Audit: Rochester Art Center in deep financial trouble

The Rochester Art Center is in dire financial straits.

Contributions, corporate sponsorships and memberships are declining and the center's cash balance has fallen significantly, creating "substantial doubt" about the operation's ability to continue, according to a recently completed audit of the center's 2014-15 finances, the most recent audit available.

The center is an important piece of the city's Destination Medical Center economic development project, which aims to raise Rochester's national and international profile by boosting its downtown. Cultivating the arts as a magnet to draw younger people to the region is key to the plan.

Rochester heavily subsidizes the arts center. Since 2011, it's given the operation more than $1.2 million in larger and larger chunks over a five-year span. This year, the center is budgeting for a city grant of $330,000, a slight drop from 2015.

In recent years, the center has come to the council asking for larger annual grants, saying that foot traffic and event space rentals have taken a major hit because of construction at the convention center next door.

City Council President Randy Staver said that seemed like a reasonable explanation for why the art center was scrambling for cash.

"We knew that going into the Mayo Civic Center construction they were going to feel some impact in terms of reduced visitors," he said.

The art center reports its finances to the council every year as part of its funding request. Staver, however, said he was unaware of the recent audit until he heard about it from MPR News.

Now he wants more answers on how the art center has been managing its money, especially when taxpayers are supporting the institution.

"This will provoke some additional scrutiny, in terms how is the financial health of the organization and what can we do to right the ship," he said.

Until recently, City Council Member Michael Wojcik held the council's seat on the art center's board. He says getting financial information from the board's executive committee and from former executive director Megan Johnston proved difficult.

"I did not feel well informed," Wojcik said. "I feel that some of my questions went unanswered. It would appear to me that there were decisions that were made and critically important pieces of information that did not make it to the greater board."

Johnston left abruptly and under mysterious circumstances earlier this year. She declined to comment for this report.

In a statement, art center board president Brad Nuss said that the organization is thoroughly assessing the numbers and working toward a financially responsible budget.

One expert, however, believes the center is in deep financial trouble.

"The audit report is almost like an intervention. You not only have to change, but you have to change right now," said Terry Tranter, who teaches accounting at the University of Minnesota's Carlson School of Business and reviewed the audit at the request of MPR News.

There are a lot of red flags in the audit, he added, including a precipitous drop in cash in the bank in 2015 combined with a significant increase in spending. More money went out than came in, which slashed their cash balance "to a very precarious level," he said.

Tranter said that based on those results, the art center should have been out of business last year.

Interim Rochester Art Center manager Chad Allen this week signaled that there were problems ahead when he wrote supporters acknowledging there would be little-to-no funding for a popular April artists resource fair and describing the center's finances as "less than ideal."

The financial woes, paired with churn in the center's staff, have affected exhibits, including one by Twin Cities artist Melissa Borman.

She praised the single curator who helped install her show but said some pieces were damaged because they weren't professionally installed.

Borman said the art center still holds an important place in Minnesota's art scene.

"There's a great contemporary art community down there, and it really is a link between the Twin Cities and Rochester contemporary artists," she said. "We need it. We need it to stay a contemporary art center."