The Playgoer: Nonprofit Debt Crisis

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Thursday, September 24, 2009

Nonprofit Debt Crisis

No theatre companies mentioned in this NYT article today about how so many nonprofit institutions gambled and lost on the market before the crash last fall. And such gambles included taking advantage of unusual loan practices that has now left many in super, super debt.

Much of the nonprofits’ debt is in the form of tax-exempt bonds. The number of charities issuing such bonds more than doubled from 1993 to 2006, according to figures compiled by the Internal Revenue Service, and the amount of debt linked to those bonds rose to $311 billion from $98 billion (adjusted for inflation to 2006 dollars).

In many cases, charities used the money from bonds to buy real estate and build facilities. Prep schools added golf courses, pools and observatories. Colleges bought entire neighborhoods and put up labs and sports facilities. Museums erected new wings, and symphonies added thousands of seats to their concert halls.

These nonprofits gambled that income from donations and investments would more than cover their debt service. But the recession turned that logic inside out.
Let's hope this isn't how our friends around the country built some of those shiny new theatre buildings in the last few years.

Or else:

Norman I. Silber, a law professor at Hofstra University who has done extensive research on the problem, calls the rising debt of nonprofits a “calamity.” “If my analysis is correct,” said Professor Silber, who is also a member of several nonprofit boards, “over the next several years nonprofits across the country will have to renegotiate bond covenants, reduce services, cut staff or actually default and face foreclosures, repossessions, and in some cases, even bankruptcy.”

Gulp. Actually, I can't recall any theatre company declaring bankruptcy. In this profession, they just fold.

1 comment:

Darren said...

Years ago, Roundabout went through bankruptcy. This is when they were still downtown. They obviously came through it successfully though.