearly $1 million, Burke broke the news to the board. "They were devastated," Burke recalled.

Collette, then finance committee chair for the board, said he didn't know about the $750,000 debt. "No one did."

Edwards, now retired in Las Vegas, says he accounted for the loans in statements to BAM's finance committee.

"Baloney," says Bellevue real-estate developer David Schooler, board president at the time.

The news got worse. By February, after a thorough recap of the museum's accounting and projections, Burke had sorted things out and told the board the deficit would be $1.3 million.

	Kemper Freeman Jr. The Bellevue developer and arts backer says several people told him, "Nobody called ... and asked for help."

Among the errors Burke discovered was that Edwards had listed $100,000 in costs for an exhibit as part of capital expenses. Correcting the mistake meant BAM had to come up with an extra $100,000 in operating funds to pay for the exhibit. Edwards defends this accounting decision, but auditors disagreed.

Whether any of Edwards' accounting mistakes were deliberate obfuscation is a hot subject with some former board members.

"The financial statements the board saw in fall 2001 did not accurately reflect the institution's financial condition," says Richter, a tax lawyer, CPA and chair of the finance committee after Collette.

Some board members considered taking legal action against Edwards, but dropped the idea, Schooler said.

Cutting the deficit

When board members learned the extent of the museum's troubles, they and Harleman began to cut. They laid off six people and reconfigured the budget.

The board chipped in with donations, too, and helped reduce the deficit to $900,000.

Facing problems on every side, Harleman threw her energy into programming, banking heavily on "Fashion: The Greatest Show on Earth," an exhibit she and curator Ginger Gregg Duggan had worked on at the Museum of Art in Fort Lauderdale, Fla. Trustees there cancelled the show when it grew too expensive.

Given BAM's financial state, "Fashion" was a big investment for a single show, with a budget of $200,000 — almost a full year's exhibition budget in previous years. If "Fashion" had been a smash success, the gamble might have paid off. But the exhibit opened in May 2003 to tepid reviews and moderate attendance.

Fund raising falls short

With the museum in a financial free fall, board members needed to pull off emergency fund raising. But they were not adept at it. An earlier plan to raise $15 million for an endowment was scrapped, and the board instead launched a $3 million drive to prop up day-to-day operations.

Yet a number of big donors say they felt left in the cold after the building opened and never heard from the board or staff.

"I've run into several people who said, 'My God, how could this have happened?' " said Kemper Freeman Jr., whose Bellevue Square mall once housed the museum and whose family has pledged $1 million.

After the museum shut its doors, Freeman said several people approached him and said, "Nobody called me and asked for help. I could have been a major help."

The family of Carl Behnke, investor and co-owner of Sur La Table, gave several hundred thousand dollars to the capital campaign. But they haven't given since, nor could Behnke recall being asked.

Others were contacted — but not everyone felt happy enough with the museum's exhibits to give.

Mel Baer, the museum's fund-raising organizer from 1997 until the end of 2002, defended his approach. "We maintained contact with all of our donors," he said.

As director, Harleman could have spent her time cultivating donors and leaving the programming to curators. But she didn't see that as her role. "Fund raising is not my forte," she said. "I made it clear to the board from the beginning I'd need a lot of help with that."

The meltdown

When Collette and Harleman presented the annual budget — for $1.2 million — to the finance committee in July 2003, they said they were counting on a $600,000 donation coming from one of the trustees. Otherwise, the museum would have to close.

The museum's biggest donors were art collectors Jon and Mary Shirley. They had jump-started BAM's building campaign by giving $2 million to buy the land for the museum. They offered another $1 million in 2002 as a matching grant to help revive fund-raising efforts. Mary Shirley — whose husband is a former president of Microsoft and current board chair at Seattle Art Museum — served on BAM's board since 1996.

When Collette went to the Shirleys later, he said he presented the $600,000 request and acknowledged that BAM had depended on them too much and that it wouldn't do so in the future.

The Shirleys turned him down. "We've given a lot and we just think now it's time for the community to give," Collette recalled them saying. Mary Shirley turned down requests for comment.

With the board in turmoil, Harleman resigned in August. The museum closed Sept. 30. Since then, Shirley and 10 others have left the board. Remaining trustees hired Mark Haley, the Tacoma candy magnate and arts booster, to lead a reorganization.

What next?

Now, the board meets almost every week. Haley is talking with possible donors, and Collette is trying to fill the board with members who are better fund-raisers.

Some former trustees and leaders in the museum community question whether BAM can effectively come back and reopen under the leaders who shut it down. "Common sense says no," said Barbara Johns, a respected Seattle arts administrator.

Collette says he plans to stay. "My vision is five years from now we'll look back and say: That was hell to go through, but look where we are."

Sheila Farr: sfarr@seattletimes.com

Cheryl Phillips: 206-464-2411 or cphillips@seattletimes.com

Warren Cornwall: 206-464-2311 or cornwall@seattletimes.com

Copyright © 2003 The Seattle Times Company