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The SC Aquarium

Technically bust?
Spaulding-Paolozzi Foundation comes to the rescue
Warwick Jones

The Aquarium’s financials disclosed in filing with the IRS for Calendar 2008 is not a pretty picture. The Form 990 filing shows there no longer is a surplus of assets over liabilities and that the entity has loans of $5.06 million repayable at the end of January 2010. As in previous years, the Aquarium had an operating deficit, and in 2008 it amounted to $2.04 million. It again largely relied on gifts and grants to balance its books and ended the year with a deficit of $320,000. And the way this year has shaped up, 2009 most probably will be even more difficult.

Continued need for grants
Is all lost? Not at all! The Mayor will undoubtedly lean heavily this year on any entity that can provide a grant. The City and County provided grants last year and will be doing so this year. But the recent IRS filing suggests that the Spaulding-Paolozzi Foundation will be the biggest donor. It has pledged $650,000 for this year after giving $350,000 last year.

Viewers can a see a summary of the Aquarium’s financial performance, and the balance sheets for the last 10 years by Download file. The IRS 990 form was slightly different in 2008 than in previous years with changes in revenue and expense categories. Consequently it has been hard/impossible to match some 2008 revenue and expense categories with those of previous years. But the totals remain comparable.

Better performance in 2008 but not encouraging
The operating performance in 2008 was slightly better than in 2007, but hardly encouraging. A deficit of $2.04 million was incurred in 2008 compared with a deficit of $2.15 million in 2007. Last year, the Aquarium was able to raise $1.33 million in grants, down from $1.63 million in 2007. Adding an abnormal item of $390,000, and gifts and grants, the net result was a net deficit in 2008 of $320,000 which compared with a deficit of $210,000 in 2007. The abnormal item was the benefit of loan forgiveness. This related to the arrangement with the banks for one of the loans (which had a balance of $4.5 million at the end of 2008) - for every dollar of repayment there would be a credit for 2 dollars. The Aquarium did not treat this item as abnormal but classed it as part of revenue. We would debate this.

$1 million reduction in bank loans
At the end of 2007, outstanding bank loans amounted to $6.053 million. At the end of 2008, they amounted to $5.061 million, roughly a $1 million reduction. How did the Aquarium achieve such a reduction? Well there was the $330,000 in loan forgiveness, then a $300,000 reduction in its cash holdings and $187,900 in asset sales. Totaled, the amount is just shy of $800,000. We are not able to identify where the balance came from but presumably from cash flow. But more importantly, what is the Aquarium going to do in 2009?

At the end of 2008, the Aquarium has cash of about $400,000. Can it afford to let it run down by $300,000 again? It also had $248,000 of publicly traded securities with a book value of $248,000. The market value was not disclosed but how much will it be prepared to sell in 2009 to meet its obligations? The answer is probably “all” to both questions if gifts and grants don’t materialized in substantial amounts.

Liabilities likely to exceed assets at the end of 2009
We noted that at the end of 2008, the balance sheet of the Aquarium had assets and liabilities of equal amounts – there was no surplus. The financial performance at the operating level in 2009 is likely to be little better than that of 2008 given the state of the economy. So there is again likely to be a deficit and that at year end 2009, liabilities will exceed assets. Of course substantial grants and gifts could save the day. But we would also note that part of the reduction in assets each year comes from depreciation provisions which last year amounted to $876,000. This is a notional entry and it is not necessarily an accurate measure of the decline in asset values. The book value of the Aquarium’s land and buildings was $4 million at the end of 2008. The market value is certainly substantially more. But considering the Aquarium’s non-profit status, its ties to the City and contractual agreements, market value can only be a theoretical figure.

Spaulding- Paolozzi Foundation grant encouraging
The loans by the banks to the Aquarium carry risk, but certainly not as much as some residential and commercial loans they made in recent years. The Mayor has shown himself to be adroit in raising funds and it now seems the Spaulding- Paolozzi Foundation will be tapped for larger amounts. This must be comforting for the banks given the Foundation’s $9.8 million asset reservoir.

Mayor’s fund raising ability critical
Our bet is that the Aquarium will find funds to pay more off its loans and achieve more loan forgiveness. But it is hard to see it paying off all the outstanding $5.1 million. It would have to find $2.75 million we estimate, to pay off the loans after taking into account loan forgiveness. But what ever the amount unpaid at the end of January, the Mayor’s fund raising ability more than anything else should assure some form of accommodation with the Aquarium’s lenders after January 2010.

More information on the Spaulding Paolozzi Foundation
Viewers can see a history of the Spalding-Paolozzi Foundation financial performance over recent years, and the grant recipients by pressing Download file.

The Foundation took a bath in 2008 with the downturn in the stock and bond markets but this hardly shows in its balance sheet. Despite the $860,000 write down of assets and the $3.8 million it gave away, it ended the year with assets of $9.8 million compared with $10.6 at the end of 2007. It was saved by a $3.5 million final distribution from the estate of the late Countess Spaulding-Paolozzi. However, the market value of its equites were $1.3 million below book at the end of the year but considering the rise in equity markets in 2009, market values should now be close to or exceed book values now.

Should trustees, which includes Mayor Riley, make grants to the Aquarium?
We have had a problems with the distribution of the grants made by the Foundation and have said so over the years. The aims of the Foundation were stated clearly in the 2005 tax return and they are repeated below.

We have a hard time reconciling these aims with some of the grants made, in particular those to the Aquarium, to the City for the renovation of the Dock Street Theatre, and to the Spoleto Festival. There is noting unworthy about any of these recipients and nothing illegal if trustees ignore the wishes of a benefactor. But we can hardly endorse the action of the trustees which includes Mayor Riley.

According to the 2005 IRS 990 Submission, grants from the Foujndation were
A. To research issues concerning health and aging of people
B. To research issues concerning ecological protection and preservation
C. To research issues concerning sustainability and development of agriculture
D. To research issues concerning women, including but not limited to health, aging and human rights.

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