In February 2013, when the Corcoran Gallery of Art announced its intention to sell 25 rare and valuable Persian rugs, museum executives kept one detail secret: They had cut a deal with Sotheby’s auction house for an interest-free loan of $4.9 million as an advance on the proceeds of the sale, which would take place that June.
The loan would be used to help fund operations, even though Corcoran leaders publicly declared that the $38.4 million raised from selling the rugs would go into the museum’s restricted account dedicated to the purchase of more art.
It was not the first time the financially floundering Corcoran had borrowed money from art sales to pay salaries and keep the lights on, according to confidential financial records and minutes of meetings of the board of trustees. The practice began in 2010. The trustees formalized the extraordinary recourse with a unanimous vote in June 2012. By June 2013, the Corcoran had dipped into the restricted art acquisitions account for $11 million.
Selling art to underwrite operations is one of the greatest taboos in the museum world — “the third rail,” as Corcoran Chairman Harry Hopper has said. The Association of Art Museum Directors sanctions museums that break the ethical standard and encourages other museums to stop lending works to the rogue institution.
“Those of us entrusted with stewardship of our art museums share a responsibility: to preserve and protect collections for future generations,” Susan Taylor, president of the museum directors group and director of the New Orleans Museum of Art, said in an e-mail. “That cuts to the heart of every museum in the United States, whether they face financial challenges or not.”
The Corcoran’s creative accounting, born of desperation, stepped close to the forbidden line, but may not have crossed it.
Taylor said the Corcoran’s practice is not addressed in the museum directors group’s 10-page policy on ethically removing art from a museum’s collection, a process known as “deaccessioning.”
“I can say that as the director of the New Orleans Museum of Art, this is not something I would consider,” Taylor added.
The Corcoran’s juggling of restricted endowment accounts did not save the institution. The gallery closed last week. When it reopens, at a date to be determined, it will be the National Gallery of Art that presents shows in a shrunken exhibit space, under the terms of the Corcoran’s dissolution approved in August in D.C. Superior Court. George Washington University will renovate the historic building near the White House. The university already has begun operating the Corcoran College of Art and Design.
But the Corcoran is not alone. The temptation to view art as another capital asset has been especially intense this year across the country. Passionate debates over stewardship and duty to posterity have taken place at the Detroit Institute of Arts, the Delaware Art Museum in Wilmington and the Corcoran.
“The question of longer-term versus short-term calculus is really an important one here,” said Timothy Rub, past president of the museum directors group and director of the Philadelphia Museum of Art. “It’s tremendously important to protect and build [museum collections] over time, and very important in the short term to resist the temptation to monetize them, to sell a work of art to address a pressing financial need.”
Rub is skeptical of claims that a given institution can be “saved” only by selling off art. He cites Brandeis University in Waltham, Mass., which announced in 2009 that it would have to close its Rose Art Museum and sell the collection to resolve the university’s budget crisis. After an uproar, the university backed down.
“They said the very existence of Brandeis is threatened,” Rub said. “Well, [five] years later, Brandeis is still there. . . . And, happily, the museum and the collection are still there.”
This year’s cases represent varied responses to the great temptation to treat art as an asset:
● The Delaware Art Museum succumbed. The museum announced two weeks ago that it was retiring $19.8 million in bond debt with the proceeds of selling William Holman Hunt’s “Isabella and the Pot of Basil” (1868) and Alexander Calder’s “Black Crescent” (1959), plus money from its investment portfolio. Cash from the sale of Winslow Homer’s “Milking Time” (1875) and possibly a fourth work are expected to replenish the investment portfolio, the museum said in a statement. The debt stems from a project a decade ago to renovate and expand the museum.
The museum directors group sanctioned the Delaware museum in June, the day after the first painting, the work by Hunt, was sold for $4.25 million.
“This process has been excruciatingly difficult for everyone involved,” the Delaware museum’s chief executive, Mike Miller, said in a statement. “Payment of this debt is a critical milestone in the history of the Delaware Art Museum.”
● The Detroit Institute of Arts resisted. It was the bankrupt city’s largest creditors who pressed for selling works from the art institute’s collection. Dueling estimates valued the collection from $1.1 billion to $8.1 billion. The museum and city leaders objected to selling the art. They found another promising solution: Foundations, the state of Michigan and museum supporters proposed to pledge $816 million over 20 years to save the art and settle the city’s ongoing bankruptcy case.
The proposal is pending before a U.S. Bankruptcy Court judge in Detroit. Testimony continues in the city’s bankruptcy trial, which is expected to conclude this fall.
● The Corcoran finessed. Since 2010, when the trustees first voted to borrow from the special endowment account flush with proceeds from art sales, they identified future sources of revenue to repay those internal loans. As spelled out in trustee minutes and audited financial statements, those revenue streams seemed guaranteed, including $20 million from selling a parking lot to a developer; $11.25 million from the settlement of benefactor Huguette Clark’s estate; and $7.3 million from the potential sale of a classroom building in Georgetown.
The Corcoran’s executives, lawyers and accountants argued that, for accounting purposes, money is fungible and that cash on the books of a restricted endowment fund is the same as a solid IOU on the books, according to people familiar with their thinking. (None would agree to be quoted about internal financial matters.)
Since the internal loans were supposed to be paid back, money raised from art sales was taking only a temporary detour to fund operations, the executives reasoned. In the end, the full amount would be available to acquire more art.
Meanwhile, Corcoran executives stoutly resisted calls from some museum supporters to directly flout the taboo against selling art to stabilize operations.
“I think there have to be a lot of institutions on the horns of this dilemma,” said a Corcoran official. “I believe if you want to stay in the museum business, you have to navigate the way we did. Because it’s a slippery slope.”
But there was a catch. The Corcoran did not survive long enough for the borrowed millions to be restored to the art acquisition account.
“As the Corcoran is no longer a museum and not acquiring art, the repayment of any outstanding borrowing from the acquisition fund is no longer necessary,” Corcoran spokeswoman Mimi Carter said in an e-mail after the Corcoran’s deal with the National Gallery and George Washington University was approved in late August.
Instead, the revenue that would have been used to replenish the acquisition account, plus the money still in the account — mainly proceeds from the sale of the Persian rugs — is going to the university. The total, $35 million, will be used by GWU to pay a portion of the renovation costs.
That’s how fine-woven 17th-century carpets get spun into contemporary bricks and mortar.